Following President Trump’s announcement of reciprocal tariffs on Liberation Day that initiated a trade war, we are now in a period of relative quiet. This is primarily due to the Trump administration’s decision to temporarily halt implementation of reciprocal tariffs and agree to a 90-day pause to negotiate individual trade agreements with major trading partners. Initially, this pause excluded China, which has imposed retaliatory tariffs in response to the US’s actions. However, after bilateral discussions held in Geneva, both sides agreed to reduce tariffs for 90 days to facilitate negotiations for a longer-term trade agreement. During this period, US tariffs have been reduced to 30 percent and Chinese tariffs to 10 percent; these figures do not include specific sectoral tariffs.
As one would expect, markets were greatly relieved when the suspension was announced, with most asset classes recovering most of their prior losses. Moreover, despite the US posting a negative GDP print for Q1 2025 (-0.3%), most financial institutions drastically reduced their forecast that the US would enter a recession in 2025. Despite this “good news,” international crude oil prices continued to trade in the low to mid-$60 per barrel range due to increased supply from Saudi Arabia and ongoing concerns that a slowing global economy would negatively impact overall demand.
The question we must consider is whether the temporary pause in tariffs will transition into a more durable solution that is supportive of global economic growth or is merely a temporary cessation of hostilities.
Currently, the Trump administration has reached a single agreement in principle with the United Kingdom. One can argue this was the “easiest” deal to be done due to the close relationship between the two countries and the fact that the United States has a trade surplus with the UK.
There have been reports indicating ongoing discussions between senior diplomats from Japan and South Korea. However, no updates have surfaced regarding any substantial progress between the parties. It appears that progress in these discussions has slowed, as neither government wishes to appear weak domestically Japan is preparing for an election in July 2025. Similar to the United Kingdom, Japan and South Korea seem to be well-positioned for a swift agreement due to their close relationship and reliance on U.S. military support.
While the EU has initiated negotiations with the US on tariffs, it appears to be determined to proceed slowly and methodically. The EU does not want to be seen in the same light as the UK – i.e., completing a quick deal with little apparent benefits.
Should we arrive at the end of the pause period (early July) and little to no progress has been made, the Trump administration will be required to make a difficult decision. In our view, the administration (which, for all purposes, means President Trump) has three options: (A) let the reciprocal tariffs snap back into place; (B) extend the pause for an additional defined period; or (C) materially reduce or scrap the reciprocal tariffs.
We believe option C is the least likely of the three. With this option, President Trump would lose face and be forced to abandon a policy he has advocated for decades. Moreover, this would run counter to President Trump’s goals of reducing the trade deficit and re-shoring manufacturing to the United States. On the other hand, if President Trump allows the tariffs to snap back, even at modestly reduced rates, financial markets will respond negatively as this will be seen as a material drag on the global economy. The option of kicking the can down the road is probably the most appealing for the administration. The administration could argue that bilateral deals take time and that the initial 90-day pause was insufficient to complete discussions with the United States’ major trading partners. The risk of taking this option is that the Trump administration will look weak, and other countries will continue to slow walk the process.
In short, the past few weeks and June may be as good as it gets. Once the pause expires, tariffs will once again be the topic of most conversations. Consequently, we agree with Jamie Dimon’s recent comment that markets have become too complacent about tariffs and deficits.
(The latter issue – deficits – is another story altogether and will be the subject of a subsequent newsletter when we have more clarity regarding President Trump’s big beautiful bill, which will extend and expand his past tax cuts.)