Tariff Weekly: Week May 19

Global trade tensions continued to escalate over the past week, with a flurry of developments reflecting the widespread economic impact of U.S. tariff policy under President Trump. While some economies showed resilience, uncertainty and volatility remain prevalent across international markets.

U.S.-China Dynamics and Asian Responses

China’s industrial output unexpectedly rose by 6.1% in April, reportedly due to U.S. importers frontloading orders ahead of potential tariff hikes. However, domestic retail sales fell short of expectations, and smartphone exports to the U.S. hit a decade-low, underscoring the toll of the ongoing trade war. In response, China has lowered interest rates and is investing in self-sufficiency in critical sectors.

Thailand also experienced a rise in business activity as firms rushed to secure shipments before anticipated U.S. tariffs. Meanwhile, Japan and Vietnam are pushing to conclude trade deals with the U.S. to avoid further tariff disruptions, especially ahead of the upcoming G7 summit.

Corporate Impact and Sectoral Adjustments

Several multinational companies issued profit warnings and adapted operations due to tariff pressures. Japanese automotive giants Toyota and Honda warned of potential $28 billion in combined losses. U.S. retailers like Walmart, Target, Nike, and Apple indicated rising costs, with many preparing for consumer price increases.

Diageo revised down projected losses and launched cost-cutting efforts, while Target adjusted its annual forecast due to weakened consumer demand linked to tariffs. In response to easing tensions, JPMorgan upgraded emerging market equities, suggesting selective optimism amid continued caution.

Transatlantic Tensions

The U.S.-EU relationship reached a new flashpoint after President Trump threatened to impose 50% tariffs on EU imports starting June 1. The move, later postponed to July 9 following talks with Commission President Ursula von der Leyen, prompted EU preparations for retaliatory tariffs worth €21 billion. The European Commission emphasized the need for mutual respect in trade talks, warning against unilateral pressure.

Broader Economic Signals and G7 Discussions

Tariff policies are reshaping financial and economic outlooks globally. The European Central Bank and the Bank of Canada flagged risks to financial stability and investment, while Australia's economists projected rising unemployment if tensions persist.

The G7 finance ministers met during the week, focusing on broader economic concerns beyond tariffs and reiterating their support for Ukraine. However, U.S. tariffs remained a key issue in bilateral conversations and upcoming summit agendas.

Legal and Structural Repercussions

In the U.S., President Trump faces legal challenges over his tariff policies. A court case now under way could influence the administration’s ability to maintain tariffs as a negotiation tool. Additionally, tariffs on solar products from Southeast Asia were approved, citing circumvention concerns.

Looking Ahead

As July 9 approaches, all eyes are on whether the U.S. and EU can reach a trade agreement to avert a major escalation. Meanwhile, broader markets are adjusting to the prospect of higher inflation, disrupted supply chains, and slower growth—all tied closely to tariff decisions.

Key Dates to Watch:

• July 9: New U.S. tariff deadline on EU goods.
• June (G7 Summit): Potential announcements on U.S.-Japan trade deal and broader multilateral responses.

The global trade environment remains in flux, with strategic recalibrations underway in capitals and boardrooms worldwide.