Morning Bid: Remembering the Downsides to Tariffs
July 29, 2025 – As global markets brace for the reimposition of U.S. tariffs starting this Friday, the economic landscape is fraught with uncertainty, with investors and analysts recalling the significant downsides of such trade policies. The looming tariffs, set at a minimum of 15% on all imports into the United States, are poised to reshape global trade dynamics, squeeze consumer demand, and challenge corporate profit margins, echoing the lessons of historical trade wars.
A Tax on Consumers and Businesses
The reintroduction of broad tariffs under the Trump administration has sparked widespread concern among economists and market watchers. Described as “beggar-thy-neighbor” policies, these tariffs are expected to act as a de facto tax on U.S. consumers, increasing the cost of imported goods ranging from coffee to electronics. Goldman Sachs estimates that American consumers will bear approximately 70% of the tariff costs, with U.S. businesses covering an additional 15%, leaving foreign producers to absorb the remainder. This cost shift is likely to translate into higher prices for everyday goods, with potential increases of $6,000 to $10,000 on new automobiles alone, according to some analysts.
The impact is already evident in specific sectors. For instance, the global coffee market has been rattled by a 50% tariff on Brazilian imports, which could push U.S. coffee prices to new highs. Similarly, proposed tariffs on copper, semiconductors, and pharmaceuticals threaten to disrupt supply chains and elevate costs for technology and healthcare sectors. Companies like Uniqlo’s parent, Fast Retailing, have warned of significant impacts on their U.S. operations, with plans to raise prices to offset tariff-related losses.
Global Market Reactions and Economic Risks
Global markets have shown mixed responses to the tariff news. Asian markets are cautiously recovering after what some describe as a “bust” from the U.S.-EU tariff negotiations, with European stock futures marginally firmer and the euro stabilizing just below $1.1600. However, the broader outlook remains cautious, as the tariffs are expected to erode export earnings worldwide and potentially trigger retaliatory measures from trading partners. The European Union, for instance, is preparing a list of U.S. products for retaliatory levies, while China’s trade surplus with the U.S. surged 48% in June to nearly $27 billion, highlighting the challenges of curbing trade imbalances through tariffs alone.
The tariffs also pose inflationary risks, complicating monetary policy decisions. Federal Reserve Chair Jerome Powell has reiterated a cautious stance, noting that the Fed will “wait and learn more” about the tariffs’ inflationary impact before adjusting interest rates. Fed Governor Christopher Waller recently highlighted the dual risks of tariffs: downward pressure on economic activity and employment, coupled with upward pressure on inflation. Despite these concerns, some Fed officials remain optimistic about potential rate cuts later this year, though market expectations for immediate relief have waned.
Historical Echoes and Market Optimism
The current tariff strategy draws comparisons to the Smoot-Hawley Tariff Act of the 1930s, which exacerbated the Great Depression by stifling global trade. Analysts warn that the effective U.S. tariff rate could approach these historical levels, with significant economic consequences. Yet, markets have shown surprising resilience, with Wall Street futures only modestly lower and the S&P 500 remaining within 1% of its record high. This muted reaction stems from a belief among investors that many tariffs may be negotiated away or postponed, a sentiment encapsulated in the “TACO” meme—Trump Always Chickens Out.
Recent trade deals, such as the agreement with Japan that reduced tariffs on auto exports from 25% to 15% in exchange for $550 billion in investments, have fueled optimism that further negotiations could mitigate the tariff impact. Talks with the European Union and China are ongoing, with the latter set to continue in Stockholm, potentially extending deadlines to allow for high-level discussions between President Trump and Chinese President Xi Jinping.
Corporate and Investor Challenges
The corporate sector is bracing for a mixed earnings season, with tariffs adding uncertainty to an already complex landscape. General Motors reported a $1 billion hit to its quarterly results due to tariffs, while tech giants like Meta, Microsoft, Apple, and Amazon face scrutiny over whether their valuations can withstand rising costs. Investors are also monitoring the Federal Reserve’s independence, as President Trump’s public criticism of Chair Powell and suggestions of replacing him raise concerns about monetary policy stability.
For now, markets remain in a “wait-and-see” mode, parsing each tariff announcement for signs of negotiation or escalation. While some investors hope for a repeat of April’s tariff pause, the persistent threat of new levies and retaliatory measures keeps the global economy on edge. As Treasury Secretary Scott Bessent noted, tariff revenues could reach $300 billion by the end of 2025, providing fiscal benefits but at the cost of higher consumer prices and strained international relations.
As the August 1 tariff deadline approaches, the world watches closely, remembering the downsides of tariffs: higher costs, disrupted supply chains, and the risk of a broader trade war that could reshape the global economic order.
By Reuters Markets Team. Sign up for the Morning Bid newsletter for daily market insights.