Equity markets are trying to shake off growing macro risks, but cracks are widening beneath the surface.

Trump’s latest tariff volley, this time a 100% levy on imported chips, comes as the labor market weakens, the dollar slides, and investors increasingly price in a September rate cut.

That and more below for your economic update.

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The Big Picture

Semiconductors

Washington’s Semiconductor Tariff Shock Targets Global Giants While Forcing a U.S. Rebuild 

The United States is moving forward with a 100% tariff on imported semiconductors, aiming to realign chip manufacturing around domestic infrastructure.

While the proposed policy includes exemptions for companies building within the U.S., the broader framework remains undefined, leaving manufacturers and global suppliers facing significant uncertainty.

Semiconductors power nearly every sector of the economy, from consumer electronics to automotive systems. But most chips entering the U.S. arrive pre-installed inside finished goods.

Without clear rules, it remains unclear whether the tariffs will target raw semiconductors alone or extend to components, modules, and end products.

This shift builds on multi-year efforts to localize chip production, driven by national security concerns and pandemic-era supply chain disruptions.

Although U.S.-based expansion by major chip firms is already underway, the lack of specifics around enforcement timelines, covered goods, and regulatory scope is complicating procurement and planning.

At the macro level, the tariff plan signals deeper decoupling in U.S.–Asia tech trade and could elevate production costs across downstream industries.

With tariffs now at the center of industrial strategy, businesses are reevaluating capital flows, contract manufacturing, and inventory pipelines ahead of implementation.

The degree of disruption this policy generates within the global electronics sector will depend on the clarity of its scope and the effectiveness of its implementation.

Macroeconomics

U.S. Trade Deficit Falls to 2-Year Low as Imports Plunge 

The U.S. trade deficit has fallen to its lowest level in two years, driven by a sharp decline in imports of consumer goods and industrial products.

New tariffs are beginning to reshape the trade landscape, cutting into inbound shipments while applying new pressure on the services economy.

Imports declined significantly, reflecting both front-loaded purchasing earlier this year and a shift in sourcing strategies.

Goods from China saw the steepest pullback, with the U.S. trade gap with Beijing shrinking by over 70% across five consecutive months. That decline marks the lowest level of Chinese imports since 2009.

Exports held relatively steady, though capital goods shipments reached a record high. Services, however, showed signs of strain as businesses report rising input costs tied to elevated import duties.

Many are adjusting plans as tariffs make long-term forecasting more difficult.

With the average U.S. tariff rate now above 18%, the highest since the 1930s, trade policy is influencing broader economic momentum.

The recent narrowing of the deficit added to GDP strength, but behind the headline figures, friction is building across key supply and service sectors.

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Trade

U.S. Steel Tariffs Trigger Supply Shock as Industrial Sectors Brace for Higher Costs 

Steel imports from the Netherlands to the U.S. have dropped sharply following the reinstatement of 50% tariffs, reversing a previous deal that had capped duties at 15%. U.S. customs data shows a steep cut in incoming shipments, especially from European producers, as companies adjust to the higher cost of access.

This shift signals more than just a decline in foreign steel deliveries. It reflects a broader recalibration of American trade dynamics now driven by a more protectionist agenda.

With tariffs once again applied to hundreds of derivative products, including components and packaging, the economic ripple is expanding beyond primary metals.

At a macro level, the consequences are beginning to emerge across the construction, manufacturing, and heavy industry sectors.

Tariff-induced cost pressures could impact everything from public infrastructure to defense contracts, particularly where foreign steel remains a key input.

Even downstream industries, such as packaging and machinery assembly, may feel the effects of inflation as procurement strategies tighten.

The bigger concern is the uncertainty now facing global supply chains that rely on predictable U.S. trade access.

With ongoing proposals for 100% tariffs on chips and sweeping duties on Chinese goods, key sectors in the U.S. risk bottlenecks, delays, and price hikes unless domestic production ramps up quickly.

Metrics to Watch

• Consumer Confidence Rebounds Again: The Conference Board’s July survey showed an uptick in consumer sentiment to 97.2, led by stronger expectations for future conditions.
  
  However, responses still flagged worries about jobs and tariffs, and the expectations index remained below the recession threshold of 80.
  

• Services Sector Inches Forward: ISM’s services PMI ticked down to 50.1 in July, barely above expansion territory.
  
  While activity and new orders held steady, employment continued to contract, and tariff-related concerns increased among survey respondents.
  

• Employment Trends Turn Soft: The Conference Board’s Employment Trends Index fell to 107.55 in July, its lowest level since October 2024.
  
  This echoed recent downward revisions to payroll data and reflects business hesitation around hiring amid trade uncertainty.
  

• Manufacturing Stuck in Contraction: Manufacturing PMI remained in contraction territory at 48 in July, signaling the sector is still struggling to regain momentum.
  
  While the White House touts $2 trillion in manufacturing investments, data suggests the revival remains aspirational for now.

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Market Movers

🌍 Global Scramble for Tariff Exemptions Intensifies: With Trump’s sweeping tariff regime set to escalate on Thursday, U.S. allies and adversaries alike are racing to secure carve-outs.

More than 600 products from countries like Brazil and Chile have already been exempted, and the EU, Japan, and South Korea are still lobbying for additional relief.

