Hey ChatGPT, take the other 394 week ahead articles it feels like I\u2019ve written on tariffs this year, move the words around, insert a few pithy jokes and replace any references to 9 July to 1 August. Nobody will ever know\u2026<\/p>\n
Sure, says ChatGPT, but in customary AI fashion, let me start by offering some grand-but-bland platitudes on the nobility of your recent articles, and allow me to provide my utmost but not-at-all genuine congratulations on presenting me with such a groundbreaking idea\u2026 (why does AI do this, by the way?)<\/p>\n
Obviously, I didn\u2019t actually ask AI to write this (it would say that, though, wouldn\u2019t it?). But the point is that after three tariff delays, is there any doubt that we will get a fourth next Friday?<\/p>\n
Granted, this time does look a little different. President Trump has begun to formalise deals with key trading partners. And at the time of writing, the key question is whether the EU can secure a deal along the lines of Japan\u2019s, where carmakers get a partial reprieve on the current 25% levy. AI told me the probability of that happening was 65% – make of that what you will.<\/p>\n
But deal or delay, is there much difference? What these deals essentially do is formalise the existing status quo, albeit with a slightly higher baseline tariff. For the US, it bakes in the flow of tariff revenue, while keeping the threat of retaliation at bay. And its trading partners hope that by removing the rolling threat of escalation, it can provide its companies and consumers with a more stable economic environment.<\/p>\n
How true that is depends on how long these deals last, and that\u2019s clearly debatable. And as the UK has discovered, the deals still leave many unanswered questions. Chiefly, what happens if (when?) the US imposes its long-threatened pharmaceutical tariffs<\/a>. Remember, for the EU, this is 20% of what it exports to America. If this happens, the risk of retaliation from American trading partners surely goes up. And with it, the risk of a further escalation from President Trump.<\/p>\n So the point I\u2019ve been banging on about for weeks hasn’t changed: tariffs are unlikely to go down and may well go up. And that\u2019s one of the central reasons we still think the European Central Bank will cut rates again in September.<\/p>\n True, President Lagarde\u2019s press conference<\/a> wasn\u2019t exactly a glowing endorsement of that view. But the near-term risks on inflation and growth are downwards. And that probably merits a bit of extra easing. Further euro strength, if it comes, would only cement that view.<\/p>\n That’s all a bit academic, though, isn’t it? An extra rate cut here or there isn\u2019t moving the needle of history. What might, however, is when \u2013 and how far \u2013 the ECB is forced to hike rates. And Carsten Brzeski told our live webinar<\/a> this week that this could potentially come before the end of 2026. That \u2013 unsurprisingly \u2013 is based on the view that Germany\u2019s defence and infrastructure spending would revitalise growth next year.<\/p>\n Bearing in mind that Carsten is just about the most cynical German I know, this caught me off guard. Speaking as an equally cynical Brit \u2013 from a place where capital projects tend to end up wildly behind schedule \u2013 surely the risk is that the economic impact comes much later than many currently think? His answer was no. And he even went as far as saying that Germany could outperform the wider European economy next year.<\/p>\n Back to tariffs, and perhaps part of the reason why the US administration feels emboldened to ratchet up tariffs next week, at least when it comes to copper, is that so far, the macro impact has been remarkably benign.<\/p>\n The jobs market looks solid, though the foundations are a little shakier when you dig beneath the surface. And remember, we are gearing up for some chunky downward revisions to past payroll figures later this summer. Still, when we get new figures next week, there\u2019s unlikely to be much that screams a need for the Federal Reserve to start cutting rates again. And certainly nobody is expecting that to happen next week<\/a>.<\/p>\n Markets are still favouring the first 25 basis points in September, but as James Knightley writes below, this relies on this summer\u2019s inflation data remaining remarkably benign. And we don\u2019t think that will be the case, even if the broader story is looking better.<\/p>\n