In this month’s video, we dive into four big macro questions surrounding U.S. trade policy.
Exploring the four big macro questions related to U.S. trade policy.
01
First, increasing national and economic security, which can be partially achieved through trade restrictions on goods ranging from aluminium and batteries, through to technology products and transportation. Second, encouraging production operations to move to the US. Third, reducing or eliminating US trade deficits with various countries. Fourth, raising tax revenues from tariffs to pay for the One, Big Beautiful Bill tax cuts and spending changes. What do these mean? A U.S. "tariff wall" will be sustained throughout the current U.S. administration and most likely beyond it.
02
The "reciprocal" tariff deadline has been extended to August 1. President Trump has issued letters to 20+ countries – most importantly Japan, South Korea, and Brazil – stating the U.S. would impose tariffs from 25% to 50% unless those countries make concessions. Separately, a 50% copper tariff will come into effect on August 1 and we expect announcements of industry tariffs, especially pharma and semiconductors/electronics) soon. The overall outcome is becoming clearer: a 10% baseline tariff on all countries, higher rates for some (mostly smaller) countries, targeted sectoral tariffs, and the U.S. trying to stop China exports being re-routed through other countries. This leads to: a c. 16% U.S. effective tariff rate, challenges for comprehensive U.S.-China and U.S.-EU deals, and a headwind to business confidence, capex, and trade.
03
U.S. GDP for the 2nd quarter will be released in a couple of weeks and is likely to be strong, but it is a lagging number. U.S. core PCE inflation was 2.7% in May (vs. 2.6% in April). The largest tariff increases were only in early April, the front loading of purchases and imports before tariffs came into effect, and businesses waiting to see what tariffs would stick, all explain the moderate growth and price impacts so far. However, the latest statistics indicate household spending is slowing, business are drawing down inventories, and companies are likely to pass through price increases gradually. We still expect U.S. real GDP growth to slow to around 1% – below trend growth but above recessionary conditions – and U.S. core inflation to rise to around 3-3.5% by the 4th quarter.
04
In summary, we are negative on the U.S. dollar, neutral on equities and credit, and positive on selective government bonds.
| Title | File Type | File Size |
|---|---|---|
| Global Markets Overview: July 2025 | .3 MB |
Global Markets Overview: July 2025
TESSA MANN: What do investors need to know about the current US tariffs? The US aggregate tariff rate, the effective tax rate companies pay for importing goods, has increased materially over the year to date to around 16%. Instituting these tariffs, we believe, has four aims by the US administration, firstly, to increase national and economic security, which can be partially achieved through trade restrictions on goods ranging from aluminum and batteries through to technology products and transportation.
David is the Global Head of Asset Research at WTW, responsible for economic and capital market research. He also is a member of the Investment Assumptions Committee, who help guide investment policy globally.
