Tariff Tensions and the Resilience of Markets

The much-anticipated end to the original 90-day tariff pause came this week, only for the White House to announce another 30-day extension. This predictable move has reinforced the idea amongst investors that “Trump Always Chickens Out” (TACO). For many, these last-minute delays have become more theatre than threat, and markets have learned not to flinch.

The tariff announcement came at a similar time to the US congress introducing Trump’s “Big, Beautiful Bill”. This fiscal package is aimed at funding large infrastructure projects, healthcare reforms, and veteran benefits. The problem? It comes with a big, beautiful price tag. Tariffs are now being positioned as a crucial revenue source to help fund this ambitious bill and at the same time tackle the ballooning US federal deficit, so the base 10% tariff isn’t going anywhere anytime soon.

Despite the increasingly aggressive tariff threats, including 50% duties on copper and up to 200% on pharmaceutical imports, equity markets have ticked up this week. Investors appear to be desensitised to the tariff back-and-forth, viewing it as political posturing rather than a credible threat to global trade. The broader market mood reflects cautious optimism: most are betting that any major escalation will be avoided, and attention is shifting back toward earnings, inflation figures, and central bank guidance.

What was the market reaction? Equities rallied and the VIX index (an index which measures market volatility) dropped well below its historical average. The chart below shows the VIX index year-to-date, showing a sharp spike in market volatility following Trump’s initial tariff announcement in early April, but it shows a much calmer response to this week’s tariff news:

The message from markets seems clear: investors don’t believe Trump will follow through with further universal tariffs. Don’t get us wrong there’s still risk of escalation, such as a higher basket tariff on the EU if negotiations don’t go well, but market sentiment remains calm this week, if not complacent.

The TACO effect has dulled the sting of tariff headlines, but that doesn’t mean the risk is entirely gone. With the next deadline now 30 days away, markets may stay steady for now, but the real test will come if Trump finally decides not to chicken out.

The Noise

Global stock markets showed resilience this week, managing to tick slightly higher despite the end of Trump’s tariff pause. While many anticipated renewed volatility, similar to previous tariff shocks, UK equities defied any investor caution by hitting a record high on Thursday. Investors appear to be looking past the trade headlines, focusing instead on broader market fundamentals.
In the bond market, yields (which move inversely to prices) edged slightly lower this week: U.S. 10‑year Treasury yields dipped to around 4.36% following a strong auction. This signals that investors were buying bonds, typically a sign they’re playing it safe, especially when there’s uncertainty about future interest rates or the broader economic outlook.
In commodity markets, copper prices soared this week after Trump announced a 50% tariff on imported copper, raising concerns about rising costs for industries like construction and electric vehicles. Coffee prices also spiked, with Brazil, the world’s largest coffee exporter, hit by a surprise 50% tariff. These new tariffs fuelled fears of supply disruptions for both copper and coffee pushing prices higher for both commodities. Even though the tariffs won’t take effect until August, traders are already driving prices up in anticipation of tighter supply and higher costs for buyers.