A look behind the raw numbers foretells topping action. As expected, the US central bank kept interest rates unchanged, although the decision was not unanimous, with two governors dissenting. Unsurprisingly, the move irritated the President, who pointed to the 3% economic expansion in 2Q to reiterate his view that inflation is under control and that lowering borrowing costs is inevitable.

Here is what he did not mention: massive swings in the import pendulum significantly boosted the quarterly figure; annualised GDP growth in the first half of the year was just 1.25%, less than half that of the previous six months. Consumer spending declined during the same period, and core GDP, final sales to private domestic buyers, fell to a three-year low.

Yet President Trump remains so sanguine about the strength of the US economy that he imposed additional tariffs on Brazil and introduced a 50% import tax on copper. While he may have been impressed by the data tsunami, the market was not. Stock indices closed well off the day’s highs. The 15% tax on South Korean imports announced overnight, along with the threat of a 25% tax on India, is not exactly a morale booster either.

Oil followed a similar pattern, falling from its peaks but still ending the session in positive territory. Undeniably, the massive plunge in gasoline stocks supported the entire complex and outweighed the 7.7 million bbls build in crude oil inventories. Proxy demand, particularly for motor fuel, remains healthy, as the driving season still has some way to go.

Nonetheless, it is worth noting that one of the recent pillars of elevated prices, support from distillates, is beginning to erode, with inventories in this category rising by 3.6 million barrels. Meanwhile, uncertainty around secondary sanctions on Russian oil buyers also prevented oil from plummeting. The intra-day noise that keeps oil traders on edge is the zeitgeist of the Trump presidency, but it offers little incentive to commit themselves to the upside for months to come.

Y = C+I+G+(X-M) therefore (X-M) = Y-C-G-I

Investors are confident that the worst is behind them and that there will be no return to the Liberation Day nightmare. Analysts and researchers are being tasked with assessing whether, with tariffs around 15%–20%, economies are suffering significant damage or if growth estimates will be revised upwards, potentially providing further upside for equities and possibly bonds and reviving the dollar’s fortunes.

Below, we attempt to outline why analysts and market participants (including us) got it wrong 3–4 months ago, or whether the only mistake was in timing. Before delving into the issue, it must be established that the current sturdy optimism is not solely the making of the US President. After all, he inherited an economy that was already on a strong footing in January, and the unprecedented rise of the AI sector has provided invaluable support for equities in its own right.

We argued a few weeks ago that the unstoppable advance in stocks reflects investors’ ability to adapt to the capricious policymaking of Donald Trump, resulting in the belief that whenever he overpromises, he inevitably backs down. There’s probably no need for us to don sackcloth and ashes, but a second reason for this enduring optimism lies in the rather irritating sub-headline—the equation of national output (Y). Its robustness or weakness is the sum of consumption (C), investment (I), government spending (G), and the trade balance, i.e. the difference between exports (X) and imports (M). Rearranged, the trade balance always equals GDP minus consumption and government spending (aka national saving, S), minus investment. In the US, this negative imbalance arises as much from domestic consumers consuming and not saving as from foreign exporters capitalising on the massive domestic market by satisfying demand. When domestic investment exceeds savings, the country runs a trade deficit, and vice versa. To narrow this gap, a country can hinder imports, incentivise exports, and/or attract foreign investment.

Has the incumbent US administration been successful in addressing the “problem” of the trade deficit? Hell, yeah. This is what US trade negotiations are all about. Erecting import barriers reduces the trade deficit, supports domestic manufacturers, and narrows the budget deficit, which, in turn, boosts government spending, a vital component of the formula. Additional relief comes from trading partners’ commitments to invest billions of dollars into the US, further balancing discrepancies between imports and exports, or savings and investment. Even the blind can see that the road to economic Canaan is nearly complete.

That road, however, is plausibly paved with the not-so-invisible hurdles of distrust, suspicion, and animosity. Even its quality is questionable, and the constructor does not offer a warranty. To begin with, US tariff rates now average around 17%, the highest since the 1930s, up from about 3% just last year. It will be more elevated if a 25% excise duty is imposed on India, as pledged yesterday. So far, they affect a little over 45% of all US imports. The impact has been partially absorbed by importers and manufacturers (GM’s net income in Q2 2025 declined 34% year-on-year), but ultimately, the full cost will be passed on to consumers. It will lead to falling demand and rising prices. Call it reordering global trade or protectionism, but globalism as we knew it since the 1990s, an era that lifted hundreds of millions out of poverty and supported aggregate demand, is truly over. This shift will negatively impact global and regional growth, including in the US.

Secondly, scratching the surface reveals that the trade agreements are not as auspicious and credible as they appear, or as priced in by the equity market. Take the latest US-EU deal, which stipulates a significant increase, $250 billion per year, to be precise, in EU purchases of US energy products. A Reuters columnist justifiably labels it delusional. It won’t happen for two reasons. First, the figure is unrealistically high, even if Russian energy exports decline further. In 2024, total US energy exports were valued at $318 billion, with the EU accounting for $76 billion, according to Eurostat data. Second, it’s simply impossible to compel publicly traded EU energy companies to ignore shareholders’ interests and buy US LNG, oil, or coal when cheaper alternatives are available. Provisions will not be enforced.

The point is that the existing trade deals, which are far from comprehensive, have largely been secured through coercion or bullying, and agreed to reluctantly. They will likely result in inflationary pressure in the US and an oversupply of goods elsewhere. A case in point is the contracting Chinese manufacturing activity in July. The tech sector will somewhat alleviate the blow from this new economic world order, but the currently overzealous sentiment will likely sour as the consequences of tariffs begin to unfold. These trade deals are being marketed as political and economic triumphs in the US, but not all that glitters is gold. They are the product of a vanity crusade, and more often than not, they have nothing to do with reality. Books on Trumponomics and not on macro and behavioural economics will be confined to the margins of history.

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