Despite Elon Musk's protests, the “big, beautiful bill” was finally passed and signed into law on July 4, just as President Trump wanted. With this issue resolved — at least on paper, as the long-term consequences remain to be seen — attention has turned back to trade wars with the rest of the world.      

Last week's trade deal with Vietnam was essentially a sideshow, as it will make little difference to the country's trade deficit. No wonder, then, that the S&P 500 index barely reacted. Attention then turned to July 9, which was supposed to be the deadline for signing trade deals. The idea was that heavy tariffs would come into effect if no agreement was reached in time. 

Although Treasury Secretary Bessent said Sunday that the U.S. is close to securing more trade deals, as of Monday, the only major update was that Trump had sent formal notifications to Japan and South Korea. These letters inform the U.S.'s Asian partners that 25% tariffs will be imposed starting Aug. 1. 

They also contain veiled threats: any retaliatory restrictions on U.S. imports will be met with even higher tariffs. Also receiving happy letters were Malaysia, with a 25% tariff threat; Kazakhstan, with 25%; South Africa, 30%; Laos, 40%; and Myanmar, 40%. Markets retreated accordingly, with the S&P 500 in the negative. 

If Washington fails to strike a deal with the EU next, the sell-off could accelerate sharply. And it's not just equities at risk. Should Trump follow through with the tariff hikes on August 1, affected countries may reduce their reliance on the dollar index in response to what they see as a hostile trade policy.   

Worse, foreign appetite for U.S. Treasuries could weaken, which is worrisome news as the government faces growing borrowing needs in the coming months following the passage of the budget bill. However, bear in mind that, if necessary, the Fed could step in to help, but it is still far from an ideal scenario. 

But what many expected happened: Trump has once again backtracked on his tariff threats, as he has done in the past, bringing relief to investors. The problem is that this does not solve the issue itself, thus it will likely keep the Fed in an aggressive posture due to inflationary fears stemming from the tariffs. 

Jerome Powell made it clear last week that the Fed is in no rush to cut rates, mainly because of the current uncertainty around trade. Tariffs are no longer just a risk to markets but have become a direct drag on monetary policy. If Trump decides to replace Powell with a puppet, things could worsen.

As for who stands to gain from all this, perhaps gold, which typically benefits from chaos.