"The Boy Who Cried Wolf" effect? Trump's 30% punitive tariffs hang in the balance, investors hope that a "hard deadline" can still lead to negotiations

According to the Zhitong Finance APP, the Trump administration continues to escalate trade measures, not only threatening to impose additional tariffs on multiple countries including Canada, Brazil, and Algeria, but also extending invitations for further negotiations to trade partners. Although JP Morgan CEO Jamie Dimon and others have warned the market not to be complacent, investors currently behave as if they are certain that the U.S. president will make concessions, after all, the Trump administration has had multiple precedents of policy reversals.

Brian Jacobson, chief economist at Anixis Wealth Management, stated in an email: "Investors should not expect Trump's threat of a 30% tariff on EU goods to be mere bluster. This tariff level is punitive, but the damage to the EU may far exceed that to the U.S., so time is running out for both sides."

The foreign exchange market has shown signs of a cooling risk appetite: in morning trading, the U.S. dollar and Japanese yen rose slightly against most G10 currencies, while the Australian dollar and euro led the decline. This month, as investors reassess the relative growth prospects of the Eurozone, the euro to dollar exchange rate briefly reached its highest level since 2021. Meanwhile, on July 9, the Mexican peso to dollar exchange rate hit a one-year high of 18.5525.

Bitcoin, which was still trading over the weekend, climbed to $119,489 on Monday morning, setting a new historical high.

Trump and his allies have criticized Federal Reserve Chairman Jerome Powell's handling of the expensive renovation project at the Fed headquarters, with some government officials even contemplating removing Powell from the Fed Board—an event that could also put pressure on the market early this week.

Deutsche Bank strategist George Saravelos pointed out that Powell's dismissal would be a significant and underestimated risk, potentially triggering a sell-off in the dollar and U.S. Treasuries.

Saravelos stated: "If Trump forcibly removes Powell, the trade-weighted dollar could drop at least 3% to 4% within the next 24 hours, and the fixed income market could see a sell-off of 30 to 40 basis points."

He added in his report that the dollar and bonds would thus bear a "persistent" risk premium, and investors might also be concerned about the politicization of the Fed's currency swap lines with other central banks.

Market Game of Tariff Actions

Financial markets have struggled to digest the erratic tariff policies of Trump’s second term. Although the tariff announcement on "Liberation Day" on April 2 led to a sell-off of risk assets and even U.S. Treasuries, the market volatility at that time has almost completely reversed as Trump postponed several of the threatened tax plans.

The EU originally attempted to reach a temporary agreement with the U.S. to avoid higher tariffs, but a letter from Trump shattered recent optimism. However, this U.S. president also left room for policy adjustments.

Jacobson wrote: "As always, there are many conditions and terms that could lower the tariff rates. This may be why the market, despite dissatisfaction with the tariff rhetoric, has not fallen into panic."

Even though Trump declared August 1 as a "hard deadline," the market's reaction still seems to believe that this date is negotiable. However, last Friday, the market showed cautious signs: as Trump intensified his trade offensive, the stock market retreated from historical highs, and the dollar recorded its best weekly performance since February Gabriela Siller, the head of economic analysis at the Mexican financial group, stated: "The market does not believe Trump's threats, so the exchange rate may face temporary pressure. However, unless tariffs are actually implemented and start being collected—after all, based on U.S. trade data, tariffs imposed under the International Emergency Economic Powers Act have not been strictly enforced."

In a letter to Mexican President Claudia Sheinbaum, Trump stated that Mexico "has been assisting me in securing the border," but added that this is not enough. A White House official revealed that the U.S. does not intend to apply a 30% tariff rate on goods that comply with the USMCA