President Trump’s has performed his latest U-turn on trade tariffs providing some respite to nervy financial markets.

European markets fell sharply on 23 May after Trump threatened to slap 50% tariffs on the EU from 1 June before pulling back after a conversation with European Commission president Ursula von der Leyen on 25 May, after which he agreed to moving back the start date to 9 July.

European stock markets duly rallied on 26 May, regaining the losses, while both the UK and US were closed for a bank holiday and Memorial Day, respectively. 

While the immediate relief is understandable, it does not capture the full picture. Even after backing down on initial threats, net tariff increases across the board are higher than before, implying the US will be less open to international trade when the dust finally settles.

It is also worth highlighting that existing tariffs are already having a positive impact on US finances. US customs duties and excise taxes hit a record high in May, bringing in at least $22.3 billion according to the Department of Treasury data.

Whether tariff levies will be sufficient to offset the impact from Trump’s ‘big, beautiful tax bill’ remains an open question.

US 30-year treasury yields recently breached the psychological 5% barrier, the highest level since 2007, before slipping back below on 27 May. This may reflect investor concerns over high and rising US debts.

A higher cost of financing matters when the interest payments on existing debt topped £880 billion in 2024, eclipsing the amount the US spends on healthcare and the military. Most of the current debt was financed when interest rates were lower than they are today.

Credit rating agency Moody’s (MCO:NYSE) removed its triple A rating on the US (16 May) due to concerns on rising and persistent budget deficits which it predicts will increase from 6.4% to just under 9% by 2035.

Treasury secretary Scott Bessent insists the economy can grow out of its debts. He believes the US can grow ‘way north’ of 3% a year, driven by reregulation and tax cuts.

The administration also believes debt will fall due to spending cuts plus revenue from those pesky trade tariffs.

Bessent pushes back on the idea that rising bond yields reflect debt concerns, and instead sees them as confirmation that the administration’s growth agenda is working. 

‹ Previous2025-05-29Next ›