The retreat paradox

Daily update

The latest US tax increases were a 35% tax on products from Canada—in spite of Canadian concessions over digital taxes. It is not clear if the tax applies to all Canadian products, or just products not covered by the revised NAFTA (currently taxed at 25%), or to oil (currently 10%). US President Trump signaled that when they were tired of the lost art of letter writing, all remaining countries would be taxed at 15% to 20% (the penguins of the Heard and McDonald Islands thus know their fate).
Most of Trump’s tax burden hits US consumers with a delay of several months. Potential food and fuel trade taxes would be rapidly more visible. Investors are inclined to assume that Trump will retreat as Trump has done so often. However, Trump yesterday suggested equity strength was a sign financial markets like tariffs. Thus, the paradox—markets are strong on the assumption Trump will retreat; markets being strong reduces the incentive for Trump to retreat.
UK monthly GDP data is more for political point-scoring than economic analysis. Large revisions offset the narrative of a weaker May figure.
The EU is awaiting its trade tax letter—the terms, and the prospects for a retaliatory response will be the focus for investors.