Trade deals or tariff letters, the relentless dollar, and what the One Big Beautiful Bill means for households, markets and sectors

Over the past two weeks, the US reached a deal with Vietnam, sent tariff letters to 23 countries and extended the pause on the “Liberation Day” tariffs from 9 July to 1 August. If no further deals are reached by then, the US global import tariff rate would rise to 18% from 13% in June. Even if tariff hikes are partially reversed by the end of the year, global export losses this year could amount to up to USD337bn. The race is still on to negotiate. The EU is balancing between US demands for greater market access and regulatory changes and protecting its core interests. If no agreement is reached, the +20pps US tariff hike from August could cut EU exports to the US by -8%, causing USD50bn in losses (USD85bn in the event of a +50pps tariff hike). 215,000 jobs could be at risk, especially in Ireland, Slovakia, Hungary and Germany. As a fallback, the EU could impose retaliatory tariffs on up to EUR20bn on US imports, and accelerate trade diversification with Mercosur, India and ASEAN. The EU’s most powerful lever, however, is a deeper integration of the single market itself: A +0.9% increase in goods and services trade among EU countries would offset export losses from a +20pps increase in US tariffs.

Recent capital market flows confirm that investors have reduced their appetite for the US dollar but there is no sign of a wholesale exit. Much of the recent depreciation stems from a shift in positioning rather than substantial outflows. Crucially, the lack of viable alternatives sustains demand for the greenback. Since President Trump’s election, markets have cycled through various fears: a potential Mar-a-Lago Accord including a capital-gains revenge tax, reflation from extreme tariffs and the threat to the Fed’s independence and renewed-debt sustainability concerns. With the former two gone for now (Section 899 of the One Big Beautiful Bill off the table, tariff expectations settling around 10%), the dominant concern is now debt sustainability. As long as investors keep buying US assets and the economy remains resilient, the dollar is unlikely to falter. The EUR/USD exchange rate going to 1.30-1.40 (+10-20% from current levels) remains a low-probability downside risk.

The OBBB introduces significant fiscal changes, frontloading USD150bn in tax cuts, USD137bn in spending cuts and USD97bn in spending increases for 2026. This will result in a modest net fiscal easing of USD110bn, or 0.4% of GDP, with the fiscal deficit expected to increase to 7.6% of GDP in 2026, and close to 8% later on if GDP growth fails to reach 2.3%. The distributional effects of the OBBB are mixed; lower-income households face reductions in Medicaid and SNAP benefits, while higher-income groups benefit from tax changes. Given that higher-income households have a lower marginal propensity to consume, we expect only a modest increase in aggregate consumption by +0.3%. However, additional savings being deployed into capital markets should be a positive for financial markets, particularly risky assets. Sector impacts vary: non-food retail, construction and aerospace & defense are poised to benefit, while renewables face challenges due to repealed clean energy credits.