President Donald Trump’s vows to roll out punishing new tariffs on August 1 have barely made a ripple with investors who are convinced he’ll once again back down. But at the White House, officials insist they’re serious this time.
And Wall Street’s ongoing shrug over the potential fallout has them further convinced it’s time to follow through.
Trump aides preparing to raise tariffs on the United States’ closest allies are taking the markets’ complacency as validation for their policies, arguing that it shows corporations across the world are adjusting to the administration’s disruptive trade strategy.
Unlike in April, when widespread panic forced Trump to shelve his initial across-the-board tariffs, the stock market now is hitting new highs in spite of the heightened trade tensions. Predictions that retailers would jack up consumer prices en masse have yet to come true, and the labor market has remained steady.
The prevailing Wall Street belief behind that stability is that Trump will ultimately ease off his threat to impose even bigger tariffs, a pattern he’s repeatedly followed.
But White House aides, emboldened by a sudden string of trade pacts, say they’re drawing a different conclusion from the economic tranquility.
“It’s definitely not the TACO sh*t,” one White House official said, referring to the newly popular Wall Street acronym that stands for Trump Always Chickens Out. “They know POTUS is serious about this and they’re making adjustments to their business models and supply chains to be able to absorb it.”
Those directly contradictory takeaways in the White House and on Wall Street have further heightened the stakes ahead of Trump’s self-imposed August deadline, as major trade partners like the European Union, South Korea and India race to strike deals with the administration to avert steep tariffs. So far, the Trump administration has only announced frameworks for trade deals with six countries — the UK, China, Indonesia, Vietnam and most recently the Philippines and Japan on Tuesday. Some are more specific than others, though all would impose significantly higher tariffs than the countries faced before Trump took office.
The White House is still planning to hit dozens of other trading partners with double-digit duties next month, in a sweeping move that could disrupt global supply chains and spark retaliatory measures that further strain international trade and push up prices. On top of that, economic experts worry the developments will send shockwaves through the financial markets, putting billions of dollars at risk as investors scramble to factor in the impact all at once.
“They don’t believe he’s serious,” said Sarah Bianchi, a Biden-era trade official who is now senior managing director at investment bank Evercore ISI, referring to companies and investors who have assumed Trump will find a reason to further postpone his tariffs. “But if he mans up and is like, ‘I mean it, you’re paying 30[%],’ and there’s true retaliation, then they’ll learn.”
In a recent note to her own clients, Bianchi warned that the market euphoria over the White House’s deals with the Philippines and Japan could be short-lived if the successes “embolden Trump even more to punish the countries who do not land a deal by August 1.”
Trump has already imposed tariffs on trading partners at levels not seen in nearly a century, ratcheting up levies on allies like Canada and Mexico and taxing autos and some other imports at higher rates.
The president initially sought to slap 10% tariffs on nearly every country in the world. The economic backlash, particularly in the now-steadier bond market, persuaded him to put those on pause.
Since then, Trump has raised his administration’s tariff rates in piecemeal fashion with far less resistance from Wall Street investors, who have grown desensitized to the president’s stream of trade declarations and threats. In recent weeks, Trump — whose aides once promised to negotiate 90 trade deals in 90 days — has begun insisting that sending out a letter imposing unilateral tariffs now counts as a deal, in a sign of growing comfort with escalating his trade war.
“When I send out the paper that you’re paying 35 or 40% tariff, that’s a deal,” Trump said last week.
In a statement, White House spokesman Kush Desai said “the reason the markets and American people are roaring is that President Trump has been vindicated about the power of tariffs,” adding that the “doom and gloom predictions of recession and inflation” have not come to pass.
White House officials have expressed confidence they’ll reach a major trade agreement with the EU that could avert further escalation with the 27-nation bloc, though the talks remain fluid.
Investors have taken those ongoing negotiations as proof of their belief that Trump will seek an off-ramp, cheering each successive deal. But Trump allies who are skeptical of the administration’s tariff strategy worry that even with those pacts, the market has grown overly optimistic about the longer-term impact of the president’s plans.
White House officials have expressed confidence they’ll reach a major trade agreement with the EU that could avert further escalation with the 27-nation bloc, though they expect talks to run right up against the Aug. 1 deadline. And the two sides remain far enough apart that the EU is reportedly preparing harsh countermeasures should the discussions falter.
Investors have taken those ongoing negotiations as proof of their belief that Trump will seek an off-ramp, cheering each successive deal. But Trump allies who skeptical of the administration’s tariff strategy worry the market is being overly optimistic about the president’s plans.
Trump is still insisting that all countries pay at least a 10% tariff, meaning a wide array of US imports are likely to face substantially higher taxes relative to prior administrations — no matter what deals are negotiated.
Even if the steepest levies never take effect, the Budget Lab at Yale University, a nonpartisan policy research center, estimates the nation’s effective tariff rate — which is an average of all the US tariffs — currently sits at 16.6%, far above the 2.4% level at the end of Trump’s first term.
“My view is that the market is pricing in trade deals that have not been either consummated or announced yet,” said Stephen Moore, an outside economic adviser to Trump. “It’s a dangerous strategy, because trade is so critical to the global economy and to the US. And so far it’s worked out, but where we’re headed in the future is really difficult to gauge.”
Yet among Trump aides and advisers who weathered the initial market freakout in April, the muted reaction to their trade moves since then has solidified their conviction that widespread fears over increasing inflation and an economic downturn are overstated.
Kevin Hassett, the director of Trump’s National Economic Council, said this month that continued stable inflation readings through the spring and summer are proof that the extra cost of the tariffs aren’t being passed to American consumers. Commerce Secretary Howard Lutnick later declared that “you’re going to see inflation stay right where it is” even as inflation readings ticked up in June.
And the administration’s growing confidence seemingly hasn’t been shaken by other recent signs that the trade fallout might just be getting started, including a $1 billion hit to quarterly profits for US automaker General Motors.
“The message, at this point, has been signaled pretty loud and clear,” said Mark DiPlacido, a former Trump trade official and current policy adviser at the conservative think tank American Compass. “This is a real United States policy and framework that needs to be accepted and internalized by people doing business here.”
With a week left until Trump’s August deadline, though, skeptics of the administration’s tariff strategy question whether Wall Street is hearing that signal — and if investors are properly prepared for the potential economic disruption.
Beneath the surface, critics argue, there are signs that the tariffs are starting to take their toll, with some major companies only just beginning to preview price hikes as their pre-existing inventories run low. In some parts of the economy, such as clothing and home furnishings, federal measures show inflation picking up even as prices for other goods remain stable.
But the bond market has held steady, stocks are rising and, at least so far, neither the White House nor Wall Street are giving any indication they’re worried about the other.
“This is emboldening the White House,” said Michael Strain, director of economic policy studies at the right-leaning American Enterprise Institute. “If you think the market is holding the leash, and the leash is not tight, then that means you’ve got more room to run.”
