U.S. Announces 25%-40% Tariffs on 14 Countries, Markets Remain Calm

On July 7, the announced plans to impose tariffs ranging from 25% to 40% on imports from 14 countries, including Japan, South Korea, Malaysia, Tunisia, Kazakhstan, South Africa, Bosnia and Herzegovina, Indonesia, Serbia, Bangladesh, Thailand, Cambodia, Laos, and Myanmar. The tariffs are set to take effect from August 1, following a 90-day grace period that was extended from July 9.

Despite the escalation in trade tensions, global markets remained surprisingly calm. U.S. stock indices saw minimal declines, with the three major indices dropping less than 1% on July 7. Asian markets also showed resilience, with Japan's Nikkei 225 and South Korea's Kospi indices rising by 0.25% and 1.81% respectively on July 8. China's Shanghai Composite and Hong Kong's Hang Seng indices also saw gains, increasing by 0.7% and 1.09% respectively. European markets remained stable, with the UK's FTSE 100 and Germany's DAX indices experiencing slight gains.

Investors and strategists interviewed by the media expressed a reduced level of concern over the tariffs. Goldman Sachs noted an increased likelihood of a trade agreement between the U.S. and Europe, while institutions showed a growing appetite for stock market investments. Several investment banks raised their target prices for U.S. stocks, and investors were more willing to increase their holdings in Asian markets, including China. However, concerns over U.S. Treasuries persisted, with a continuing trend of global central banks increasing their gold holdings.

The 's letters to the 14 countries warned of retaliatory tariffs if the countries responded with their own tariffs. The letters also suggested that if the countries opened their markets to U.S. goods and removed trade barriers, the tariffs could be adjusted. The also indicated that products manufactured in the U.S. by these countries would not be subject to the new tariffs.

The extension of the 90-day grace period was confirmed by the 's spokesperson, who stated that the administration would sign an executive order to delay the implementation of the tariffs. The spokesperson also noted that only the UK and Vietnam had reached agreements with the U.S., while negotiations with other countries remained unclear. The UK agreement set a minimum nominal tariff rate of 10%, with exemptions and quotas potentially lowering the effective tariff rate for some economies. The U.S. imposed a 20% nominal tariff rate on imports from Vietnam.

The European Union was reported to be optimistic about reaching an agreement with the U.S. by July 9, but the Irish Trade Minister indicated that the situation was likely to continue until August 1 to allow more time for a principled agreement. The EU was also pushing for quota management and exemption mechanisms for U.S. tariffs on automobiles and auto parts, as well as steel and aluminum products, but had not made significant progress. Internal disagreements within the EU regarding the agreement terms were also noted, with Germany's Chancellor urging the EU Commission to seize the opportunity to reach an agreement, while France's President warned that the EU would respond in kind if the U.S. maintained a 10% tariff.

In response to the U.S. steel and aluminum tariffs, the EU had already approved tariffs on 21.6 billion euros worth of U.S. goods, including politically sensitive items such as Louisiana's soybean products, agricultural products, poultry, and motorcycles. The EU had also prepared a second list of tariffs on 95 billion euros worth of U.S. goods, including Boeing aircraft, U.S. automobiles, and bourbon whiskey, in response to the U.S. tariffs.

Despite the reduced concern over tariffs, uncertainty surrounding U.S. policy and the "Big and Beautiful" bill's impact on the fiscal deficit continued to worry international investors. The bill was estimated to increase the national debt by 4.1 trillion dollars and cause 11.8 million Americans to lose health insurance by 2034. European institutional investors had been shifting funds from dollar-denominated assets to euro-denominated assets since the first quarter, with U.S. Treasuries being the most sold dollar asset. This shift had contributed to the dollar's weakness, which had fallen by nearly 14% against the euro since the beginning of the year.

The weakening dollar and the uncertainty surrounding the tariff negotiations were expected to impact investor demand for U.S. Treasuries. Meanwhile, gold was expected to remain an attractive investment for global central banks and institutional investors, despite its price volatility. Central banks, including China's, had been increasing their gold holdings, with China's central bank adding 700,000 ounces (approximately 21.8 tons) of gold to its reserves in June, marking the eighth consecutive month of gold purchases. The analyst also noted that gold's appeal as a hedge against dollar depreciation, inflation, and geopolitical risks made it an attractive investment for central banks looking to reduce their dollar holdings.