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Podcast: Jump Start – Key deadlines for US trade and fiscal policy, US-Iran talks, and jobs data (5:02)

Thought of the day

Global equities have reached all-time highs as trade negotiations gather pace ahead of the expiration of the US “reciprocal” tariff pause next week. The S&P 500 on Friday notched its first record since February this year, while the MSCI All Country World index has rallied 3.3% over the past week.

Trade headlines are moving fast. Canada on Sunday night scrapped its digital services tax targeting US tech firms, just hours before it was due to take effect, after US President Donald Trump on Friday said he was terminating trade talks with Canada and threatened to set a new tariff. Following the move to drop the tax, Canada’s finance ministry said the two neighbors will resume trade negotiations in order to agree on a deal by 21 July.

Such fresh twists and turns look set to dominate the final days before 9 July, potentially injecting volatility into markets that are eager for clarity over US trade policy. But we think near-term swings are unlikely to materially alter the longer-term market trajectory.

The Trump administration appears to retain its escalate-to-deescalate approach. Trump has demonstrated a willingness to shock the market with tariff demands that he later modifies. He may choose to do this again in a bid to entice quicker agreements. We think the deadline is likely to pass without major escalation, with Treasury Secretary Scott Bessent indicating a potential extension of the tariff pause for countries engaged in “good-faith negotiations.” In recent days, Japan and India extended their trade negotiators’ stay in Washington in hopes of reaching separate tariff agreements, while France’s finance minister praised progress in EU-US negotiations.

The US is unlikely to want tariffs much higher than current levels. Senate Republicans over the weekend pushed through Trump’s sweeping tax cut and spending bill, with a vote on a long list of amendments to the One Big Beautiful Bill Act scheduled for today. An estimate by the non-partisan Congressional Budget Office suggests that the bill would add USD 3.3tr to the nation’s debt over a decade, about USD 800bn more than the version passed last month in the House of Representatives. While the US fiscal deficit is likely to remain elevated, it also increases the administration’s incentive to keep economic growth on track to manage and improve the country’s debt-to-GDP ratio. This means trade policies or threats that risk a recession are likely to be negotiated lower, as it is not in the Trump administration’s interest to have tariffs so high that they reduce trade, growth, and tax revenues.

Tariffs at current levels should have only a moderate impact on the US economy. We expect the US administration to pursue alternative legal avenues (including product-specific tariffs) if the courts ultimately rule against the International Emergency Economic Powers Act (IEEPA) as the basis for tariffs, keeping the eventual effective size and scope of tariffs largely similar to current levels. While this means the US effective tariff rate would represent the highest levels since the 1930s, it would still be much lower than what was announced in early April. Given the resilience of the US consumer and the adaptability of global supply chains, we believe a 15% effective tariff rate is unlikely to trigger a recession despite being a headwind to growth and a modest boost to inflation.

So, while tariff headlines could periodically unsettle markets, we do not currently see them as a catalyst for a sustained market sell-off. For investors under-allocated to broad equity markets, we recommend gradually increasing exposure to diversified global stocks or balanced portfolios to position for stronger potential returns in 2026 and beyond.