Will “Liberation Day” strike again?

The 90 days since “Liberation Day” are almost up, and the only trade deals agreed to date are with the UK and China. Will US president Donald Trump reimpose the sweeping tariffs that sent markets into a downward spiral? Trading partners, businesses, households and investors will be hoping the answer to that question is ‘no’ – and an extension is starting to look increasingly likely.

Cast your mind back to April and you will remember China was slapped with the most aggressive measures – an effective tariff rate of up to 145%. Other nations were hit with country-specific tariffs of up to 50%. After markets plummeted and gilt yields spiked, Trump paused the worst measures for a period of 90 days for most countries, imposing a 10% baseline tariff instead. This period was originally intended to come to an end on 9 July.

Progress has been made with some trading partners in the meantime. Earlier this month, Trump made a deal with the UK to cut car and aerospace tariffs to 10% and 0% respectively. The two governments said they would also work to reduce tariffs on UK steel and aluminium to zero. On 27 June, the US and China also confirmed they had reached a deal to speed up rare-earth shipments to America. US commerce secretary Howard Lutnik told Bloomberg the US would “take down” some of its countermeasures against China in return.

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Other countries may have been feeling the pressure, as rhetoric earlier on in June suggested the July deadline was still in scope. However, the Trump administration has dialled down its language in recent days.

First, speaking on 11 June, the president said: “We’re going to be sending letters out in about a week and a half, two weeks, to countries, telling them what the deal is… At a certain point, we’re just going to send letters out. And I think you understand that, saying this is the deal, you can take it or leave it.”

A couple of weeks later on 27 June, treasury secretary Scott Bessent told Fox Business Network that he hoped the US could reach trade agreements with more than a dozen countries by Labor Day on 1 September, suggesting the 9 July deadline could be extended. White House press secretary Karoline Leavitt added that the 9 July deadline was “not critical”.

“It is extremely difficult to predict what the Trump administration is going to announce on tariffs over the next couple of weeks. Although negotiations are underway with multiple countries, the extent to which these can be finalised before 9 July remains very uncertain,” Nicolo Bragazza, associate portfolio manager at Morningstar Wealth, told MoneyWeek.

“Given the high degree of uncertainty, it is unwise for investors to bet on a given outcome as the consequences may be painful if reality does not turn out as expected. Investors need to think ahead and prepare their portfolios for different market scenarios whilst focusing on fundamentals which are more likely to drive returns over the long term.”

What can we expect in markets?

Markets have more than recovered their post-Liberation Day losses over the past three months. The S&P 500 is around 8% higher than it was at market close on 2 April. If Trump reimposes the original measures, one possible outcome is a drop in equity markets as investors price in some of the same concerns as before – a weaker growth outlook as trade barriers reduce global activity and push up costs for businesses and consumers.

The real question is whether Trump will actually do this given how bond markets reacted last time. His tariff announcements prompted a sharp sell-off in longer-dated US Treasuries, with yields spiking as a result.

Experts have put forward several explanations for the sell-off. Hedge funds and leveraged investors may have been forced to sell liquid assets like US Treasuries to raise cash to meet margin calls. Investors may also have sold up in anticipation of a tariff-related inflation spike – bad news for bonds. Alternatively, investors may have reassessed the stability of US Treasuries in light of Trump’s erratic policymaking and decided the risk-reward profile was no longer attractive.

Whatever the reason, the sell-off seems to have been enough to frighten the Trump administration into submission. When Treasury yields spike, the cost of US government borrowing goes up. The US currently has $36 trillion in debt, and foreign investors hold a significant proportion of this. If they decide to start dumping Treasuries and yields spike as a result, the US has a problem on its hands.

Speaking at the Investment Association’s annual conference this month, BlackRock’s global chief investment strategist Wei Li suggested that “US debt arithmetic” could keep Trump’s actions relatively contained in the lead-up to the 9 July announcement. “The US cannot afford… to push debt servicing costs to uncontrollably high levels without consequences,” Li said. “Sustainable US debt requires foreign funding. Walking away from the foreign market when debt is that high is not really a solution.”

“Trump always chickens out”

In recent months, the phrase “Trump always chickens out” – or TACO – has gained traction among Wall Street traders, who have identified a pattern of dramatic policy statements followed by subsequent U-turns. It is possible we will see something similar this time around – either in the form of another extension or an easing of the initial tariff rates.

“It’s surprising that we’ve had so few trade deals since the 90-day period began, yet financial markets are currently showing no signs of concern. Investors might simply be wise to Donald Trump’s style of negotiation,” said Dan Coatsworth, investment analyst at AJ Bell.

“The US president likes to push things to the edge and play the game of ‘who blinks first’. He might be hoping that foreign trade officials buckle under the pressure of the imminent timeline and agree to trade terms that are heavily weighted in America’s favour to avoid the worst-case scenario of tariffs reverting back to the ‘Liberation Day’ plan.”

Both Coatsworth and Bragazza point out that any positive news, including an extension of the 9 July deadline, could result in a rally. “Ninety days is not a long time to conduct talks with a large number of countries, and the Trump administration might come out and say negotiations have so far been constructive and need a bit longer to conclude,” Coatsworth said.

The market response could also vary from region to region, depending on the severity of the tariffs and how successful negotiations have been. Trump is unlikely to treat all countries equally and may offer more generous terms to countries with a better relationship with the US. Those with a strained relationship could fare worse. Bragazza highlights the EU as one example, arguing that a “lack of progress on the negotiating front” could result in a “negative market reaction”.

At a press conference on 27 June, European Commission president Ursula von der Leyen said the EU was ready for a deal, but that all options remained on the table. “We are preparing for the possibility that no satisfactory agreement is reached… and we will defend the European interest as needed,” she added.