It is less than three weeks before the 8 July deadline for the rest of the world to make trade deals the US with or risk facing heavy ‘Liberation Day’ level tariffs initially imposed at the start of April.
The deadline will have investors wondering if US president Donald Trump is a man of his word, or if the ‘Taco’ acronym – Trump Always Chickens Out – will be proved true.
So far, the president has made two deals: one with the UK and the other with China – perhaps the US’ biggest rival and most hard-hit by Trump’s initial tariffs.
Neither are all-encompassing and the China deal is yet to be signed (at the time of writing), but both provide hope that countries are at least willing to talk to the Western powerhouse.
One region suspiciously quiet has been the EU. Those who have talked up Europe as a potential bright spot for investors this year – and there have been many of them – will be hoping that a deal with the European Union is next on the cards.
Investors who have got used to a small respite and relative level of calm over the past few weeks from the White House (although it has been far from calm elsewhere in the world) might need to think about shifting their attention back to the US.
For now, all they can do is wait and see. There are myriad possibilities from here. First, but I think the least likely, is that the US makes deals with every country on the list.
Second is it achieves some kind of soft pact with the largest global players. This will include the EU, Japan and others, while some of the smaller nations at the back of the queue are given the tariffs for a period until the president gets around to them.
This is the most likely, in my view. It means some areas, such as the emerging markets, could be under a bit of strain for a short period, but should encourage investors in the largest markets in the world and should also avoid the doomsday bear market that option three could bring about.
Because the third and most dangerous choice of them all that the US fails to agree to acceptable terms with a number of large players. In this case, I think the US would be adversely affected, but so too would the likes of the EU and Japan, who have yet to publicly agree anything with the US.
It is also possible that the president, given his temperament, could renege on the two deals already made or impose tariffs on the UK and China outside of the limited scope of the current deals.
In this scenario, things will go from bad to much, much worse.
The last option is that the Taco acronym rings true and Trump backs down, either by pushing back again and giving another deadline or by U-turning on the higher tariffs altogether. He already has a 10% level that seems unlikely to change but could be viewed as enough to placate the president.
Regardless of the outcome, markets will react strongly one way or another. In the run up to the deadline I would expect some easing as investors become wary. Even if more deals come through, there will still be nervousness. Such is life under the governance of such a volatile character.
There will likely either be a strong bounce from a favourable outcome or a drop if markets get spooked.
But remember, investing is for the long term – not to make a quick buck. Whatever happens over the next month, try not to get swept up in the market noise.
Consider the options and if the long-term thesis has changed, then act accordingly. But do not follow the trends in the hope to game the system. It has been proved time and again that this rarely works.
And if you are cautious, taking considered risk off the table now ahead of any uncertainty may be no bad thing. It might not be wise, however, to pile in on the expectation of market exuberance.
I myself will be watching it all unfold on the sofa, or the garden or wherever my little ones want me to be. I have a month off now with some belated paternity leave, but will leave you in the exceptionally capable hands of Gary Jackson for a month.
When I’m back, we should know the outcome of Trump’s tariff tirade.