Lexicon Financial Group Weekly Update — July 2, 2025
“The benefits of a tariff are visible. Union workers can see they are “protected”. The harm which a tariff does is invisible. It’s spread widely. There are people that don’t have jobs because of tariffs but they don’t know it.”
From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel
ISSUE 186
Looking Around
Everyone remembers this line from James Cameron’s iconic 1984 movie, The Terminator: “I’ll be back.” Well, reciprocal tariffs are coming back like Arnold Schwarzenegger’s time-travelling cyborg. President Trump paused tariff implementation by 90 days and that period ends Tuesday, July 8, 2025. Analysts are expecting some measure of tariffs to be reinstated on some 180 United States (U.S.) trading partners.
The central U.S. demand from these trading partners is balancing trade. Countries who have trade surpluses--they export a greater value of goods than they import from the U.S.--will be “encouraged” to import more from the U.S. and/or export less to it. The U.S. is also pushing countries to eliminate a range of “non-tariff barriers” that may affect its export competitiveness. These barriers are drawn from the U.S. Trade Representative’s (USTR) March 2025 report and include a variety of perceived “unfair” practices, from value-added taxes (such as the Goods and Services Tax) to biosecurity standards such as those Australia applies to agricultural imports.
You may remember that there was a gathering of technology industry CEOs at Trump's second inauguration earlier this year. Well, the U.S. has demanded that (alleged) restrictions on digital trade services (such as Australia’s media bargaining code) and digital service taxes must be removed, along with corporate taxes on the U.S. tech giants. This week, Canada dropped a new digital service tax on firms such as Google and Meta, after Trump suspended trade talks last week.
On top of this, U.S. trading partners must also agree to reduce reliance on inputs from China in any exports to the U.S. This means that companies who moved manufacturing from China to countries such as Vietnam during President Trump’s first-term trade wars will face greater challenges in sourcing input components from China. This is a challenging package for any government to accept without securing something in return. So far, the U.S. has only concluded two trade agreements (with the United Kingdom and Vietnam). This despite President Trump repeatedly stating that the U.S. holds all the cards in trade negotiations.
Although no one knows precisely how many countries are negotiating bilateral deals with Washington, there are categories:
Category 1 comprises countries who were saddled with large reciprocal tariffs despite the tariff formula’s evident shortcomings. These are mostly developing countries (some with high dependency on the U.S. market) and include poor countries like Bangladesh, Cambodia, and Lesotho. These countries also have to tread a fine line, in case China views any promises to reduce dependence on Chinese inputs as compromising Chinese interests.
Category 2 consists of countries that “hold some cards” - they have some degree of leverage. Countries like Canada, Japan, India and the European Union (E.U.) will secure limited U.S. concessions although they may continue to resort to retaliation to force this outcome.
Category 3 consists of one country - China. The Chinese government is determined not to kowtow to the U.S. as they did in Trump’s first term. China holds several cards including dominance of processed critical minerals and their derivative products, particularly magnets, and the U.S.’s lack of short-term alternative supply options. After China expanded export controls on rare earths and critical minerals, shortages hit the auto industry around the world and in the U.S. Ford was forced to idle plants.
More deals may be signed before July 8 but it is possible that Trump will change course as he has done in the past, such as the 90-day pause on reciprocal tariff implementation. For example, after England announced that their deal with the U.S. included relatively favourable automotive and steel export market access, the U.S. administration doubled tariffs on steel imports to 50 per cent, and reimposed the 25 per cent tariff on the U.K.
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
The state of Canada’s economy halfway through 2025
Why is the US dollar falling by record levels in 2025?
Trump's Auto Tariffs Strike at the Heart of Japan's Economy
There is a chance the Supreme Court may rule Trump cannot change tariffs by decree. Other countries may not wait for this decision and decide to act. The Japanese government, for example, recently announced it is pausing negotiations, after the U.S. demanded increased defence spending.
