Insights 
VT 
In early July, Donald Trump launched a fresh round of tariff notices to countries around the world, warning of new duties should trade agreements fail to materialise. He also postponed the implementation date to 1 August. As the deadline approached, trade talks accelerated rapidly.
By 31 July, nearly all major trading partners of the United States had reached basic framework agreements. This included Japan, South Korea, and the European Union.
Japan, EU, and Korea Offer Investment-Driven Deals
Japan led the way, offering a model agreement by pledging to increase investment in the US and open its markets to American vehicles and agricultural products. On 22 July, Trump announced that Japan would invest $550 billion in the US while granting greater market access to American cars and rice.
The EU followed suit with a similar agreement on 27 July, committing to $600 billion in investment and agreeing to purchase $750 billion in US energy products over three years.
South Korea concluded its agreement on 30 July, promising $350 billion in investment and $100 billion in energy imports, alongside a broad liberalisation of trade.
These generous commitments appeared to greatly please Trump. Ultimately, the tariff rates for all three regions were set at 15%.
Closer Look Reveals Ambiguities and Risks
However, a closer look at the details reveals several uncertainties. According to a recent Barclays report, Japan’s promised $550 billion investment exceeds the nation’s entire fiscal revenue (including stamp duties) for the 2024 fiscal year. This has raised questions about feasibility. The bank speculates that this figure is merely an upper limit in planning, not a committed investment amount.
Japan’s Minister for Economic Revitalisation, Akazawa Ryosei, clarified that only 1–2% of the total will be delivered as direct investment—amounting to roughly $5.5–11 billion—while the remainder will take the form of loans.
Additionally, Trump’s administration had previously claimed that the US would secure 90% of the profit from these investments. However, this “profit-sharing” model applies only to specific projects involving JBIC (Japan Bank for International Cooperation), and from a fiscal standpoint, Japan’s real financial risk appears modest.
Even if Japan were to suffer losses amounting to several hundred billion yen, this would pale in comparison to the estimated ¥10 trillion it would lose from higher tariffs.
In summary, regardless of whether the future implementation of these trade agreements unfolds smoothly, most nations with large trade surpluses against the US—aside from Taiwan, which has yet to publish its agreement—have temporarily removed themselves from the threat of Trump’s reciprocal tariff regime. Markets have responded positively to this development.
Fed Holds Firm as Trump Pushes for Rate Cuts
While the trade negotiations yielded results, Trump’s hopes for a Federal Reserve rate cut did not materialise. In the latest policy decision, the Fed maintained the interest rate range at 4.25%–4.5%.
Although, for the first time this year, a committee member voted in favour of a 25-basis-point cut, the decision ultimately stood at 9–2 in favour of keeping rates unchanged.
The July statement remained broadly similar to June’s. The only notable changes were in the description of economic conditions and uncertainty.
The Fed downgraded its economic assessment from “continued expansion” to “slower growth in the first half,” and removed language suggesting that uncertainty had eased. Instead, it retained wording that described uncertainty as “elevated.”
At first glance, the voting breakdown and the wording of the statement could be interpreted as dovish. However, Fed Chair Jerome Powell’s post-meeting press conference dampened expectations for a September rate cut.
When asked by a Reuters reporter whether upcoming data before the September meeting would be sufficient to justify a cut, Powell stated that the labour market remained solid and, even disregarding tariff effects, inflation was still slightly above target.
On the issue of tariffs, Powell noted that, so far, exporters have borne only a small portion of the costs. Even if companies intended to pass these costs onto consumers, the transmission process might be slower than expected. In other words, it will take more time to assess how tariffs affect inflation.
As a result, markets now expect the Fed to maintain a neutral stance longer than previously anticipated.
Following the meeting, CME’s FedWatch tool showed that the probability of a September rate cut had fallen from 63% to 42%. That said, analysts still believe that moderate economic deceleration in Q3 could provide the Fed with room to cut rates later in the year.
Dollar Rebounds on Trade Progress and Liquidity Tightening
The combination of smoother-than-expected trade talks and a neutral Fed stance led to a rebound in the US dollar this month.
The dollar index climbed from 96 at the beginning of July to near the 100 level, reaching a two-month high.
Separately, as noted in the previous report, the passage of Trump’s “Big and Beautiful” fiscal bill prompted the US Treasury to revise its quarterly borrowing plan.
On 30 July, the Treasury announced that its Q3 borrowing estimate had surged from $554 billion to $1.007 trillion. It also revealed plans to replenish the Treasury General Account (TGA) to $850 billion. This tightening of short-term liquidity is expected to lend the dollar further support.
Moving forward, markets will closely watch how the tariffs impact trade and inflation. For now, it appears the dollar has already found its bottom for the year.
