Trump’s ‘Liberation Day’ deadline passes but uncertainty remains

Trump has imposed tariffs using the International Emergency Economic Powers Act (IEEPA), legislation usually reserved for sanctions and freezing criminal assets – not to correct trade imbalances. A hearing at the US Court of Appeals for the Federal Circuit on 31 July was adjourned and the losing side will almost certainly go to the US Supreme Court. The outcome of this hearing is critical and if Trump were to lose, the big question is whether tariff revenues collected since 2 April – an estimated $120 billion – would have to be repaid. Companies with tariff-risk in many countries could pop if this happens - think of apparel and clothing brands with operations and supply chains in Southeast Asia.

Trump may not even mind if the courts determine his administration has overreached. By the time we have a verdict, many countries will have willingly signed bilateral trade deals, whether under perceived duress or not. For Trump, the ends would have justified the means.

We now know that the floor of a ‘good’ deal is the UK’s 10% and the ceiling for a ‘bad’ one nearer Switzerland’s 39%. The BRIC nations of Brazil, Russia, India and China may get worse – the outcome as dependent on foreign policy as on economics. The devil is in the detail. Carve outs (25% on steel), exemptions (50% tariffs on copper, but not ingots and cathodes) and threats to revive ‘the most favoured nation’ status on pharmaceutical companies (to implement pricing controls on drugs sold in the US) are complicated. The impact on some industries and companies will be de minimis but more substantial on others.

Who will eat the tariffs?

We might have to wait until early 2026 to see who eats the tariffs and how companies might absorb some of the increased taxes through re-jigging operations, optimising their products for different markets and hiking consumer prices. As it stands, the effective rate of US tariffs still looks like it’ll settle around 15% - the highest since the 1930s. The absolute level of this tax is extremely high and offers most policymakers little to cheer. Higher tariffs will distort competition between firms in the same industry and those in different countries, even though many foreign companies compete against each other within the US. Higher tariffs will also alter consumer behaviour.

We’ll have to separate political partisanism from economic reality to triangulate answers between updates from policymakers and companies, and hard and soft data releases. The Budget Lab at Yale reckons that, after substituting goods for different brands, tariffs will cost the average US family $2,000 per year. If that’s true, an awful lot of economic activity (probably immeasurable) will be foregone – holidays never taken, repairs deferred, treats scrapped. That said, the US economy is still in relatively good health and the consumer still strong enough – for now.

Equity markets up, for now – all eyes on the Fed

Many equity indices have traded at new all-time-highs over the last week or so. Moves have been about more than just FOMO (fear of missing out), complacency or excess liquidity. Reporting season has been fairly robust with some big banks (JP Morgan and Citi) and tech titans (Microsoft and Meta) among companies delivering on solid fundamentals, offsetting weakness elsewhere in the market.

Whether recent equity rallies are a new leg in a structural trend higher may depend on when or if the US Federal Reserve (Fed) resumes cutting interest rates. Tariffs complicate the picture. Policymakers voting against cutting interest rates at the Fed’s last meeting on 30 July may now feel vindicated given tariff news since, as President Trump announced an array of new tariffs on goods from more than 90 countries after his 1st August deadline passed. That said, last week’s weaker-than-expected non-farm payrolls report – together with downward revisions to previous months’ data – shows there are small cracks in the US labour market, with cyclical sectors like manufacturing the source of weakness. This could give rise to the notion that the Fed are in danger of being behind the curve.  And, despite setbacks, equity markets still appear to be trading on the expectation that the Fed’s next move is to recommence interest rate cuts.

The bond-vigilantes may also have their say. They may call time on any perceived fiscal profligacy now Trump’s one big, beautiful bill is law. If yields spike as a result, equity markets could struggle in the near-term. For investors, all roads eventually lead to the Fed.

This article was written at 11:00 on 4 August 2025.