A combo of confidence, arrogance, and ignorance has seen continued TACO trades on tariffs:
Trump always chickens out, say those who just watched him bomb Iran’s nuclear sites with vastly fatter tail risks than a spike in CPI (the fear of which overlooking Japanese car-markers just cut prices 19.4% to keep access to the US market).
But did that just get burrito-ed?
True, the Vietnamese government still hasn’t formally accepted the trade deal announced, showing how unhappy they are with 20% tariffs. Yet Trump just dropped a bomb in stating he plans to impose rates of 15% or 20% on most trading partners, not 10%.
He also dropped a 35% tariff on non-USMCA compliant goods from Canada starting 1 August with any counter tariff rate stacked on top: no transshipped goods from Canada will be allowed. Can you see what was flagged here months ago: that the US would set the level of the USMCA external tariff, forming a Fortress North America?
A similar Trump letter could go out to the EU today: will it say 10%, 15%, 20%, or 35%, and will everyone continue to buy EUR on the back of it “because markets”? Perhaps: but, what a croque, monsieur or madame. There’s no ham in that toasted sandwich if you open it up and look.
That’s as Politico claims it was “BRICS-fuelled anger” around de-dollarisation behind the recent 50% tariff threat to Brazil, as I’d flagged: “The White House concluded that non-tariff methods for punishing Brazil would take too long, two people familiar with the situation said.” Brazil’s President Lula has threatened counter tariffs and said he isn’t obliged to use the dollar for trade: is he referring to the BRICScoin that doesn’t exist, or to barter, or to gold, or CNY? Somebody will be eating humble taco ahead there – place your trading bets accordingly.
However, other reports have the US lifting tariffs on Israel ahead: geopolitics sets your rate.
Staying in geoeconomics, a US metals magnate praised “intelligent” national security tariffs on copper and dismissed any market reaction as “irrelevant.” Who knew markets come second when America comes first? Those who saw we are in a world of economic statecraft, not policy.
Similarly, US rare earths firm MP Materials announced a “Transformational public-private partnership” with the Pentagon worth billions including a new “10X” magnet facility, a 10-year price floor and offtake agreements, and the Department of Defence positioned to become its largest shareholder to create “a national champion, built to scale.” What and where next?
Bloomberg today runs a rebuttal of US tariffs aimed at local shipbuilding, but makes the argument this needs integrated economic statecraft from tariffs to subsidies to infrastructure to labour --as do copper, steel, and aluminium, required as inputs-- as well as a push to compete globally for economies of scale. So, either bank on that happening for national security reasons, or on no maritime national security and “because markets.” There are huge implications either way.
Moreover, as the latest projections show we are apparently very far from peak global oil and gas demand, OPEC+ just barred major media organisations from their meeting.
In geopolitics, Secretary of State Rubio called for a new approach to peace re: Ukraine; Trump said there could be “a major statement” on Russia Monday; Axios reports the US is to sell weapons to NATO to provide to Ukraine; and the UK and France will “police Ukraine’s skies“ and seas if Russia agrees to a ceasefire. That sounds expensive, with fat tail risks: so, TACO?
Reports suggest Israel could soon strike Iran again as the latter scuttles about its nuclear sites with intent. Jerusalem is also urging the US to resume strikes on the Houthis and form a broad coalition, after two commercial ships were sunk this week, impacting far more than Israel alone.
Moreover, as The Economist calls to end the west’s failed asylum system (when you’ve lost The Economist…), there’s more entente cordiale via a UK-French “one in, one out” asylum-seeker pilot scheme which will swap one who crosses the Channel for one from France who can show they have family connections in the UK – but, according to some reports, only up to 50 people a week, and in any case not reducing the total number of asylum-seekers in both countries.
In politics, a US judge placed a new block on Trump’s birthright citizenship order by claiming a class action weeks after the Supreme Court had blocked the use of far-reaching district court injunctions against the executive, and Justice Alito had specifically warned not to use spurious class actions to end-run it. This week also saw a lower-level judge try to overrule Congress, worth considering as the financial press worries about executive over-reach: everyone is.
Staying with the law, Trump said of FBI investigations into ex-CIA head Brennan and ex-FBI head Comey over suggestions of faking the evidence re: Russiagate: "Maybe they have to pay a price.” That’s as former Epstein lawyer Dershowitz raised his hand to God and swore he knows that documents are being suppressed to protect individuals pertaining to this scandal, and he knows who is doing the suppressing.
California Governor Newsom’s team signalled he may redistrict ahead of the critical 2026 midterms if Texas does the same to gain GOP seats - except California has an independent redistricting commission; four Republican senators threatened to reverse President Trump's DOGE cuts to funding for NPR and PBS, seeing him threaten to refuse to support them; and Axios states ‘MAGA on "amnesty watch" as Trump weighs migrant worker protections’ as the base wants no watering down of promises to deport millions, regardless of the economic consequences.
Not to leave Europe out, Germany’s Rhineland-Palatinate banned any member of an extremist organisation --which they say covers the AfD Party leading opinion polls-- for working for the civil service or police, etc. Coming just after a French police raid on the populist National Rally HQ, one wonders if that will get slipped into the Trump letter to the EU, as with Brazil.
In markets, there was excitement about a potential Chinese property bailout yesterday: yet that was as The People’s Daily argued for reintroducing “comrade” as title and pronoun rather than “Boss”, “Miss”, or “Teacher”; or “Leveraged Wall Street trader thinking a housing bubble is common prosperity” - in either China or the US?
The White House continued its new front vs Fed Chair Powell, with the director of the OMB also attacking him for the “ostentatious” $2.5bn refurbishment of the Fed’s HQ as the FT’s Big Read asks, ‘Can the Fed stay independent under Trump?’, overlooking that it hasn’t been for a large chunk of its existence, and critics question how independent of lobbyists it can ever be.
That FT report includes the line that even the janitor knows who the worst Fed chair was: the 70’s Burns, who looked through massive commodity-driven headline inflation to please politicians. Fair enough, but who was the second worst: Greenspan, Bernanke, or Yellen?
Lastly, and this time not a multi-tasking typo, Bitcoin this morning is sitting at a record $116,500, with the S&P and Nasdaq also at all-time highs.
Who thinks they need to chicken out of what from here?
