by Patrick Fearon-Hernandez, CFA, and Thomas Wash
[Posted: 9:30 AM ET] | PDF
Good morning. The market is currently focused on tariffs and jobs data. In sports, Real Madrid advanced to the Copa del Rey final after a narrow victory over Real Sociedad. Today’s Comment will analyze the potential impact of Trump’s reciprocal tariffs, provide updates on his legislative agenda, and discuss other key market drivers. We’ll conclude with a summary of international and domestic data releases.
Tariff Day: The White House is making last-minute adjustments to its reciprocal tariffs in a move that could disrupt the international trading system. Markets are likely to focus closely on the outcome as they assess the potential impact on the global economy.
- President Trump is set to unveil his tariff plan in a Rose Garden announcement after the market closes. While details remain scarce, the plan is expected to feature a tiered system with flat rates for certain countries, though rumors suggest some tariffs could be more customized. Treasury Secretary Scott Bessent has reportedly informed lawmakers that tariffs will begin at their highest levels, with opportunities for countries to take steps to reduce them.
- Countries around the world are waiting with bated breath as they prepare to respond to US trade restrictions, weighing concessions against potential retaliation. Many South Asian nations, including South Korea and Vietnam, have sought to appease Washington by agreeing to purchase more American imports such as natural gas, while also reducing some of their own tariffs.
- Meanwhile, other major players — particularly China and the European Union — have adopted a more measured approach, offering limited concessions. Last month, the EU notably reduced fines against US tech companies for violations of its Digital Services Act. At the same time, China has sought to emphasize the mutual benefits of its economic relationship with the US. Despite these gestures, both powers have it made clear that they stand ready to respond, with the EU and China each vowing strong countermeasures.
- The Trump administration’s “Three R” tariff strategy — revenue generation, retaliation leverage, and reciprocity enforcement — represents a calculated approach that extends beyond conventional protectionism. The emphasis on reciprocal measures reveals a broader ambition to reshape foreign regulatory regimes to benefit US commercial interests. This strategic framework helps explain recent administration actions targeting the EU’s nondiscriminatory VAT policies and restrictions on foreign tech firms.
- Early signs suggest nations are adapting to this strategic shift, with the UK reportedly considering preferential tax rates for US tech giants in exchange for tariff relief. However, this reciprocal dynamic appears set to prolong trade tensions, as trading partners will likely resist unilateral demands. In this evolving landscape, markets face sustained uncertainty as participants attempt to navigate a changing economic environment.
Tax Optimism: Republicans are preparing to push through the highly anticipated “one big, beautiful bill,” which aims to encompass the entirety of the Trump administration’s tax agenda. However, the specifics of the proposal are still being finalized.
- Senate Republicans are developing a strategy to circumvent the parliamentarian in order to permanently extend the Trump-era tax cuts while adding other benefits. This procedural maneuver would allow the legislation to advance without a full assessment of its potential impact on the federal deficit. If successful, they plan to use the budget reconciliation process to pass the bill without the help of Democrats.
- Conservatives are pushing to adopt the “current policy baseline,” a controversial accounting approach that would significantly expand their budgetary flexibility. Essentially, this method would allow them to permanently extend existing tax rates while avoiding recognition of the policies’ $4 trillion fiscal impact (as projected by nonpartisan fiscal watchdogs).
- That said, lawmakers are still negotiating how to fund the bill and secure support from Republican holdouts. The White House is making the case that strong GDP growth — projected at 3% — could generate sufficient revenue to offset the tax cuts. Meanwhile, there are concerted efforts to include cuts to safety-net spending in the package, and some discussions have even floated the possibility of raising tax rates on top earners.
- Although significant hurdles remain, the tax legislation appears to be gaining momentum. The proposed bill, which would eliminate taxes on tipped income, increase the SALT deduction cap from $10,000 to $25,000, and extend the Trump-era tax cuts, could provide sufficient economic stimulus to improve US market sentiment, provided there is no major economic downturn.
Greenland Takeover? The Trump administration is exploring avenues to persuade Greenland to become a US territory, despite growing local resistance to foreign territorial claims.
- US administration officials are conducting a comprehensive cost-benefit analysis of the potential acquisition, evaluating both the upfront expenditures and long-term revenue opportunities from Greenland’s vast natural resources. As part of this assessment, policymakers are weighing an incentive package that would improve upon Greenland’s current $600 million annual subsidy arrangement with Denmark.
- These developments follow strong resistance from both Denmark and Greenland to the US overtures. Greenland’s incoming president has reaffirmed commitments to strengthen ties with Denmark while pursuing eventual sovereignty for the island. Meanwhile, Danish Prime Minister Mette Frederiksen is planning a visit to the island in a move seen as reinforcing Danish interests following the notably cool reception given to US Vice President JD Vance during his recent trip.
- The Greenland dispute underscores a deepening divide between the US and its NATO allies, with tensions escalating as President Trump maintains his pursuit of the territory while leaving military options on the table. While we don’t anticipate armed conflict over the region, this posture signals a marked shift toward a more assertive US foreign policy stance — one that has already begun prompting allies to reassess their dependence on American leadership.
Walmart Takes on Beijing: The retail giant continues demanding that its Chinese suppliers absorb tariff costs despite growing government resistance to this practice.
- Walmart is reportedly demanding price reductions of up to 10% from vendors with each new round of tariffs, according to sources familiar with the matter. The retail giant is taking this aggressive stance to avoid absorbing the full impact of trade war costs, leveraging its massive purchasing power to extract concessions from suppliers.
- Beijing is likely to respond to Walmart’s pricing demands with measured retaliation, though analysts expect any action to be restrained given the retailer’s significant support of Chinese suppliers. These tense negotiations exemplify how US tariffs are reverberating through China’s export economy, forcing difficult compromises between multinational corporations and their manufacturing partners.