After the trade policy shocks of the first half of 2025, markets have now largely discounted material shifts in future trade policy. From a global macro perspective, this is correct as residual uncertainties are not of the same magnitude as when US tariffs were originally rolled out. However, for individual sectors, commodities and currencies, there remain trade-related market events on the horizon. 

Trade Deals Largely Done, But Not All 

First, the core trade relationships have largely been reset. Less than 15% of US imports are not governed by at least an inter-governmental understanding. Notably, the US has established a shaky equilibrium with its largest trading partners that are the sources of the majority of its imports: the EU, China, Mexico, Canada, Japan, UK, South Korea, and most of Southeast Asia. 

Source: Source: SSIM Macro Policy; Yale Budget Lab Tariffs; State Street

Some hiccups do remain: a) foremost around anchoring the details of these understandings; b) ratification of the more precise deals; c) future adjustments up or down on the US-China track depending on the negotiations and d) larger re-negotiation of the USMCA trade agreement that will govern North American trade. While there is headline risk for future volatility, none of these developments pose a material risk to re-pricing given the range of outcomes is much narrower than it was at the beginning of the year.

The trade deals outstanding are largely immaterial for the US market. However, they are material for the valuation and outlook of respective local markets, notably, India, Taiwan, and Switzerland. In fact, as Fig. 2 shows, compared to the current effective tariff in place on China, most US allies have greatly improved their competitive position vis-à-vis China. We would therefore also expect the US to eventually conclude trade deals with Switzerland and India before year-end. 

Other Uncertainties Remain, e.g. Sectoral Tariffs and Legal Dispute 

Second, and perhaps more relevant for investors, is the fate of sectoral tariffs. These have been instituted for autos, steel, aluminum, and copper. And they have been muted for pharmaceuticals, semiconductors, aircraft, heavy trucks, critical minerals and polysilicon. Together these products only amount to roughly 10% of total US imports, but any tariffs will change the economics in the affected industries and regions. In this regard, pharma is by far the largest and with most imports originating from the EU (esp. Ireland), Switzerland and India. So, for the latter two, both the bilateral trade talks and sectoral tariffs still hold meaningful potential impact. 

Third, and finally, much harder to classify is the risk of disruption to the entire legal underpinnings of US trade policy in 2025. The Supreme Court will rule in a few months whether the Trump Administration’s use of IEEPA (International Emergency Economic Powers Act) was legally sound. Should the court rule against the administration and declare the imposition of tariffs invalid, market volatility may rise. 

There are other legal instruments that could yield the same trading outcome. In particular, sections 122, 338 and 201 of the 1974 and 1930 Trade Acts would allow for a speedy replacement of the IEEPA framework. Some of these are equally untested and could therefore be subject to continued legal uncertainty. However, this uncertainty would not last long, and we believe that a mix of these substitutes would quickly anchor existing trade understandings in US law.  

Investment Implications 

Any major legal cancellation of existing tariffs without rapid substitutability would have macro consequences, namely by forcing a refund of paid tariffs and delaying the onset of future trade policy. This could be marginally stimulative for the US economy based on encouraging consumer spending, but, given the modest signs of tariff pass-through to consumers so far, the benefits may show up in corporate profit margins instead. There may be (at least temporary) market implications related to concerns around a worsening fiscal picture, presumably expressed in a steeper US bond curve. We continue to see this event as low likelihood, but medium impact. 

More narrowly, for the Swiss and Indian markets, any trade deal should be positive. Both equity markets have trailed their peers this year, in large part due to trade frictions. Our base case is that a trade deal is finalized before year-end, lifting both equity markets and to a lesser extent, being currency positive as well. We do not expect a deal with Brazil, however, given political friction between the two countries. 

Regarding the sectoral tariffs, companies with higher pricing power (ability to pass on higher costs) and stronger research and development pipelines should be better insulated.