Global markets have seen a return of the volatility last seen in early April as investors and businesses grappled with the latest changes to US trade regulations while an unexpected drop in US job market statistics also shook markets.
US trade representative Ambassador Jamieson Greer characterized the move on Friday: “We’re shifting from a 70-year policy based purely on efficiency to a new policy based on fair and balanced trade.”
In FX markets, the US dollar was mostly stronger on the back of last week’s trade announcement – the USD index was up 1.5% last week in its biggest weekly gain since November 2024.
However, the impact of Friday’s job report has muddied the waters. The greenback was down sharply after the drop in jobs was announced.
Reciprocal tariffs to start 7 August
On 31 July, US President Donald Trump signed an executive order adjusting reciprocal tariff rates. The full list is available here.
Trump also announced a 90-day pause on higher tariffs for Mexico to allow negotiations to continue.
In a separate fact sheet, tariffs on Canada have been raised from 25% to 35%, effective 1 August. However, goods eligible for preferential treatment under the United States-Mexico-Canada Agreement (CUSMA) remain exempt from the IEEPA Canada tariffs.
According to the accompanying fact sheet, Canada’s retaliatory actions are complicating bilateral talks. It remains to be seen whether Canada will refrain from further retaliation to preserve the chance of a deal this year or escalate tensions.
Late Friday, Switzerland was hit with a 39% tariff rate – one of the highest tariff rates in the world. Swiss officials were apparently shocked with draft text close to completion.
A few notes on the reciprocal tariff list:
- Brazil: While the list sets tariffs at 10%, an executive order earlier this week imposes a 50% rate starting August 6. This higher rate excludes key items such as civil aircraft and parts, aluminum, tin, wood pulp, energy products, and fertilizers.
- Baseline global tariff: Section 2, subsection (d) states that goods from any unlisted trading partner face an additional 10% ad valorem duty per Executive Order 14257, meaning the global baseline tariff is set at 10%.
- Canada and Mexico: Though not part of the updated reciprocal tariffs list, Canada and Mexico are governed by separate executive orders and negotiations, which take precedence over Section 2 rule.
- The seven-day implementation window gives room for further negotiations on reciprocal or sector-specific rates. Switzerland, India, and Taiwan may still be in talks. Meanwhile, Thailand, Malaysia, and Cambodia received the same rate as the Philippines and Indonesia, despite not securing formal agreements.
Implementation timeline
The reciprocal tariffs will take effect in seven days to give the government time to implement the changes and allow businesses to prepare. According to a senior administration official, this delay helps “harmonize” the tariff rates, a standard approach when introducing new duties, as systems and procedures must be updated for accurate enforcement.
The seven-day window also includes an exception for goods already in transit. As stated in the executive order, shipments “loaded onto a vessel at the port of loading and in transit on the final mode of transit before 12:01 a.m. Eastern Daylight Time seven days after the date of this order” will be exempt, provided they are entered for consumption by a specified deadline. This provision prevents penalizing goods already en route.
If the new levies take effect in seven days as planned, and existing car tariff deals with the EU, Japan, and South Korea remain intact, the average U.S. tariff rate will rise to close to 15%, up sharply from just 2% in 2024.
Copper clarified, online shopping hit
Additionally, the White House has clarified that the universal 50% tariffs on imports will be on semi-finished copper products and copper-intensive derivative products, effective 1 August. Here’s the fact sheet. Copper futures declined 20% on the news as the refined metal is excluded from tariffs.
The White House also confirmed the suspension of the ‘De Minimis’ exemption. Effective August 29 imported goods sent through means other than the international postal network that are valued at or under $800, and that would otherwise qualify for the de minimis exemption, will be subject to all applicable duties. Here’s the fact sheet. This impacts in particular small retailers and e-shops.
Legal challenges complicate
The Federal Circuit Court of Appeals is expected to rule in mid-August on whether the President’s use of the International Emergency Economic Powers Act (IEEPA) to impose certain tariffs is lawful. A ruling in favor of the administration could support tariffs, such as those targeting reciprocal trade and fentanyl, that exceed 10%. If the court upholds the earlier decision by the Court of International Trade, which invalidated the tariffs, the average rate could fall to close to 8%. Nonetheless, alternative legal mechanisms remain available for implementing tariffs.
Appendix
Tariffs in effect
- 25% on imports from Canada and Mexico (non-USMCA-compliant goods and non-U.S. content for autos and auto parts), 10% on non-USMCA potash, Canadian energy.
- 50% on steel and aluminum (not stacked with other tariffs for certain automakers).
- 25% on autos and auto parts (two-year exemption for a portion of imported component costs).
- Certain products containing semiconductors (smartphones, etc.) are exempt from all tariffs, Chinese technology is still subject to the 20% “fentanyl tariff”.
Trade deals announced before 1 August
UK (10%), China (30%), Vietnam (20%), Indonesia (19%), Philippines (19%), Japan (15%), European Union (15%), South Korea (15%).
Primary objectives of the tariffs according to US government
- Encourage investment in U.S. industries and expand domestic employment.
- Respond to strategic concerns in trade relationships, including narcotics, immigration, defense, auto imports, and political factors.
- Lower the national trade deficit.
- Bolster federal revenue.
- Address what are viewed as unfair trade practices.
