Global stock markets are getting used to Trump's tariff threats... for now

When uncertainty becomes certainty. Financial markets seem—for the moment—to be getting used to Donald Trump's multiple and contradictory tariff announcements in recent weeks, a far cry from the panicky reaction provoked by the "Liberation Day" protectionist offensive in early April.

While the American president announced on Saturday the imposition of 30% customs duties on products from Mexico and the European Union imported into the United States as of August 1st , the stock markets of the Old Continent only fell moderately on Monday, July 14th.

At the close, Paris was down 0.27% and Frankfurt 0.39%, while Milan gained 0.27% and London - spared thanks to the existing trade agreement between the United Kingdom and the United States - climbed 0.64%. On Wall Street, markets were equally calm at midday, with the Dow (0.06%), the S&P 500 (0.03%), and the Nasdaq (0.16%) trading almost at breakeven.

More broadly, US indices have returned to record highs, while European stock markets are once again attracting investors. The Frankfurt Stock Exchange's main index, the DAX, has gained more than 20% since the beginning of the year.

These "customs tariffs are as high as at the beginning of April," but "the market reaction is completely different," notes Ipek Ozkardeskaya, an analyst at Swissquote Bank. On April 4, after Donald Trump announced a barrage of "reciprocal customs duties" targeting almost all of the United States' trading partners, European and American stock markets plummeted by 4% and 6%, the highest levels seen since the start of the Covid-19 pandemic in 2020.

Despite several customs announcements in recent days, targeting more than ten countries and certain products such as copper, "the markets seem increasingly shielded," summarizes Jim Reid, economist at Deutsche Bank.

How can this resilience be explained? First, the markets have experience with Donald Trump's U-turns. The implementation of most tariffs has been postponed several times, while trade agreements are reached with the countries concerned. The financial press has even given a name to these incessant U-turns, putting the risk into perspective for investors: the "TACO" (the initials for "Trump Always Chickens Out " ). "Investors continue to bet on the TACO, and on the fact that the negotiations will drag on," believes Ipek Ozkardeskaya.

The lack of a European response at this stage has also reassured the markets. European Commission President Ursula von der Leyen has so far chosen to play it safe in the hope of reaching a less painful agreement.

Ultimately, investors have taken into account the fact that Donald Trump's tariff announcements are "more of a tactical lever than an immediate economic threat," adds Stephen Innes of SPI Asset Management. "The markets are waiting for the negotiations to continue," explains Alexandre Baradez, head of market analysis at IG France.

But this relative passivity may not last. Donald Trump's August 1 deadline for the EU is under scrutiny. "Unlike the last few dates that have been pushed back, this one looks really solid," he said. "If massive tariffs are actually implemented on August 1, in the middle of the summer slump, the markets could react violently," added Jim Reid, an economist at Deutsche Bank.

The effects of the protectionist policies already implemented by the Trump administration on the American economy are also being scrutinized. Customs duties, across all sectors, are on average more than 16% on products entering American soil, compared to less than 5% before the Republican's election. "We will have to monitor the upcoming data on consumer behavior and company results , which will give an idea of the consequences of this policy on the economy," believes Alexandre Baradez.

Markets are particularly concerned that tariffs could increase the risk of "stagflation," an economic slowdown coupled with a surge in inflation that would prevent the US Federal Reserve (Fed) from lowering rates to boost activity. "The lack of market reaction widens the gap between how investors want to see reality and what economic reality will look like," warns Ipek Ozkardeskaya.