Inside Donald Trump’s latest tariff threats

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Donald Trump is back to making tariff threats.

The carrot: he gave US trading partners another three weeks beyond the original July 9 deadline to negotiate trade deals before his so-called reciprocal tariffs go into effect. The stick: if agreements are not reached by then, countries risk being slapped with roughly the same sweeping tariffs Trump announced on “liberation day” in April.

Yesterday, Trump sent letters to Japan and South Korea — two of the US’s biggest trading partners — saying he’d hit them with 25 per cent levies from August 1. A bunch of other countries received similar letters.

In the letters posted on his Truth Social platform, Trump called the trade deficit with Tokyo and Seoul a “major threat to our economy and indeed our National Security”.

He wrote that should either country raise its tariffs on Washington in retaliation, “then, whatever the number you choose to raise them by, will be added on to the 25 per cent that we charge”.

Trump’s letters also suggested that, if the nations open their markets, that number could be negotiated down: “These tariffs may be modified, upward or downward, depending on our relationship with your Country.”

Trump yesterday also said any country embracing the “anti-American policies” of the Brics bloc of nations would face an extra 10 per cent tariff on exports. The 11-nation group — which includes China, Russia, Iran and Brazil — lashed out in response. 

Several proposals have come from weeks of negotiations between the US and Japan, including Tokyo buying more American energy and agricultural products. However, Japan has demanded a full exemption from Trump’s 25 per cent auto tariffs. Meanwhile, Trump has complained about Japan’s refusal to buy more US rice, calling the country “spoiled”.

As for South Korea, its talks were delayed by political turmoil after the impeachment of its former president Yoon Suk Yeol.

Despite the three-week reprieve, markets were not impressed by the continuing trade tensions. The S&P 500 closed down 0.8 per cent yesterday. Japan and South Korea’s currencies declined about 1 per cent against the US dollar.

Follow the latest trade developments on the FT’s live blog.

The latest headlines

What we’re hearing

The trajectory of Elon Musk’s business empire is not moving in a straight line as the billionaire feuds with Trump.
Tesla shares tumbled yesterday after Musk said he’d create a new political party to combat the “one-party system”.

And Trump’s “big, beautiful bill” puts at risk a crucial profit source for Tesla by neutering rules that allow the electric-vehicle maker to sell billions of dollars in emissions credits. The president has also suggested his administration should cancel Tesla and SpaceX’s federal contracts.

At the same time, private space companies such as SpaceX and Jeff Bezos’s Blue Origin — which are leading the modern-day space race — stand to benefit from a preferential tax treatment tucked into the BBB.

The bill allows spaceports to be financed in the municipal debt market through what are known as private activity bonds. They offer tax-free interest, lowering financing costs compared with typical corporate bonds. 

The addition of the spaceport clause “speaks to the advocacy and lobbying taking place in Washington”, Jason Appleson, head of municipal bonds at PGIM Fixed Income, told the FT’s Will Schmitt.

The clause also covers spacecraft manufacturing facilities and mission control operations, making it “a little more expansive than the definition of an airport”, said Leslie Powell, a partner with law firm Kutak Rock focused on public finance.

Democratic US senator Ron Wyden slammed the “special new tax break for SPACEPORTS” as “Trump’s wedding gift to Bezos and birthday gift to Musk” in a social media post.

Viewpoints

Investors are ignoring Trump’s threats of more tariffs, but they might be setting themselves up for disappointment if the president finally shows some resolve, says Robert Armstrong in his latest Unhedged newsletter. [Free to read]

Trump is ushering in America’s ICE age as he makes Immigration and Customs Enforcement the best-funded law enforcement agency in the US, writes Edward Luce. 

A fragmented and competitive media landscape means that a second Trump administration could be a double-edged sword for Fox News, which has been riding a ratings high since the president’s re-election, says Pan Yuk in her latest Lex column.

Rana Foroohar thinks that as long as the world hasn’t settled on a new economic narrative, we’ll probably continue to experience an uneasy market stasis.