by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today begins with a focus on US trade policy, specifically the growing concerns about the recent agreements. We will also examine other significant international and domestic developments impacting financial markets, including the increasing influence of AI and escalating geopolitical tensions.

US Trade Policy: President Trump has announced plans to impose new tariffs, with rates starting at 15% and potentially reaching as high as 50% on specific countries. The move appears to be a response to criticism that his recent trade deal with Japan could undermine efforts to bring manufacturing back to the US. His comments are likely to fuel concerns that the administration will intensify pressure on nations that have yet to establish trade agreements with the United States.

• Following the trade deal with Japan, the Trump administration is now pursuing similar agreements with other nations, including South Korea. The two sides are negotiating a deal that would lower tariffs from 25% to 15% in exchange for an investment commitment. Additionally, the agreement is expected to include provisions for South Korea to increase purchases of US goods in key sectors.
• While the trade reprieve has boosted confidence in global equities, US producers — particularly automakers — have raised concerns. The reduction of auto tariffs is expected to give Asian manufacturers a competitive edge over their American counterparts. A key issue is that while foreign automakers will still face tariffs, they may avoid the added cost burden faced by US companies, which are paying more due to tariffs imposed earlier this year.
• Additionally, optimism persists for a US-EU trade agreement. Observers expect the bloc to adopt a framework similar to Japan’s as both sides push to finalize a deal by August 1. This potential agreement could help the EU avoid the worst impacts of an escalating trade war with the US.
• While countries without trade agreements may face higher tariffs, we expect the overall market impact to be limited once major trading partners reach deals. Consequently, investor focus could gradually shift toward other themes in the coming months.

Thai-Cambodia Conflict: Thailand conducted airstrikes against Cambodia following renewed border clashes, marking an escalation in tensions between the two Southeast Asia nations. The longstanding territorial dispute, which dates back decades, intensified earlier this year after a Cambodian soldier was killed in a skirmish. This conflict could have significant regional implications, particularly for nations viewing Thailand and Cambodia as potential alternatives to China in their supply chain diversification strategies.

EU-China Relations: EU leaders have arrived in China for a summit marking 50 years of bilateral relations, with both sides seeking to bridge differences on trade and the Ukraine war. While expressing mutual interest in strengthening ties, EU officials have cautioned that the relationship may be approaching a turning point. The talks occur as China attempts to prevent further EU distancing amid its own escalating tensions with the United States.

Export Controls Failing: According to the Financial Times, over $1 trillion worth of Nvidia chips have been sold to China in the three months following the tightening of US export restrictions. This development underscores growing concerns about the significant loopholes and effectiveness of current trade restrictions as both nations vie for dominance in the critical AI technology sector, which is increasingly viewed as the next frontier in global technological competition.

Alphabet to Spend More: Google’s parent company Alphabet exceeded second-quarter sales estimates as it capitalizes on growing AI demand. The tech giant reported that surging interest in its cloud services has driven capital expenditures to $85 billion this year, with further increases anticipated in 2025. While the initial frenzy around AI has moderated from its peak two years ago, the technology remains a key driver of market sentiment.

Amazon Under Pressure: The e-commerce giant faced intense competition from Walmart during its highly anticipated Prime Day event. Despite extending the promotional period for subscribers, early indicators suggest many shoppers turned to Walmart for better deals. This heightened competition emerges as rising tariffs pressure retailers’ pricing strategies, while consumers grow increasingly price-sensitive in the current economic climate.

Iran-US Tension: A tense standoff occurred between US and Iranian forces in the Gulf of Oman after the US Navy allegedly entered waters claimed by Iran. Although no shots were fired, both sides exchanged threats, with Iran later asserting that the American vessel withdrew. This confrontation marks the first major incident since the US airstrike on Iranian targets and underscores the ongoing volatility in bilateral relations.

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