Former President Donald Trump has caused quite the shake up for financial markets. Just recently, he took to task those of us with strong opinions on international trade. This today has spooked investors, highlighting the lengths that Trump will go to, to try and stay in the political limelight. His comments come on the heels of a robust declaration from the BRICS countries— Brazil, Russia, India, China and South Africa. They vilified his tariff policy.
To Trump’s credit, his reaction to the BRICS communique was swift and combative. He has promised to raise tariffs on countries that embrace the BRICS-led push for more anti-American policies. He even proposes a 10% tariff on these countries. The effects that these proposed tariffs would have on the industry have alarmed investors and economic development leaders across the country.
Beyond the headlines of Trump’s proclamations, a few other economic sectors helped to shift the market’s mood this week too. A major rate decision is upcoming in Australia. At the same time, the U.S. labor market continues to show remarkable resilience, with initial jobless claims coming in at less than 240,000 in the two most recent weekly reports. In the June Nonfarm Payrolls (NFP) report, employment growth officially blew past consensus expectations. This much better than expected performance greatly reduces the likelihood of a cut in July.
The Impact of Trump’s Trade Policies
Trump’s recent announcement reflects his ongoing commitment to a protectionist trade agenda. On Thursday, he announced that he was going to begin imposing these new tariffs on Monday at the earliest. It’s now official—often the specific levies will go into effect August 1. These tariffs are the Biden administration’s latest evocation of protectionism to respond to real or perceived threats posed by BRICS-associated countries. They additionally shore up his standing at home as a defender of American economic interests.
In fact, the BRICS countries went so far as to issue a communique condemning Trump’s tariff policies by name. They called these policies dangerous to the world trading system. This united position seeks to bring all of them together and strengthen their political fist against protectionism while advocating for best economic partners. Still, the strength of Trump’s rebuttal shows that he isn’t fazed by foreign rebukes just yet.
Indeed, following the announcement of these major developments, investors are waiting with bated breath to watch the actions of Trump and the rest of the world’s markets. The tension between the importance of strong and fair trade partnerships and the need for aggressive tariffs remains a hot-button topic.
Economic Indicators and Market Reactions
Along with Trump’s trade rhetoric, some economic indicators from the U.S. labor market have sounded a more positive alarm. This week’s fall in initial weekly jobless claims below 240,000 is a good sign that the labor market continues to strengthen. This reversal was up-fed even more by the NFP report for June, which came in well above analyst forecasts. The encouraging labor news threw enough cold water on prior espy-the-Fed hopes that many were calling for a recalibration of the Fed’s likely interest rate path.
And with the NFP report assuaging worries about an imminent rate cut, financial markets welcomed the news with open arms, a sign of reviving investor confidence. The strong employment figures suggest that the economy is weathering some turbulent waters, despite ongoing trade tensions sparked by Trump’s policies.
Investors are just as attuned to global happenings. The U.S. can no longer claim credit for having negotiated an altogether full and complete trade deal with the United Kingdom. It has concluded an agreement in principle with Vietnam. To illustrate what a difference this makes, consider the following example. A “trade truce” with China goes into effect today. Meanwhile, talks with Japan, Canada, and the European Union are intensifying.
These deals would be a crucial first step toward easing some of the damage caused by the surprise announcements of tariffs by Trump. There’s still a lot of unknowns as global markets respond to not just American job reports but Trump’s erratic trade plans.
Looking Ahead: Navigating Uncertainty
With Trump still making waves as he tries to reestablish control over U.S. trade policy, stakeholders are faced with a complicated and complex environment filled with unknowns. His determination to impose killer tariffs on countries aligned with BRICS means a bleak future for US economic relations and market stability. For now, investors need to be focused on the implications that these new rash of tariffs will have on global supply chains and overall economic growth.
The next rate decision in Australia should spook international markets. The heavy hand of central bank policy plays a huge role on investor sentiment, both here and around the world. This week could be big for traders and economists alike. The picture of soaring, unstable unemployment claims in the U.S. underscores how fiery the moment truly is.