After passing his tax-cutting “big, beautiful bill”, Donald Trump has been busy reviving his protectionist agenda. Last week the US president extended the 90-day pause on his “liberation day” import duties until August 1, and wrote punchy letters and social media posts to key trade partners, goading them to strike quick deals with his administration. He also proposed a 50 per cent levy on copper and a 200 per cent charge on pharmaceutical products. Wall Street, however, reacted nonchalantly. The S&P 500 continues to trade close to record highs, over 25 per cent above the lows it dipped to in the aftermath of Trump’s initial April 2 “reciprocal” tariff announcements.

With the president’s on-and-off levy declarations, it is indeed difficult to track where US tariff rates are, let alone predict where they will end up. That said, incorporating policy announcements through to July 13, the Yale Budget Lab estimates that the overall US average effective tariff rate could rise to its highest in over a century — and around eight times higher than where it was last year. At these levels, most economists would expect tariff-induced price rises eventually to sap profit margins and growth. If so, the US stock market has not received the message. Risk appetite remains high and valuations are rich.

There are two dominant explanations for the bullishness. First, investors have warmed to the idea that the president won’t actually follow through with his worst tariff threats — also known as the “Trump Always Chickens Out”, or “Taco”, trade. The president certainly has form in postponing or cancelling harmful economic policies. Second, the duties in place so far — including a 10 per cent universal tariff — have not yet had a significant impact on inflation or economic growth.