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Investing.com - President Donald Trump may be preparing to push how far he can take his aggressive tariff agenda before sparking renewed market ructions, according to analysts at Wolfe Research.
Trump has recently ratcheted up his tariff rhetoric, sending letters out to a host of countries warning them of heightened levies that will take effect on August 1 should a deal with the White House not be reached. He has also threatened fresh "reciprocal" duties on major trading partners like Europe and Mexico.
The moves come after stock and bond markets roiled in the wake of Trump’s "Liberation Day" tariff announcement in early April. Trump later delayed the implementation of these tariffs for 90 days, with his officials suggesting that they will be able to notch 90 bespoke trade deals during that time.
However, only a few preliminary pacts have been reached, notably with the United Kingdom (TADAWUL:4280), China, and Vietnam.
Markets, meanwhile, have become more sanguine in the face of Trump’s tariff policy announcements, analysts have said, arguing that investors may believe that the president will be flexible in his decisionmaking.
But, the Wolfe Research strategists said, Trump’s tariff delays could be seen as "tactical retreats" in the face "intolerable consequences."
"With tariffs now being much better tolerated, we read Trump as preparing to once again test how far he can go," they wrote in a note to clients.
They suggested that Trump may be attempting to find "the highest tariff levels that markets and the economy can sustain." even as he remains open to negotiation. They added that Trump should be taken "at his word about his goals," despite policy details being later "walked back."
Should the August 1 tariffs come into effect as threatened, the additional duties could amount to $138 billion, plus $10 billion to $29 billion more if Trump goes to 15% to 20% baseline tariffs on some nations, the Wolfe analysts estimated.
"If tariffs do rise on August 1, the debate will shift back to durability, and the answer will presumably depend on the market reaction," the analysts said. "We don’t think Trump is prepared to tolerate another crash like early April, but he could tolerate some market pullback from all-time highs."