Don't be fooled by the summer rally in U.S. stocks! Deutsche Bank warns: The impact of tariffs and immigration policies is far from over

According to Zhitong Finance APP, the U.S. stock market performed strongly this summer, with the benchmark S&P 500 index rising nearly 9% cumulatively, significantly rebounding from the spring low. Looking back at April, the "Liberation Day" tariffs implemented by Trump had caused market turbulence. Now, as summer is about to end, Deutsche Bank warns that the subsequent effects of these policies will continue to manifest. Additionally, the investment bank alerts that the U.S. labor market is about to face an "immigration policy shock."

George Saravelos, head of foreign exchange research at Deutsche Bank, stated on Tuesday: "After a summer of trade agreement negotiations, the final direction of U.S. tariff policy has gradually become clear. Does this mean that its impact on the macroeconomy and the market has ended? We are skeptical. The most direct indicator of the impact of tariffs on the economy is the amount of taxes actually collected by President Trump at the border. Currently, the 'yield' from tariffs is about 10% of the value of imported goods."

The analyst added: "However, based on the import patterns before the trade war, the actual tariff rate should ultimately stabilize in the range of 15%-20% (depending on the final rates for chip and automobile tariffs and the import substitution effect)."

Saravelos further explained: "We believe that the main reasons for the current low tariff yield include transshipment trade effects (especially for Chinese goods) and the concentration of duty-free imports of pharmaceuticals and electronics that are being declared in advance. As these temporary factors fade, the actual tariff yield will gradually approach the tariff rate level estimated based on the 2024 trade pattern."

He analyzed from a fiscal perspective: "With an import scale of $3 trillion, a 15% increase in the actual tariff rate would correspond to an additional $450 billion in tax revenue, equivalent to tightening fiscal policy by 1.5% of GDP. Our previous research has confirmed that these costs are ultimately borne mainly by the United States."

The investment bank also warned that the supply shock caused by a shortage of immigrant labor will significantly impact U.S. non-farm employment growth.

Saravelos stated: "Negative supply shocks will have a dual impact on idle capacity, unemployment rates, and monetary policy. But it is certain that they will have a negative impact on economic growth. The current non-farm employment growth rate has reached a level that typically indicates an economic recession."

The analyst added: "In addition to the decrease in the number of immigrants, the termination of several Biden-era work visa programs in the coming months will deal an additional blow to the labor market. The TPS and CNHV programs alone, which are targeted at Haiti, involve over 700,000 people."