These 5 Trade Issues Could Rattle the Economy. Tune Out the Rest.

Most expect tariffs to end higher, even if not as high as the rates being thrown around. Photo: Mario Tama/Getty Images

As the market assesses the latest tariff threats from the Trump administration, investors should look beyond the daily back and forth and focus on a handful of trade developments ahead.

For those keeping score at home, President Donald Trump posted on social media over the weekend that he would levy 30% duties on the European Union and Mexico. That is higher than the 25% tariff on the EU that was threatened on April 2 and the 20% on Mexico.

Last week, Trump said the U.S. would increase the tariff rate on Canada for certain goods to 35%. The president also threatened 50% tariffs on Brazil, citing the government’s legal actions against former President Jair Bolsonaro—a longtime Trump ally—and Brazil’s legal cases and fines against U.S. technology firms.

Most analysts don’t expect Brazil to get hit with 50% tariffs and still anticipate some sort of off-ramp with the other countries. But strategists are telling clients to brace for more confrontation as the Aug. 1 deadline approaches. Most expect tariffs to end higher, even if not as high as the rates being thrown around. One big reason: The tariffs are bringing in money.

The U.S. took in about $27 billion in June from customs duties. That is up from $23 billion in May, contributing to a surplus for June compared with a $316 billion deficit the previous month. That is also why economists warn the impact of these tariffs are likely to start showing up in the fall. The Budget Lab at Yale estimates the overall average effective tariff facing U.S. consumers is 20.6%, the highest since 1910.

In the near-term, geopolitical analysts are telling clients to focus on a handful of trade-related developments that could rattle markets and the economy.

There is a bipartisan push in Congress to pressure Russia on Ukraine with sanctions and potential tariffs on countries that have been buying Russia’s oil, gas, and other exports—namely China, India, and Brazil. Sen. Lindsey Graham (R., S.C.), a co-sponsor of the legislation, told CBS News this weekend the package has 85 supporters and “would give President Donald Trump the ability to impose 500% tariffs on any country that helps Russia.”

In a press briefing on Monday, Trump said, “we’re going to be doing very severe tariffs if we don’t have a deal in 50 days—tariffs at about 100%.”

Tariffs hitting three-digit levels would send markets in a tizzy but Henrietta Treyz, head of economic policy research at Veda Partners, expects any legislation that hits Trump’s desk to likely be watered down.

However, using tariffs as punishment for those buying goods from Russia could signal the administration’s tariff policy is moving away from using the International Emergency Economic Powers Act as its rationale, Treyz says. Indeed, in a press briefing Monday, Trump said he used trade for a lot of purposes—including settling wars—adding to the view that tariffs could be used for noneconomic purposes.

The bigger concern for Wall Street—and trading partners—is the more concentrated tariffs on certain sectors on national security grounds, analysts say.

Steel, aluminum, and auto tariffs are already in place and more are coming. The administration threatened 50% copper tariffs effective Aug. 1 and Trump said pharmaceutical tariffs could reach 200%, though implemented over a year plus. Details are pending on tariffs on critical minerals, aircrafts, jets, trucking, and semiconductors—and the uncertainty is an obstacle to striking pacts with countries on other trade fronts, according to geopolitical consultants.

Another milestone for investors and companies will be July 31, the beginning of oral arguments in federal circuit court related to challenges to the administration’s use of IEEPA for the generalized tariffs, like those announced April 2. Treyz expects this to end up with the Supreme Court, likely one to three months after the ruling.

It is also worth keeping tabs on how targeted countries position as the Aug. 1 deadline nears. The European Union has decided to hold off on tariffs on 21 billion euros in U.S. goods until August as it tries to get to an agreement. Talks with Japan have been bumpy, with levies on autos a major sticking point, but analysts are watching whether some sort of framework deal can emerge, possibly with Japan agreeing to buy more U.S. oil in return for getting some of the sectoral tariffs dropped.

The next deadline of note will be Aug. 12, when tariffs on China are due to snap back. The administration is trying to get a meeting between Chinese leader Xi Jinping and Trump on the calendar, which could lead to a pause and potentially some further de-escalation. That could result in sort of agreement on the sale of TikTok, purchase agreements by China and lowering of fentanyl-related tariffs on China.

Write to Reshma Kapadia at reshma.kapadia@barrons.com