Capital Markets | Tariff Update June 2025
Market Update
What has happened in markets?
Despite continued uncertainty regarding tariffs and a US sovereign debt downgrade by the last major credit rating agency to do so, the economy and stock market continue to hold up better than some had feared. Despite the S&P 500’s double-digit decline in April, US Large Cap stocks are back in positive territory for the year and only a few percent away from the all-time highs seen in late January. US small caps are still down on the year but are well off their lows over the past two months. International stocks continue to lead in 2025 (international equity markets are up over 18% on the year). Longer term interest rates have remained elevated with the 10-year yield sitting just below 4.5%. The VIX (market volatility measure) has cooled off substantially and is back to around 17, after peaking over 50 in early April.
What is the latest update on tariffs?
As of early June, no clear progress has been made on trade agreements with the US. Thus far, the UK is the only country to have struck a preliminary trade agreement with the US during the 90-day pause on tariffs. A number of deals are rumored to be in the pipeline, though there may be challenges to reaching the goal of striking dozens of deals before the July 9 deadline when reciprocal tariffs are scheduled to kick back in. India was one of the first countries to begin negotiations with the US and officials were said to be in New Delhi the first week of June as a deal is anticipated in the not-too-distant future.
Negotiations between China and the US, as expected, have proven challenging. Tensions ebb and flow between the two largest economies, as both parties recently lobbed accusations of trade agreement violations at one another. A call between Trump and Xi Jinping of China took place last week and parties have met recently in London, but few details have been released at the time of this writing. Both countries have pledged to continue trade talks in the coming days, and while there are no signs of a quick resolution, the positive takeaway is that each party is still looking to negotiate, even after the recent public spat.
Trump recently signed an executive order doubling tariffs on steel and aluminum imported to the US from 25% to a decades-high 50%, effective Wednesday, June 4. The administration is aiming to bolster the competitiveness of the US steel and aluminum industries by making it more difficult for foreign countries to off-load their excess of these metals at a lower price. The effects on manufacturers that rely on steel remain to be seen.
The various tariffs put in place up to this point continue to face challenges. The US Court of International Trade ruled that many of Trump’s tariffs, including those on Chinese goods, are illegal under the International Emergency Economic Powers Act. Despite those tariffs’ subsequent reinstatement on appeal, the administration has vowed to explore various workarounds in order to employ the tariffs. The administration continues to put pressure on international trade partners as the temporary “pause” on reciprocal tariffs is set to expire on July 9. As this deadline approaches, market participants have seemingly adopted a more relaxed view of the risks around US trade policy. The fact of the matter remains that the magnitude and timing of any final trade agreements remains to be seen and volatility may increase as that deadline draws nearer. Given the market’s downbeat reaction to the reciprocal tariffs announced in April, however, US policy makers are certainly willing to extend the July 9 reciprocal tariff implementation date further. And this is especially the case if current trade negotiations are moving in the right direction.
What is the impact of policy on the economic outlook?
So far, tariff announcements have had very little impact on aggregate consumer spending in the US. Similarly, inflation expectations have yet to move higher either, and the labor market remains fairly strong. As such, economists now expect that US GDP may fall between 1-2% for the full calendar year. Shortly after the tariff announcements on April 2, most economists expected far lower GDP in 2025.
The resilient economy, coupled with signs that trade policy may not be as damaging as originally feared, has boosted consumer sentiment in recent weeks. As a result, investors are much less fearful of the health of the US economy and the potential negative effects that tariffs may bring. Of course, economic data and sentiment readings remain vulnerable to changes in trade policy.
The resilient economic data, in addition to the upside inflation risks, will likely keep the Federal Reserve sidelined from taking any action to lower interest rates until later this year at the earliest. All indications are that the Fed will continue to “wait and see” as Chairman Powell has expressed concerns over possible stagflation — slowing economic growth and rising inflation — mostly due to predicted inflationary pressures of the tariffs. It is widely expected they will keep the Fed Funds Rate unchanged at 4.25-4.50% at the June 18 meeting.
Another item drawing attention in the news is the continued efforts toward immigration reform. Labor supply will likely be negatively impacted in certain industries — particularly agriculture, hospitality and construction. A broad-based labor shortage, however, is not expected, as median unemployment expectations for 2026 sit near current levels.
We will continue to update you as facts and circumstances change.
