Trump's Tariffs Rise 600% Year-Over-Year, Markets Unfazed

Investors are currently overlooking the risks associated with President Donald Trump’s latest round of tariffs, which are set to take effect on Aug. 1. This is because they view these tariffs as mere negotiating tactics. However, the current tariff rates are more than six times higher than they were at the start of the year.

Markets are largely ignoring the possibility that a new round of tariffs could cause a significant drop in stock prices, as they did in April. President Trump has issued another extension to his tariff policy, which is now set to go into effect on Aug. 1. Several countries, including major trading partners, have received “tariff letters” informing them of their new tariff rates on their goods. The president also indicated that more letters will be sent on Tuesday and Wednesday.

Countries that received these letters will see the new tariffs replace those Trump originally announced on April 2. Trump’s sudden tariff announcements earlier this year caused a significant drop in markets. Now, with the same possibility looming, some markets are at all-time highs. It appears that markets are not just pricing in the risk but perhaps ignoring it altogether.

Nadia Lovell, UBS global wealth management senior U.S. equity strategist, stated during a briefing that at some point, the risks associated with reciprocal tariffs with major trading partners could revert back to levels seen around April 2, which could be a headwind for markets. However, for now, markets are willing to look through this risk.

Last week, the S&P 500 hit an all-time intraday high. As of Tuesday, it’s only about 50 points off from that record. Markets did roar back from a low in early April, largely because the U.S. was inching its way toward a trade policy investors deemed stable. They also got more accustomed to the herky-jerky nature of the White House’s tariff policy.

Lovell also mentioned that over the last couple of months, the administration has escalated and quickly de-escalated, and this could also just be another tactical escalation in some way. In investment circles, this phenomenon has been referred to as the “Trump put,” an investment thesis arguing that Trump always reverses course on policies that hurt the stock market; therefore, any dip is temporary and a buying opportunity.

So far, Trump has shown some predisposition to turn away from his harshest tariff policies. The numerous deadline extensions and pauses helped assuage investors that the final versions of any tariffs wouldn’t be as sweeping as their first drafts. There have also been several carve-outs for certain industries such as chips, critical minerals, and some pharmaceuticals. However, Trump pledged there would be no extensions to the Aug. 1 deadline.

Even with the current pause, overall tariff rates for imports into the U.S. are more than six times higher than they were at the start of the year. If all of the postponed tariffs were to be reimplemented, that rate would rise to 21%.

Across Wall Street, financial institutions have been recommending clients diversify away from U.S. equities, despite having rebounded since April. Many money managers are moving more of their portfolio into some European stocks, which for years had lagged behind their U.S. counterparts. The U.S. markets, these investors reason, are still subject to the vicissitudes of a tumultuous trade policy.

Raising tariff levels would also see the U.S.’ growth forecasts fall lower than they already have. In the earliest days of Trump’s tariff policy, U.S. recession odds soared. Forecasters from Wall Street and the Federal Reserve cut their projections for GDP growth and raised those for inflation and unemployment. The median growth rate for the U.S. among Fed economists is now at 1.4%. UBS’s 2025 projection is lower, coming in at 0.9%, according to Chief U.S. Economist Jonathan Pingle.

If all of the April tariffs were to return, the U.S. might lose “another three tenths” of its annual growth rate, Pingle said. “Under that scenario, recession probabilities are going to rise, and it’s going to feel like pretty sluggish growth,” he said. “I mean, the U.S. does not run sub 1% growth very often.”