President Donald Trump’s so-called “Liberation Day” tariffs are scheduled to come into effect on August 1, after the 90-day pause expires. Commerce Secretary Howard Lutnick announced on July 27 at Fox News on July 27 at Fox News: “No extensions.
Since the initial announcement on April 2, the White House has held trade talks with dozens of countries to ensure higher tariff rates and revised trade terms.
To date, the United States has reached tariff agreements with the UK, the EU and Japan, all of which are taxed at lower rates than originally proposed. Britain imposes 10% tariffs on U.S. exports, while the EU and Japan settle at a rate of 15%. These are still significantly higher than Trump’s trade levels, but lower than interest rates announced in April. Japan also pledged $550 billion in its strategic U.S. division, including semiconductor manufacturing.
Other major trading partners, including China, still have no deals. From Friday, Canada, Mexico and South Korea have tariffs of 35%, 30% and 25% respectively.
Trump said earlier this month that he would send letters to more than 150 countries informing them of their final tariff rates. According to Yale University’s Budget Laboratory, the average effective tariff rate for all imported goods in the United States will exceed August 1, the highest level in more than 100 years.
Tariff announcement triggers “taco” deal
After the announcement on April 2, the market immediately retreated, which was the worst single-day loss since the 500 index and the Nasdaq respectively. JPMorgan warned that the U.S. could fall into recession if tariffs were implemented as planned.
Trump initially delayed the implementation with a 90-day pause, pushing the effective date to July 9. As trade negotiations continue, further extensions will move the start date to August 1. The only element that comes into effect immediately is the benchmark tariff on all imports, although there are some vans.
Wall Street pays attention. Financial Times columnist Robert Armstrong coined the term “taco trade”, which is “Trump always chickens out” to describe the growing market expectation that Trump’s bold declaration will retreat. But if Trump follows on August 1, investors may end up thinking he has no bluff, which could trigger another sell-off.
President Trump cited the idea of “reciprocity tariffs” when announcing tariffs on April 2, claiming that countries like China have imposed disproportionately high tariffs on U.S. goods. But the White House calculations (based on trade deficits rather than actual tax rates) are misleading by economists. They believe that the ongoing trade imbalance is more driven by global capital flows and monetary dynamics than foreign tariffs.
Where is the US economy?
Although the government insists that tariffs will not be inflationary, signs have emerged. The Consumer Price Index (CPI) rose to 2.7% year-on-year, up from 2.4% in May, with the Federal Reserve’s interest rate steady at 4.5% even as imports and consumer spending declined.
Fed Chairman Jerome Powell said a cautious approach said central banks would “wait and see” how tariffs affect the wider economy before adjusting rates. Although the 10% benchmark tariff has not triggered inflation, many companies have locked in stocks after Trump’s election, locking in at lower prices, thus mitigating the short-term impact. But that buffer is fading. Walmart and other major retailers have warned that price increases are coming.
Santander’s chief economist Stephen Stanley expects CPI to hit 3% by the end of the year. JPMorgan now places the chances of a global recession at 40% in 2025. This enhances the terrifying combination of scattered ghosts, high inflatable and low growth. Stagnation will put the Fed in a winning policy trap. Raising interest rates can control inflation, but it will worsen the economic downturn. Cutting them may stimulate growth, but fuels are rising. The Fed’s dual mandate – price stability and low unemployment – does not explicitly include growth, and history shows that it has prioritized inflation in previous stagnant episodes.