The exemptions are quietly reshaping trade relationships and sector winners, especially those in copper, tech, and pharma.

For investors, the next few weeks could determine which companies face margin pressure and which escape largely unscathed.

🏭 Tariffs Aim to Reshore Industry, But Manufacturing Still Lags: Despite headline deals and announcements from firms like Apple, U.S. manufacturing remains in contraction.

The July jobs report showed further losses in factory employment, and companies such as Whirlpool, Harley-Davidson, and Polaris have slowed production amid weak consumer demand and rising input costs.

Analysts say many firms remain reluctant to commit to reshoring given the volatile trade environment.

🛍️ Consumers Turn Defensive Amid Economic Jitters: American shoppers are tightening their wallets.

Consumer spending stagnated in H1, and recent earnings calls from retailers like Kroger and Procter & Gamble confirm that households are trading down, hunting for coupons, and skipping non-essentials.

Fast-casual restaurants and subscription services are reporting weaker demand, signaling broader belt-tightening ahead of back-to-school season.

📈 Services Activity Holds Ground Despite Hiring Slump: The ISM’s July reading on the services sector points to slow but steady growth.

Business activity and new orders remained healthy, even as employment fell for a second month.

Input costs are creeping up, especially in construction and logistics, but backlog growth suggests demand hasn’t fully cracked. Yet, anyways.

📉 Soft Labor Data Raises New Concerns for Q3: After last week’s disappointing 73,000 payroll print and sharp downward revisions to May and June, markets are looking for further confirmation of labor market resilience.

The July dip in the Employment Trends Index adds to the caution.

While layoffs remain rare, job openings and wage gains are starting to slip, potentially weighing on Q3 consumption.

Market Impacts

Equities: U.S. stocks treaded water overnight as traders reacted to Trump’s call for a 100% tariff on imported chips, excluding companies building in the U.S.

The S&P 500 and Nasdaq futures edged 0.1% higher, with Apple rallying 3% after committing an additional $100 billion to U.S. suppliers.

The Nasdaq is now up 2.5% for the week, erasing last week’s losses. Investors are overseeing the tape, with volatility at its lowest levels since June 2024 and earnings season showing more beats than misses.

Still, macro overhangs remain: Trump also imposed a 25% tariff on India for its Russian oil purchases, while multiple Fed speeches loom.

Bonds: Treasury yields rose following a weak $42B auction of 10-year notes, as the bid-to-cover ratio fell and demand from non-dealers lagged.

The benchmark 10-year yield climbed to 4.242%, with the 30-year hitting 4.821%. Analysts flagged the ISM services prices sub-index, which jumped to 69.9, as another red flag for stagflation.

Traders also absorbed dovish remarks from Fed officials, but rising tariffs and sticky prices have complicated the Fed’s path forward.

Upcoming Fed appointments and Powell’s potential replacement are now front and center for bond markets.

Currencies: The dollar extended its decline, falling 0.56% to 98.18 as traders ramped up expectations for two Fed cuts by year-end.

The greenback lost ground against the yen and euro, with the euro hitting a one-week high and the yen pushing below 147.

A soft Treasury auction added to pressure, as did growing speculation over Trump’s pending Fed Board nominee.

Japan is particularly exposed: top officials have warned that U.S. tariffs could hit their fragile recovery just as fiscal reform efforts intensify.

Commodities: Oil prices slid to a five-week low despite early gains, with Brent closing at $67.24 and WTI at $64.65.

Traders weighed potential sanctions on Russia and a diplomatic thaw between India and China, while digesting a surprise 3M barrel crude draw in U.S. inventories.

Gold pulled back slightly after three days of gains, settling at $3,373 as investors await Trump’s Fed picks and future signals on safe-haven demand.

Platinum and palladium both dipped, with Russia tensions easing slightly ahead of the August 8 peace deadline.

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Key Indicators to Watch

📅 Initial Jobless Claims – Thursday, August 7:
Claims are expected to rise slightly to 221,000. After last week’s weak payrolls report, this update will help investors gauge whether labor market softness is deepening.

📅 Productivity & Labor Costs – Thursday, August 7:
Q2 productivity is forecast to rebound to 1.9%, while unit labor costs are seen dropping to 1.3% from 6.6%. Together, these data points will influence how the Fed assesses wage-driven inflation risks.

📅 Consumer Credit – Thursday, August 7:
June’s consumer credit report comes amid elevated borrowing costs and fading pandemic-era savings. A sharp rise could point to growing financial strain as households lean more on debt.

📅 Fed Vice Chair Bowman Speech – Saturday, August 9:
With a rate decision looming in September, all eyes will be on Michelle Bowman’s remarks for clues on how the Fed is interpreting recent labor market and inflation data.

Everything Else

• Friday’s controversial jobs report confirmed what many investors feared: the U.S. labor market is losing steam faster than expected.

• Tariffs on Swiss goods are now trickling down to consumers, as prices rise on everything from watches to chocolate in response to the 39% levy.

• Eurozone retail sales are growing faster than initially estimated, driven by more vigorous consumer activity and upward revisions to May data.

• Amid AI-fueled optimism in tech, some economists are warning that data center expansion may be masking deeper cracks in consumer spending and real economic growth.

• Japan is pushing for the U.S. to move quickly on promised tariff relief for its auto industry, with policymakers citing mounting pressure from supply chain disruptions.