Policy and Politics: Get ahead of a fast-moving political environment with this quick read on one big thing to watch in the month ahead coming out of Washington, DC.

As investors braced for the July 9 "Liberation Day" pause on "reciprocal" tariffs to end and for new tariff rates to be announced, they were met with new trade news. President Trump was proposing tariff levels as high as those he had announced back in April on select countries, such as Japan and South Korea, but also extending the time period before those rates would come into effect. Markets dipped briefly on the news, then shrugged. Then again, after the deadline passed, Trump announced higher rates for Mexico and the EU, prompting another market dip.

Market volatility, in response to trade and other political news, has remained elevated in the early days of the Trump 2.0 administration, but markets have also acted as they always do in response to key economic data. Off the back of strong earnings, lower inflation and steady jobs numbers, the S&P 500^® Index reached new highs in June.

In short, markets may be beginning to look through trade news, perhaps because they’ve learned something trade negotiators know all too well: Trade policy takes time.
 

The takeaways

• The administration’s approach to trade and its goals to increase revenue and onshore industries or negotiate better deals isn’t becoming crystal clear overnight. 
• As a result of evolving policy and negotiations, there is no immediate answer on how tariffs may impact inflation, profitability or job creation/loss. Until markets have more certainty, volatility may persist but so may a “look through” if delays are anticipated. The tail risk of an unexpected announcement persists, and is elevated, if larger-than-expected tariffs actually go into effect on a major US trading partner such as China, Mexico or Canada.
• Politically, Americans have some time to make up their minds on Trump’s economic policy with November 2026 some 15 months away.
   

Trade deal negotiations are usually measured in months and years, not days and weeks

Take, for example, the US-Mexico-Canada Agreement (USMCA) that the first Trump administration negotiated. Launched in spring 2017, the deal took over a year to negotiate and nearly two more years before it was signed.

Now, the Trump 2.0 administration is moving relatively quickly, securing framework deals with the United Kingdom (UK) and Vietnam and making progress with China in less than 90 days, but these are far less extensive than USMCA. 

USMCA replaced a preexisting arrangement, the North American Free Trade Agreement (NAFTA), rebalancing trade rules for goods and services, digital trade, intellectual property, and labor and environmental standards.
 

There is no one-size-fits-all deal

The United States–United Kingdom Economic Prosperity Deal (EPD) was the first framework agreement reached during the Liberation Day pause. The EPD brings UK tariffs on ethanol down to 0% from 19%, and on beef from 20% to a tariff-free rate.

In response, the US agreed to drop auto tariffs on the UK from 27.5% to 10%: Details are still pending on both countries’ intentions to strengthen trade on steel, pharmaceuticals, digital services and aerospace industries.

The US-Vietnam framework deal is broader. The US will place a 20% tariff rate on all goods shipped from Vietnam unless they originate elsewhere, then the rate will be dialed up to 40%. Vietnam has agreed to charge no tariffs on US imports.

The US and China tariff war escalated in April and May before a temporary pause was agreed to that extended lower rates between the two countries until August 12. This allowed both countries to work on a framework for ongoing trade.

The country framework deals announced to date are bespoke, reflecting varying trade relationships with the US and differing economic strengths, though there is one common thread: The 10% "base rate" increasingly looks like a floor for tariffs, not a ceiling.

Now, the Administration faces an ongoing decision – to ratchet up rates on other countries or to allow for time for more negotiations. The Administration has suggested that either approach may suit them as they can push for a deal and/or get revenue from higher rates. Even so, they may not have forever as the courts weigh in on the legal authority of Liberation Day tariffs.

The International Trade Court decision and looming appeal

In May, the International Trade Court issued a summary judgment against the administration’s use of the International Emergency Economic Powers Act (IEEPA) to implement Liberation Day tariffs and earlier tariffs placed on Mexico and Canada.

The Court of Appeals for the Federal Circuit will hear the case on appeal starting on July 31 and, in the interim, allowed tariffs to take effect. The appeal could wrap up this summer but may ultimately be decided in the Supreme Court. This could take months.

Eventually, the ability for the administration to use IEEPA authority for broad-reaching tariffs could be curtailed, but it may have other potential avenues to explore for enacting substantially similar countrywide tariffs. And, it is clear it has the ability to put in place sectoral tariffs.
 

Sectoral tariffs are in place, and more are coming 

Both the Trump 1.0 and Biden administrations put in place or, to some degree, kept in place tariffs on some goods such as steel, aluminum, electric vehicles and solar panels. Once in office for a second time, Trump dialed up steel and aluminum tariffs and expanded auto tariffs.

The Commerce Department has undertaken reviews of several additional sectors: copper, pharmaceuticals, lumber and semiconductors. New rates could be announced on these sectors any day. For example, a 50% tariff rate is now scheduled for copper, starting on August 1. Whereas, the administration has teased that forthcoming tariffs on goods, such as pharmaceuticals, may not come into effect for many months, if not years.

The longer lead time on tariffs could be to drive onshoring of key industries and in recognition of potential disruptions on important industries such as pharma and semis. Whatever the rationale, here, too, the factor of time may be more elastic than previously anticipated.

In other news

• Congress passed the One Big Beautiful Bill (OBBB) Act, and the President signed it into law all by their July 4 deadline. The final product was a compromise between the blue state moderates and fiscal hawks, and only cleared the Senate due to Vice President J.D. Vance’s deciding vote. After the bill passed, and in response to strong jobs data, equity markets trended up. During the course of the tax bill negotiations, Moody’s became the last major ratings agency to downgrade US debt, citing concerns about deficits. But after the bill's passage, there were not large moves in the bond market, suggesting concerns about how the bill adds to deficits is not yet driving investor decisions. 
• The OBBB Act includes more than  $150 billion for immigration enforcement, including a $31 billion appropriation for Immigration and Customs Enforcement and $45 billion for Customs and Border Protection to build a border wall. It also adds $45 billion for detention and $13 billion in grants to pay state and local governments for immigration enforcement efforts. The Trump administration had a slow start on deportations given its goal of 1 million per year but is hoping this funding supercharges its efforts or leads to more "self deportations." Nevertheless, the administration has also sent signals about softening its approach on certain industries that are more dependent on undocumented/illegal immigrant labor. Investors will be keeping a keen eye on jobs reports and the size of the workforce, and looking to see if disruptions materialize that could challenge hiring and profitability. 
• Senate Republicans are considering passing a small rescissions package to claw back around $9.4 billion in appropriated funds as a result of the Department of Government Efficiency’s suggested areas for cuts. Republicans can do this on their own but will almost immediately need to work with Democrats on FY26 funding by a deadline of September 30. Minority Leader Chuck Schumer (D-NY) is gearing up to challenge Republicans, suggesting that Democrats cannot work on appropriations with Republicans if they do not intend to spend the allocated funds. The FY26 funding debate will clearly be a challenge, but even in the event of a federal government shutdown, there is unlikely to be a market impact given the debt ceiling has already been raised.