Global financial markets are once again in turmoil after US President Donald Trump confirmed the implementation of a 50% tariff on copper imports starting August 1.
The surprise announcement, seen as part of an increasingly aggressive trade policy approach, has sparked a new wave of concerns among investors, including the impact on inflation and the increasingly uncertain direction of the Federal Reserve’s (Fed) monetary policy.
The US dollar fell following the move, as markets began to factor in the risk that such a ‘closed’ trade policy could stunt growth and undermine price stability.
At the same time, the Fed is facing a major dilemma between fighting price pressures due to tariffs or dealing with a slowdown in demand.
Investors are now at an important crossroads. They need to be more careful in making decisions because changes in economic policy, whether fiscal or monetary, are increasingly difficult to predict and can cause significant risk exposure if they make the wrong move.
Washington’s Shifting Trade Tone Triggers Strategic Reassessment
President Trump’s move to keep high tariffs on copper despite previously postponing more comprehensive ‘reciprocal tariffs’ signals that a new phase in the trade war is now underway. Along with the formal notice to major trading partners, the move is seen by markets as a shock that could raise costs and hurt global manufacturing.
Market Impact
Copper prices surged on expectations of supply disruptions and rising costs for US producers.
Commodity exporters, particularly those reliant on copper, are now reassessing demand prospects.
The US dollar fell as markets began to doubt the resilience of the US economy under rising cost pressures.
These are not just tariffs, they signal a change in policy direction. They are creating uncertainty in global supply chains at a time when the world is still not fully stable.
The dollar-based trading position is now at high risk, especially if other countries start to respond or inflation spikes to the point where it undermines the Fed’s plans.
The Fed Now Faces New Challenges: Rising Inflation vs. Weakening Economy
Among policymakers at the Fed itself, the differences in opinion are becoming more pronounced. Some fear that tariffs will cause inflation to soar, while others see them as a squeeze on demand that could lead to an economic slowdown.
Policy Developments:
Some members of the FOMC (Federal Open Market Committee) want to keep interest rates on hold to avoid price pressures.
However, others believe that tariffs could weaken demand, making it appropriate to cut rates sooner.
Although the latest employment data shows that the economy is still strong, the market still expects that the Fed will cut interest rates by the end of the year. But if tariffs continue to rise and begin to affect inflation expectations, the Fed may have to change its approach abruptly.
Impact on the Dollar: The dollar's fall after the copper tariff announcement shows that the market no longer sees monetary policy uncertainty as a factor supporting the dollar. If the Fed continues to be confused between controlling inflation and supporting growth, confidence in the dollar could continue to decline, not only among developed countries, but also emerging markets.
Currency Markets Now at a Policy Crossroads
The "Sell America" narrative that emerged since Trump began imposing tariffs a few months ago is back. As long as US trade policy remains uncertain and unilateral, investors are expected to continue to seek safe havens such as the Japanese yen and Swiss franc, while the dollar continues to be pressured lower.
Things to Watch:
Full implementation of copper tariffs: Whether these tariffs are continued or extended to other commodities.
Fed speech: Statements from Chairman Jerome Powell or regional Fed presidents could change market perceptions.
Trade retaliation risk: If other countries respond, the dollar and risk assets could move quickly.
Conclusion
The tariff announcements are no longer just political threats, they are being implemented. This means investors can no longer hope that Washington will roll back or ease these measures. The copper tariffs are a structural measure that will affect inflation, the supply chain, and how the Fed responds to economic data.
We advise traders to remain flexible and sensitive to evolving policy signals. In this tense political and economic climate, a cautious and risk-managed trading approach is far more important than simply being confident in one market direction.
