Looking for Trade Deals

The S&P 500 is up nearly 25% since April 9 when President Trump announced in his now-famous Truth Social post that it was a “…great time to buy!!!” Less than four hours later, the President revealed a 90-day pause on the increased reciprocal tariffs that he unveiled the previous week while leaving in place a 10% baseline tariff. Of course, stocks sold off during the first week of April after those country-specific tariffs (some as high as 50%) were announced. The about-face after one week calmed panicked markets and set the stage for the recent, massive rally.

Some could easily forget that in his April 9 post the President imposed a 125% tariff on Chinese imports into the United States, while other countries were given the temporary reprieve. But concerns about US-China trade relations were eased on May 12 after negotiations in Geneva led the United States and China to reduce for 90 days their import tariffs to 30% and 10%, respectively, while further negotiations were held. That news helped catalyze the second leg higher in the recent stock market recovery. Helping matters further, on June 11, the President posted on Truth Social: "Our deal with China is done, subject to final approval from President Xi and me."

Source: Bloomberg

Equity markets seem to be very pleased these days, as the S&P 500 makes record highs. Not only have significant tariffs been avoided, but the President signed into law major tax reform on July 4.

As we explained last month, the latest budget bill is imperfect from a supply-side, pro-growth perspective as it needed to be scored budget-neutral within reconciliation rules and compromises were required between pro-growth and austerian wings of the GOP. Notwithstanding, the bill has important growth-stimulative components, such as permanently lower tax thresholds (which were passed in 2018 and scheduled to expire in 2026) and 100% bonus deprecation rules.

If any pro-growthers want another chance at reducing taxes on businesses and capital (such as lower corporate and capital gains taxes), then they’ll need to make a stronger case to the country and win stronger electoral mandates in the future. This could be similarly said for austerians, such as Elon Musk, who want to see more done to keep federal spending under control. For his part, Musk has filed documents with the FEC to form a new political party.

The near-term market focus will likely now shift to the expiring tariff-related deadlines. The initial 90-day pause is set to expire on July 9, and the China-specific pause expires on August 14.

It’s unlikely that tariffs will be reinstituted as early as July 9. On Sunday, Treasury Secretary Bessent explained on CNN that letters were being sent to trading partners outlining the Administration’s trade and tariff expectations, and that country-specific tariffs will revert on August 1 to their April 2 levels if deals weren’t reached. Effectively, there seems to be a three-week extension during what seem to be final deal-making stages. Commerce Secretary Lutnick added on Sunday that "…the president is setting the rates and the deals right now."

As for a US-China trade deal, Chinese officials seemingly downplayed notions of a “done deal” in June. At the time, a spokesperson for China’s Ministry of Commerce characterized the outcome of those meetings as a “framework” to implement the general agreement reached in May. The agreement includes access to magnets and rare earth minerals for the United States, and chip design software and jet engine components for China. According to the Wall Street Journal, both countries are thus far easing some of their respective export controls.

In general, the trade-related news appears constructive but not yet definitive. Arguably, the absence, for now, of sky-high tariffs and retaliatory tariff walls being erected around the world have relieved equity markets and allowed them to set new highs.

Just as importantly, there seems to be a growing perception that the White House wants to avoid another market panic like the first week of April.  After all, there was the policy about-face on April 9; the notable absence of public comments from the Administration’s leading trade hawks, and more market-friendly tariff messaging from the likes of Secretaries Bessent and Lutnick; as well as the latest tariff deadline extension to August 1.

This strongly suggests that the Administration is working to smooth the transition to a new, comprehensive trade regime. But the market is waiting on a lot of new trade deals. Thus far, the United States has reached agreements with the UK and Vietnam. Big deals yet to be finalized include China, the European Union, Mexico, Canada, Japan, South Korea and India.

Given the stock market’s recent reaction function, deal completions should be favorable and create more follow-through to the upside. The near-term outlook appears constructive. But a lot of optimism seems to be priced into risk assets today and a host of deals are yet to be reached, which could create short-term choppiness.