It’s Like Déjà Vu All Over Again

The third quarter of 2025 is starting out with some eerie parallels to the way the second quarter opened. But so far, markets are a little more chill than they were in April. Back then, markets were jarred by the “Liberation Day” tariffs announcement, and we had a violent decline before a 90-day delay in the tariffs’ implementation was announced.

Three months ago, there was much made about President Donald Trump bluffing to coerce other countries into better trade deals, and he decided to back off once he saw the impact the tariff fight was having on the bond markets. That was one view, anyway; the other view was that Trump thought sending a clear message that he wanted to reset the global trade dynamic would jar the rest of the world into negotiating new trade agreements quickly. We were told deals would be coming in quick succession and the administration just needed time to hammer them out.

Since then, markets bounced back and hit new records, while the “One Big Beautiful Bill” was signed on July 4 and removed a huge unknown for markets. All seemed to be going well again.

Then tariffs reemerged at the start of the second quarter. To be fair, we knew the pause was intended to last only 90 days, so the clock was ticking toward the July 9 deadline. (China has its own deadline, and a deal still appears to be in play on that front.) The rest of the world had its deadline extended to Aug. 1 — unless they sign a deal, which they probably won’t. In fact, Trump has started sending letters to several countries detailing what they can expect. (More about that in the second section below.)

Markets took the new developments in stride and didn’t freak out like they did in April, so it appears we’re shifting from a knee-jerk headline environment to a wait-and-see market. There are so many questions up in the air: Is Fed Chair Jerome Powell right by keeping rates higher in anticipation of higher inflation due to tariffs? How will the consumer and the economy react to these developments? How will earnings be affected?

Despite the overt similarities to April, things don’t seem dire and markets are fairly stable, which is a good thing as we head into the back half of summer. Hopefully, we’ll get some clarity in the next few weeks.

The Letters Are in the Mail!

The gaggle of countries lining up to make trade deals hasn’t materialized, and it appears the new tactic is the issuance of letters informing those countries that haven’t come to the table that they will be paying tariffs. The logic: Because the U.S. is such a large importer, if countries don’t want to provide us with a more favorable trading arrangement, they will have to pay tariffs to access our markets.

Some of the countries that received the bad news that they would be facing steep tariffs as of Aug. 1 include Canada, Mexico, Japan, South Korea, the Philippines and Brazil. In all, 21 countries are targeted, with tariff rates ranging from 20% to 40%.

Most of the countries on the list leave one scratching their head as to why — or, more specifically, what — we trade with them, places like Bosnia and Herzegovina, Serbia, Tunisia and Iraq. Japan, South Korea, the Philippines and Brazil are a different story, since those trading relationships are significant.

So, what is the strategy here? Here’s our take: The shock of slapping everyone with tariffs and expecting them to capitulate to U.S. terms is unrealistic. The only countries that would fold would be countries that rely so heavily on us that their economies would be at risk of collapse. This includes Canada and Mexico, which early on seemed to be willing to accept less favorable terms to stay on our good side. But they have backed away, and the only countries that have agreed to a deal are the UK, Vietnam (although it's in limbo as of late last week) and China (although we don’t have many details on that one).

The new plan seems to be to separate a few meaningful relationships for the public to scrutinize (Japan, South Korea, etc.) while working on deals in the background (India, Canada, Mexico and the EU), although Trump may single out a country he feels isn’t making progress toward a deal.

In any case, this won’t be a quick or clean process, and it seems as if the tariff issue will be with us for the rest of President Trump’s term. Trump has a limited amount of time to get this done, and it seems unlikely the next administration will continue down the same path with the same zeal. Other countries have a vested interest in maintaining the status quo, and they will wait Trump out. We’ll be teased with “imminent” trade deals, but markets probably won’t react the way they did in April. Instead, markets will focus on tariffs’ impact on earnings, whether they weaken economic conditions and/or add to inflation, and what all this means for interest rates. The hope is that once all these letters are in the mail, on Aug. 1 we will stick to the threatened levels, establish some certainty and move on. Our concern is that this won’t happen and the tariff issue will continue to fester.