On Sunday last week, Trump suggested he would simply send letters to foreign nations setting a tariff rate and that would be the end of the trade deal. It is likely tariffs will be reimposed and bilateral negotiations will drag on to September or beyond, as Treasury Secretary Scott Bessent has stated recently. Interestingly, the U.S. government does not have the bandwidth to process so many simultaneous negotiations all at once. Going forward, category 2 trading partners will increasingly test their own political and economic limits while the rest of the world hopes for a favourable Supreme Court ruling. This may, like the character Godot in the play Waiting for Godot, never come. (1)
A recent analysis found that a critical group of U.S. companies that are more dependent on imports from China, Thailand, and India could face a direct cost of US$ 82.3 billion from Trump’s current tariff plans. This could potentially be managed through price hikes, layoffs, hiring freezes or lower profit margins. Goldman Sachs said in a report that it expects companies to pass along 60 per cent of their tariff costs onto consumers. (2)
How markets fare moving forward depends on how the U.S. and global economies adapt or react in the coming months. This situation will be challenging. In the meantime, we are always available to help you navigate these turbulent waters.
Looking Back
Canada’s main stock index, the S&P/TSX composite index (TSX), pulled back last Friday from a record high due to declines for mining shares, as data showed the domestic economy contracting. Canada's economy contracted by 0.1 per cent in April from March, as U.S. tariff uncertainty weighed on the goods-producing sector. Preliminary data pointed to a further decline in activity for May.
This was not helped by Trump deflating optimism about a U.S.-Canada tariff deal by halting trade talks. However, the TSX still ground out a 0.7 per cent gain, as cooling Middle East tensions boosted investor sentiment. (3)
In the U.S., the S&P 500 Index and Nasdaq Composite hit all-time highs. Stocks rallied in response to several positive developments during last week such as de-escalating tensions in the Middle East, comments from several Federal Reserve (Fed) officials indicating rate cuts could be on the table sooner rather than later, reports that the U.S. and China signed a new trade deal, and comments from several U.S. government officials indicating that more trade deals were close to the finish line. The S&P 500 Index and Nasdaq Composite ended last week up 3.44 per cent and 4.25 per cent respectively, while the Dow Jones Industrial Average rose over 2.5 per cent.
More significantly, inflation moved slightly higher in May, according to the Bureau of Economic Analysis’ personal consumption expenditures (PCE) price index—the Fed’s preferred measure of inflation. Core PCE—which excludes volatile food and energy costs—rose 0.2 per cent month over month and 2.7 per cent year over year in May, both slightly ahead of consensus estimates and up from April’s readings.
The pan-European STOXX Europe 600 Index ended 1.32 per cent higher last week, as a ceasefire between Israel and Iran appeared to hold and fears of a prolonged trade conflict seemed to ease. The promise of German economic stimulus and increased military spending by NATO also buoyed other European stock markets to positive gains. Notably, inflation rose faster than expected in France and Spain.
Japan’s stock markets advanced strongly last week, as Japanese technology stocks registered solid gains, and investor risk appetite was supported by easing concerns about a global trade war as well as early signs that the ceasefire between Iran and Israel appeared to be holding. Inflation, however, remains above Bank of Japan’s two per cent target, which supports the case for further interest rate hikes by the Bank.
Mainland Chinese stock markets rose last week following news that the U.S. and China finalized a trade understanding reached in Geneva last month. On the economic front, the People’s Bank of China (PBOC) noted that China’s economy is showing positive signs and rising confidence, but insufficient domestic demand and deflation continued to weigh on economic activity. (4)
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
‘I’m going to send letters’: the deadline for Trump’s ‘reciprocal’ trade tariffs is looming, Peter Draper, Kumuthini Sivathas, Nathan Howard Gray, The Conversation, July 1, 2025
Analysis shows Trump’s tariffs would cost U.S. employers US$82.3 billion, The Associated Press, BNN Bloomberg, July 2, 2025
TSX pares weekly gain as mining shares drop, Fergal Smith, Reuters, June 27, 2025
Global markets weekly update - U.S. inflation ticks higher in May, T. Rowe Price, June 27, 2025
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Looking to Learn?
If you want to know more about some of the topics we wrote about this week, just click on the links below:
Trump's tariff pause is set to expire, threatening a trade war flare-up
US-Canada trade deal talks restart after Mark Carney drops plans for a digital services tax