Is the Stock Market Underestimating President Trump's Tariffs?

Key Points

• The president has extended his tariff pause until Aug. 1.

• His administration also sent letters to many countries letting them know what their tariff rates will be on Aug. 1 -- and many of these rates are high.

• Trump's announcement of high tariffs crushed the market in early April. With the market nearing all-time highs, are investors being too complacent?

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The 90-day pause on President Donald Trump's sweeping "Liberation Day" tariffs was supposed to expire on July 9. But before then, Trump announced that the pause would extend through Aug. 1. Since the original pause went into effect, Trump has forged a few trade agreements with major trading partners.

However, the president also recently sent letters to other countries letting them know what their new tariff rates will be on Aug. 1 if nothing else changes. Some of these tariff rates are quite high, equal to or not far off from the rates Trump initially set in early April.

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Yet the market (as of July 11) isn't far off from its all-time high, and it doesn't seem to be poised for the same explosive sell-off that occurred in early April. Is the stock market underestimating Trump's tariffs?

Tariff rates are set to rise significantly

In early April, Trump's tariff rates -- and the way the administration calculated them -- stunned investors, who had largely been expecting 10% tariffs across the board. China was looking at 34% reciprocal tariffs (on top of tariffs imposed on them earlier this year), while other major trading partners were looking at rates in the 20% to 40% range. Many analysts and experts said such steep tariffs would lead to intense inflation or tip the economy into a severe recession.

Official White House Photo by Tia Dufour.

Fast-forward to the present, and the few deals that have been announced may look a little better than rates set on "Liberation Day," but they're still much higher than the 10% blanket level. For instance, Trump announced a deal with China that looks to put tariffs at 55%, which is not far from what they were on "Liberation Day" when you include the 25% tariffs placed on China during Trump's first term.

Meanwhile, an agreement with Vietnam places tariffs at 20%. Trump also announced a deal with the United Kingdom that maintains the 10% blanket tariff on imports for now but potentially lowers some of the auto and steel tariffs. More recently, Trump sent out letters to 14 countries announcing their new tariff rates to start on Aug. 1:

• Bangladesh -- 35%
• Bosnia and Herzegovina -- 30%
• Cambodia -- 36%
• Indonesia -- 32%
• Japan -- 25%
• Kazakhstan -- 25%
• Laos -- 40%
• Malaysia -- 25%
• Myanmar -- 40%
• Serbia -- 35%
• South Africa -- 30%
• South Korea -- 25%
• Thailand -- 36%
• Tunisia -- 25%

Those are still extremely high rates and fairly similar to what was imposed on "Liberation Day."

It's early, but the tariff rates Trump has announced today doesn't really seem that different from the infamous Liberation Day tariffs. pic.twitter.com/8Jn9qW3oug

-- Mario Ismailanji (@MarioIsmailanji) July 7, 2025

Trump has also said there will be no extensions beyond Aug. 1, and countries that assist the BRICS nations (including Brazil, Russia, India, and China, among others) could face an additional 10% levy. Tariffs on copper will also be 50%.

Is the stock market too complacent right now?

While Trump's tariff hikes plunged the S&P 500 and Nasdaq Composite indexes briefly into a bear market in April, Wall Street's response has been much more muted in the wake of the latest announcements. One obvious explanation is that investors still don't think Trump will actually implement these high rates but is rather using them to pressure other countries to make concessions to the U.S. during any negotiations. Trump initially said the Aug. 1 deadline wasn't 100% firm, but then he changed his tune and said there would be no extensions after Aug. 1.

With the stock market near all-time highs, it's possible Trump feels he has some breathing room to take a tough stance. The yield on the U.S. 10-year Treasury note also retreated from higher levels in May, although it has started to climb again in recent days. Additionally, early data hasn't indicated that tariffs are significantly increasing prices for consumers, so perhaps the administration feels it has leverage while market conditions are favorable.

I certainly think the latest tariff rates Trump has threatened to levy against various trading partners in his letters will not come to fruition, but investors should at least be prepared for another round of increased volatility.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.