US tariff unceretainty weighs on sentiment

Markets initially welcomed the Supreme Court’s ruling that challenged the legality of certain tariffs imposed under emergency powers. The early reaction reflected hopes that a rollback in tariffs could reduce uncertainty and potentially ease inflationary pressures. However, that optimism proved short-lived. Rather than stepping back, the Trump administration swiftly pivoted, invoking Section 122 of the Trade Act of 1974 to impose a universal 15% tariff for up to 150 days. While this caps tariff levels below some of the previously threatened rates, it effectively raises the average tariff burden in the short term and reintroduces significant policy uncertainty.

The key issue for markets is not just the tariff level itself, but the unpredictability surrounding what comes next. As a result, stocks started the week lower, the US dollar weakened, treasury prices fell and gold moved higher. Investors appear to be reassessing growth prospects in light of sustained trade frictions and the potential for retaliatory measures from trading partners. The so-called “sell America” trade has re-emerged modestly, reflecting concerns about US growth, fiscal sustainability and strained international relations.

Beyond the immediate 150-day window, the situation becomes more intriguing. The 15% cap potentially limits the administration’s leverage in ongoing trade negotiations with major partners such as China and India. Several trade deals were negotiated under the assumption that higher tariffs could be imposed. Now, trading partners may perceive a ceiling on US tariff threats, potentially altering the balance of power. While this creates near-term uncertainty — something markets inherently dislike — it could, over the longer term, result in lower overall tariff levels than previously feared. For now, however, the “fog of war” in trade policy is weighing on risk appetite.