The global trade war that potentially ended with 1st Aug deadline comes five months after US President Trump started it with a salvo of reciprocal tariffs against all US trading partners on 2 April. The succession of "deals" the Trump administration has negotiated in recent weeks has put an official end to the era of globalisation and multilateralism that defined the final decades of the 20th century and also the pre-GFC period in this century. This implies lower growth lower inflation for ex US RoW & lower growth high inflation for US itself. Considering the terms of the trade, we believe Japan got the best deal along with EU. We therefore expect BOJ to hike by 25 bps in it's Oct meeting. But ECB migth still have scope for a final cut of 25 bps by Dec'25. “Reciprocal” rates will become effective on August 8, reflecting a short delay from the initially expected August 1 implementation. Exemptions for semiconductors, pharma and commodities still imply substantially lower effective tariff rates for many countries than their respective announced "reciprocal" tariff rates. Our updated estimate of the average effective US tariff rate (using a 2024 trade basket) stands at 15.8%–– a significant increase from the 2.3% rate at end-2024, but roughly 6%-pts lower than the 22% recorded on Liberation Day. We still anticipate that the US effective tariff rate will approach 18-20%, while the observed tariff rate (based on actual customs duties) is likely to level off slightly higher than 15% (from 10.5% as of June). EM Asia faces the highest reciprocal tariffs, though most have been revised down since Liberation Day. Among the major countries we follow, India now has the highest baseline tariff rate at 25%, while Singapore remains at its baseline 10%. Despite adjustments, the effective tariff gap between China and other regional exporters remains wide. A 40% tariff will apply to transshipments, and stronger monitoring and enforcement could amplify the tariff drag we’ve estimated. The key remaining uncertainty relates to tariffs on currently exempt sectors, notably pharmaceuticals and electronics. Also Legal risks still remain: an eventual court ruling against the administration’s reliance on IEEPA as the basis for these tariffs could significantly alter the implementation path. If the IEEPA is deemed inadmissible, the legal status of the trade deals themselves could come into question. Overall, trading partners receiving a 15% rate account for roughly 30% of US imports, with those above 15% accounting for another 20%. Countries remaining at 10% account for around 8% of imports. Mexico, China, and Canada account for the remainder. China remains at 30%, as expected, and Mexico remains at 25%, with USMCA-compliant goods exempted. Finally, although today's deadline has brought some clarity on the tariff picture for now, it may not be the ultimate settlement. The many bilateral trade 'deals' agreed in recent weeks have often led to inconsistent fact sheets and different interpretations of what precisely the commitments are, including countries' pledges for large investments into the US. Hence, the implementation of the deals could bring more turmoil in the future, keeping uncertainty about trade and investment relations elevated. We now estimate the Q4/Q4 US GDP growth at <1% and core PCE to end Dec’25 at 3%. We continue to believe that tariff costs will be borne three way between exporters, intermediaries & end US consumers.
