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Daily Economic Update
09.07.2025US: Trump announces 50% copper tariff, threatens 200% pharma tariff, and hardens stance on country-specific ones. In new tariff developments, President Trump announced a sector-specific 50% tariff on copper imports, likely to go into effect on 1 August, and threatened tariffs of as high as 200% on pharmaceutical imports, but probably effective in a year or a year and a half to give time for production shifts into the US. Imposing these sectoral tariffs was expected although the mentioned rates may be higher than what the market was expecting. Additional sectoral tariffs on semiconductors, lumber, and some critical minerals may be in the pipeline as well. Trump also hardened his stance on the country-specific tariffs, contradicting what he said just 24 hours before, mentioning that there will be no change in the 1 August deadline for when these tariffs will go into effect. Despite the numerous tariff flip-flops that have characterized this US administration, we think it is more possible this time around that there will be no further across-the-board delay in starting to collect these tariffs. At the end of the day, Trump is genuinely pro-tariffs, he differs with orthodox economists about their adverse impact, and building this tariff wall remains a key cornerstone of his economic policy. Second, we think that Trump may want to put an end to the chaotic tariff turmoil which, if it continues, will negatively impact the performance of Republicans in next year’s mid-term congressional elections, risking the very slim majorities that they have in both houses. The recent strategy of sending tariff letters as opposed to continuing the trade negotiations could be a testimony to that. Third, the so-far muted inflation numbers despite already higher effective tariff rates are likely emboldening him to continue with his tariff raising strategy. However, a key matter remains the performance of US bond and stock markets between now and August 1. A big sell-off in these markets might force Trump to change course, as happened back in April.
US: Even a limited representation in Congress for Elon Musk’s new party could be positive for US debt sustainability. Elon Musk, following through on his earlier promise to launch a new political party if Trump’s so-called “Big, Beautiful Bill” is passed by Congress, formed the “America Party” a few days ago. Musk has been very explicit in opposing that debt-increasing bill specifically, but also in stressing that, if things continue as is, the US is on a path to bankruptcy. In fact, while he might have other motives, we think that his worry about the debt trajectory of the US is the main driver for him to form this new party. If this new party manages to achieve any breakthrough, even a very small representation in the US House or Senate, it could have important favorable implications for the sustainability of the US’s debt trajectory. This is because US debt has continued to pile up throughout the years, irrespective of whether Democrats or Republicans are in power. Neither party has prioritized debt and fiscal sustainability despite the ongoing and obvious worsening trend. In addition, often, debt-increasing laws/acts that have been passed by Congress were on single-party lines with knife-edge majorities. The recent Trump bill is a perfect example as it is forecasted to be debt-increasing (it actually raised the debt ceiling by $5 trillion), was passed in the Senate by a tie-breaking vote by the US Vice President, after it was passed, in its first iteration, by a single vote in the 435-member House of Representatives. Hence, precisely because of this customary knife-edge majority, a few congressmen from a third party (America Party) could have enough leverage, irrespective of whether Democrats or Republicans have a majority, to break this vicious cycle of worsening fiscal and debt dynamics, assuming of course that they will uphold their staunch objection to higher indebtedness. Having said that, the America Party’s ability to break the iron-grip dominance of the dual-party system in the US, by succeeding in having a very limited representation in Congress, is going to be a tall order.
Japan: Current account surplus widens amid looming tariff deadlines. The current account surplus rose in May to JPY3.4 trillion from JPY2.9 trillion in the corresponding period of the previous year. The trade deficit narrowed to JPY522 billion, with exports declining 1.4% y/y due to drops in automobile and steel shipments while imports fell by 7.5% on lower crude oil and coal prices. Moreover, services trade logged a JPY201 billion surplus, a turnaround from the year-before deficit of JPY52 billion mainly due to rising inbound tourism. On the other hand, the surplus in the primary income account, which mainly covers Japanese companies' dividend and interest receipts from abroad, was down by 2.7% y/y at JPY4.3 trillion as net from securities’ investments shrank due to lower bond interest income amid the yen's appreciation (7.6% y/y in May) and falling foreign interest rates. Meanwhile, top tariff negotiator, Ryosei Akazawa, reaffirmed that “Japan will continue to seek an agreement that is acceptable to both countries”, following the US announcement of a 25% tariff on Japanese goods from August 1. However, he did not reiterate the government's previous demand that the US should eliminate all tariffs in place as a precondition for an agreement. As a result of tariff concerns, the yen fell to a near two-month low at JPY146.6/$, while yields on super-long bonds with 20-, 30- and 40-year maturities rose to 2.505%, 3%, and 3.31%, nearing their mid-May 2025 peaks.
China: CPI inflation increases in June, while PPI continues its slump. CPI inflation increased to 0.1% y/y in June, beating consensus expectations of 0% and ending a four-month deflationary streak. This reversal may have been influenced by government measures in recent months, including a series of subsidies and trade-in programs designed to boost consumer spending. Core inflation (excluding food and fuel) also rose, increasing to 0.7% y/y in June after May’s 0.6%. Conversely, PPI inflation continued its slump, falling to a 23-month low of -3.6% y/y in June. The result marks the 33rd consecutive month of declines in PPI as competitive price-cutting and tariff uncertainty continue to take a toll on companies. June’s inflation results came shortly after the government vowed to tackle “disorderly low-price competition” in the country, possibly hinting at future regulation to increase CPI and reverse the PPI trend.
Saudi Arabia: Property law updated to allow foreign ownership. The Real Estate General Authority approved an updated law allowing the ownership of property by non-Saudis, effective January 2026. The move aims to boost foreign investment and liquidity within the domestic real estate sector and contribute to the development of infrastructure under the Vision 2030 initiative. It was noted that ownership will be allowed in a broad, but not unlimited range of geographic areas, while special permission will be needed for Makkah and Madinah. Detailed procedures, regulations, and legal considerations will be published within 6 months of publication in the official gazette. The new system includes several measures that allow foreigners to own real estate under specific conditions that ensure the protection of the rights of all stakeholders. It also takes into account the interest of citizens through controls and procedures aimed at maintaining market balance, according to the authorities.