Week Ahead FX outlook:
Key FX views:
Donald Trump issued an executive order to “Further Modifying the Reciprocal Tariff Rates” on July 31st. Major industrialized economies through negotiation, including the European Union, Japan and South Korea, get 15% tariffs, while a punitive 39% tariff is set for Switzerland and tariffs for some Canadian goods are increased to 35%. Tariffs for Asia are in a wide range from 10% to 40%, major Asian economies face 15~30% tariffs. Tariffs and relative tariffs matter for competitiveness and will affect the dynamics of Asia’s supply chain shifting. The 25% tariffs on India products would give India no advantage over regional competitors while they face about 20% tariffs like Vietnam. Final tariffs on China are not confirmed yet, current tariffs on China products are 30%. Most of the tariffs will take effect after midnight on Aug. 7.
The average US tariff rate will rise to 15.2% according to Bloomberg Economics. This means a 13ppts increase from the 2.3% tariffs in 2024. And an average of 15.2% will be the steepest US tariffs since the 1930s. Global stock market reacted negatively, future on S&P 500 dropped by about 1%, future for Europe’s Stoxx 600 fell more than 1%, US dollar edged up, and Asian stocks indexes declined too. Still, market’s reaction so far appeared more or less subdued.
Asian economies so far have held up well despite the intense tariffs and tariffs threat, thanks to exports front-loading. Looking ahead, the implementation of announced tariffs would mean a payback of exports front-loading, and pressure on Asia’s exports. This, combined with potential larger imports (part of tariffs deal) would translate into a weaker current account condition in H2 compared with H1.
Still, uncertainly on Trump tariffs is not completely gone. Separate sectorial tariffs on imports of pharmaceuticals, semiconductors, critical minerals and others, are pending. Also, uncertainty exists on US court’s ruling on the legality of the “reciprocal” tariffs.
Latest US reciprocal tariff rate on selected economies
