Despite summer typically being quieter, the headline-filled nature of 2025 has yet to show signs of slowing. A few notable developments have taken place recently, including the signing of a key piece of U.S. legislation and new tariff rates being proposed (including against Canada) - we discuss these items in this economic update.
We are also sharing the latest MacroMemo insights: in this update, Josh Nye (Senior Economist, RBC Global Asset Management) dives into a number of other relevant developments from the past couple weeks including some geopolitical tensions, the impact of increased defense spending, and oil prices.
Economic Update
“One Big Beautiful Bill" developments
After some political maneuvering by the Trump administration, the House of Representatives passed the Senate's altered version of the "BBB" which was subsequently signed into law by the President.
In a nutshell, the Bill includes: an extension of Trump's 2017 tax cuts, a temporary end of taxes on overtime work and tips, the cutting of Medicaid and food stamp funding, higher defense and border expenditures, and a roll-back of many clean-energy initiatives. The legislation has become a hot-button political topic with some arguing this will stimulate growth and others voicing concern over the impact to social safety nets and renewable energy. Politicians from both sides of the isle have expressed concerns surrounding the Bill's impact on the federal budget deficit. The nonpartisan Congressional Budget Office projects that the Bill will add around US$3.4 trillion to the fiscal deficit over the next decade.
Tariff news
On the tariff front, there has been a frenzy of "letters" sent by the U.S. to many major trading partners and the deadline previously slated for July 9th has been extended to August 1st. President Trump says there will be no more extensions, but the administration has shown a reluctance to follow through on policies that have generated adverse reactions in bond and equity markets.
The new rates announced, so far, have largely tracked those announced in early April. There have also been new tariff threats: an additional 10% tariff against the “BRIC” emerging markets over allegations the group is attempting to weaken the U.S. dollar, a 50% tariff on copper imports, the teasing of the potential for elevated duties on semiconductors and pharmaceuticals, and on Friday the threat of more tariffs on Canada
Canada and U.S. tariffs
Canada stands at an interesting juncture. The country was a surprising early target in the tariff war, but the U.S. backed off to some extent for a while, or at least shifted priorities to other countries. Talks between Canada and the U.S. have resumed after some brief tensions over Canada’s digital services tax, which Canada subsequently removed, and a deadline of July 21st had been set for the countries to come to some sort of deal.
Regardless, Canada was also a “letter” recipient, with a 35% blanket tariff rate now being threatened with that appearing to be a new deadline of August 1st for negotiations. It remains unclear how this will differ from the current state given exemptions for USMCA-compliant goods from broader levies have largely insulated Canadian exports. However, some pockets of the economy are still being greatly affected, particularly those directly impacted by sector-specific duties on metals and vehicles. We will be watching these developments and the new proposed copper duties closely, given the U.S. is the top recipient of Canadian copper exports.
Muted market reaction
Investors may have expected the re-emergence of "Liberation Day" tariff levels and an amalgamation of sector-specific tariffs to lead to a similar market reaction as we saw back in April. Back then, equity market volatility rose sharply. But that has not been the case this time around. Markets have been more resilient in the wake of these significant announcements, likely because they have been through this before and may be questioning the U.S. administration’s ability and wiliness to follow through. There is also some confidence that the economic and earnings trajectory has not been unduly impacted by the uncertainty created earlier this year by the tariff threats.
We remain cognizant of downside risks given stock markets are sitting close to highs, leaving them vulnerable to a negative shock or disappointment. Nevertheless, markets may remain resilient until there are more concrete signs that the uncertainty, threats, or tariffs themselves are having some sort of tangible impact on inflation, economic growth, and potentially future corporate earnings. As of now, this hasn't been the case.
From trade wars to tax cuts - MacroMemo
In this most recent episode of MacroMemo, Josh Nye (Senior Economist, RBC Global Asset Management) speaks to some of the major developments now shaping world markets and economies. This includes the relationship and tensions between the U.S. and China, the U.S.'s new tax bill, NATO defense spending, Canadian economic slowdown, and an update on the tensions between Israel and Iran.
You can watch the entire 15 minute video or read the transcript by clicking here.
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