US stock futures slump as Trump announces tariff hikes on the European Union, Mexico
We’re nearing a “make-it-or-break-it moment” on tariffs, warns ING Economics.
There’s no time off from tariff announcements, with S&P 500 futures trading 0.5% lower on Sunday evening in response to the threat of higher levies on imports from two of America’s biggest trading partners.
After the close on Friday, President Donald Trump posted a pair of letters to Truth Social announcing 30% tariffs on imports from Mexico and European Union, separate from any sectoral tariffs, effective August 1.
For the EU, Trump cited the US’s longstanding trade deficit with the bloc; in the case of Mexico, he said the same while adding that the nation has not done enough to help secure the border. The euro and Mexican peso are also weakening versus the US dollar in early trading.
The market’s reaction to the flurry of tariff news in 2025 has looked a little something like this:
Trump floats a ton of onerous tariffs;
Trump delays and/or waters down these tariffs;
Tariff rates, in aggregate, still go up materially; and
Stock markets (and earnings estimates) keep going up, in part because initial announcements of onerous tariffs are yet to be fully realized.
The narrative increasingly embedded in the markets is that tariffs are here, but won’t be as bad as once feared or enough to tip the US economy into a recession.
Strategists are divided on whether these latest declarations make deals before the new August 1 deadline more or less likely.
“August 1 is less than three weeks away, and as it seems unlikely that the Trump Administration can offer one ally something it does not offer all (e.g. say a special deal on autos for say Japan, but not South Korea or the EU), the prospects for a negotiated outcome and avoiding broad based trade escalation by the end of the month has now fallen even lower,” wrote Jacob Funk Kirkegaard of 22V Research.
On the other hand...
“On the EU side, the 30% threat will resonate, and — we think — act as a catalyst to force the EU to accept a deal that it may not have countenanced before (e.g. with only limited US concessions regarding autos),” Nico FitzRoy, senior Europe strategist at Signum Global Research, wrote. “On the US side, we think the most likely reasoning behind’s Trump’s announcement is to use the 30% threat to squeeze out as good a deal as possible from the EU (rather than simply wanting to implement the tariff), as we believe recent events suggest there is now enough evidence Trump actually wants a deal.”
And others, reasonably, are happy to say that they aren’t sure.
“We have given up speculating about any longer-term strategies in these trade negotiations,” ING Economics’ Carsten Brzeski and Inga Fechner wrote. “What the letters of the last days, and in particular the letters to the EU and Mexico, show is that we are nearing a make-it-or-break-it moment.”
