Sophia’s Thoughts on Tariff Progress
Tariff tensions are easing as major deals are struck, but the full economic and market impact is just beginning to unfold.
These are Sophia's Thoughts:
The U.S. has finalized trade deals with many major partners, softening some tariffs and bringing partial clarity, though China remains unresolved.
Tariffs are pushing up prices and dragging down growth, with lower-income families hit hardest and GDP forecasts turning increasingly cautious.
Markets are stabilizing for now, but Goldman Sachs warns the drag from tariffs could outweigh the boost from fiscal policy and deregulation.
🚀 Last week’s market performance
The crypto market slipped 1.0% this week, even as Bitcoin (BTC) edged up 0.4%. Cronos (CRO) led the gains, jumping 12.8% on rising DeFi activity and ecosystem growth. Meanwhile, Dogecoin (DOGE) was the worst performer, tumbling 17.1% after breaking key support levels amid increased whale selling.
🧐 What is your crypto mood today?
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⭐ Where We’re at With Tariffs
After months of uncertainty and market anxiety, the United States has now secured trade agreements with most major partners, including Japan, the United Kingdom, the European Union, Vietnam, Indonesia, and the Philippines. Only China and a few others remain in limbo ahead of the looming August 1 negotiation deadline.
The most consequential development came over the weekend with the announcement of a new U.S.–EU deal. Under the agreement, most European exports to the U.S. will now face a 15 percent tariff, reduced from the previously threatened 30 percent. However, sensitive sectors such as automobiles, steel, aluminum, and pharmaceuticals will still be subject to elevated rates. European officials have voiced strong dissatisfaction with the terms, calling the outcome economically damaging and politically one-sided.
At the same time, U.S. tariff revenues are surging. Collections reached USD 150 billion in July, compared to just USD 8 billion per month last year. The average effective tariff rate is currently estimated between 17 and 19 percent, according to Goldman Sachs. While that is down from the April peak of nearly 30 percent, it still represents one of the most protectionist regimes in recent history.
China remains the outlier. Ongoing negotiations in Stockholm have opened the door to a likely 90-day extension, but the core issues—rare-earth magnet exports and U.S. restrictions on AI chips—remain unresolved. The geopolitical tension surrounding this relationship is intensifying.
For now, the tariff environment is shifting from disorder to tentative clarity. Whether that clarity lasts depends on how the China situation unfolds in the coming weeks. The global consequences are already taking shape—some countries are gaining, while others are seeing lasting economic damage.
🏢 The Economic Impact
The effects of the new tariff regime are rippling across the U.S. economy. Consumer prices are rising, GDP growth is slowing, even as government revenues increase.
Yale’s Budget Lab reports apparel prices up 36% and shoes 40% in the short run, with long-run increases of 17% and 19%, respectively. Food prices are up 3.7%, with fresh produce rising 6.5%. Overall, consumer prices have climbed to 1.7% after substitution—equivalent to a USD 2,700 annual loss for the average household. Lower-income families are hit hardest: the bottom decile faces a USD 1,400 loss, or 3.8% of disposable income.
The chart below illustrates the regressive nature of the 2025 tariffs, showing how lower-income households shoulder a disproportionately higher burden than wealthier ones.
Growth is slowing too. J.P. Morgan estimates real GDP growth will decline from 2.0% to 1.3% in 2025, a 0.7 percentage point hit attributed to tariffs. The Penn Wharton Budget Model warns of a potential 6% GDP contraction under severe tariff scenarios, underscoring the long-term drag on economic output.
While tariffs are projected to raise USD 2.7 trillion over the next decade if kept in place, according to The Budget Lab, that windfall comes with tradeoffs. Slower growth and reduced output could shrink income and corporate tax revenues by over USD 400 billion, offsetting a portion of the fiscal gains and complicating the broader economic picture.
In the near term, the U.S. economy faces a tough mix: elevated inflation, weakening growth, and rising geopolitical risk. While tariffs may support domestic manufacturing over time, the broader economic toll is mounting.
⚠️ Implications on Markets
The new U.S.– EU deal has brought a degree of clarity, and markets appear to be responding positively. Markets have been relatively muted in response to the U.S.–EU deal, with the S&P 500 largely flat and investors waiting for clarity on China. The dollar has strengthened modestly, reflecting cautious optimism about a near-term resolution. Despite a still-elevated effective tariff rate, now around 17–19%, down from nearly 30% in April, markets seem comfortable with the current trajectory.
However, Goldman Sachs warns that optimism may be premature. Their baseline outlook is slow growth and firm inflation, not recession—but a scenario where the drag from trade offsets the benefits of deregulation and fiscal spending. While equities may continue to rally, supported by a weaker dollar and resilient earnings, growth risks may remain skewed to the downside in the near term. The real test will come as China negotiations unfold and investor focus shifts to earnings, inflation, and Fed policy.
For crypto, the uncertainty surrounding global trade tensions continues to be a headwind as risk-on assets tend to struggle in unclear macro environments. A decisive resolution to the trade war, particularly with China, would likely provide some support for digital assets by reducing geopolitical risk and improving market sentiment.
In short, the tariff fog is lifting, but we’re not in the clear yet. Markets have found their footing for now—but the road ahead depends on what happens next with China.
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