The Global Stock Market's Desensitization to Trump's Tariffs

This week, the 90-day exemption period for reciprocal tariffs has ended, and overseas tariffs have once again stirred up waves. Starting from July 8, Trump has gradually imposed tariffs on 23 countries and threatened to impose tariffs on steel and pharmaceuticals.

However, unlike the severe fluctuations in the stock market in April, this round of tariff trading shows a clear "dulling" characteristic, as global stock markets begin to desensitize to Trump's tariffs. Looking back at April and May, tariff trading was one of the dominant factors in the stock market, and Trump's every word and action could significantly affect stock prices. Therefore, with the expiration of the 90-day tariff exemption this week, and the A-share export chain (including overseas computing power) and U.S. tech stocks having accumulated significant gains, the market has been quite concerned about the repeated tariffs. However, in hindsight, although tariffs were upgraded as expected this week, global stock markets have clearly become desensitized to "tariffs." Whether it is the stock indices of countries subject to tariffs such as Japan, South Korea, Thailand, Malaysia, and Indonesia, or the structural industries of A-share overseas computing power/CXO and U.S. tech stocks/pharmaceutical companies, despite the logical possibility of being affected by these tariffs, stock prices no longer reflect this.

Why have global stock markets begun to desensitize to tariffs? Trump's frequent "reversals" over the past three months is certainly one reason; the market has gradually realized that "tariffs can be negotiated, and if negotiations fail, they may be postponed," and is no longer trading based on Trump's every move as it did in April. However, more importantly, the fundamentals have begun to become the dominant factor in market pricing. Drawing a parallel to early 2020 during the pandemic, the market initially did not believe that the stock market could quickly fill the gap, but as global coordinated easing brought expectations of economic improvement, fundamentals became the core pricing factor driving the rise, and the stock market gradually desensitized to the pandemic. Returning to this round, the Inflation Reduction Act has brought expectations of a soft landing for the U.S., with interest rate cuts and fiscal expansion driving recovery in Europe. From a static PMI perspective, the global economy has indeed begun to show signs of coordinated recovery, with PMIs in the U.S., Europe, ASEAN, Brazil, India, and others mostly at the bottom or improving. Looking ahead, the market may, like in 2020, shift to pricing changes in fundamentals and gradually desensitize to external variables such as tariffs, making it inappropriate to treat tariffs as a primary trading factor.

Returning to A-share investment, it is recommended to similarly downplay "tariff trading" and return to fundamental pricing. The main varieties related to the global economy are in the export industry chain. Aside from the overseas computing power that is well recognized by the market, what is the fundamental position of other industries?

(1) The export chain to the U.S. is mostly in the fundamental "topping" phase and is currently in a deceleration cycle.

(2) The export chain to Europe is in the expansion phase, including offshore wind, motorcycles, and construction machinery. The differentiation in fundamental positions is behind the divergence in demand recovery between the U.S. and Europe (with recovery in the U.S. in 2024 and in Europe in 2025).

(3) On the more left side, there are some export varieties to Europe and the Belt and Road Initiative that are expected to reverse their difficulties, such as energy storage inverters, military trade, and civil aviation supply chains. Historically, export chain companies find it difficult to increase valuations, with P/E ratios fluctuating between 10-30X, centered around 15X, mainly earning money from performance. Therefore, it is recommended to prioritize motorcycles, offshore wind, and construction machinery in the expansion phase, and secondarily consider energy storage inverters, military trade, and civil aviation supply chains that are expected to reverse their difficulties. For the export chain to the U.S. that is in a deceleration phase, it is preferable to select leading companies with supply-side logic such as independent brands/store openings/increasing market share, like some home furnishing and four-wheeled vehicle leaders.

Report Body

1. This Week's Viewpoint

This week, the 90-day exemption period for "reciprocal tariffs" ends, and overseas tariffs rise again. Starting from July 7 (Beijing time July 8), Trump has gradually imposed tariffs on 23 countries and threatened to impose additional tariffs on steel and pharmaceuticals.

(1) On July 8, Beijing time, Trump imposed tariffs on 14 countries including Japan, South Korea, and Thailand;

(2) On July 10, Beijing time, Trump imposed tariffs on 8 countries including Brazil;

(3) On July 11, Beijing time, Trump announced a 35% tariff on Canada.

The above tariffs will be implemented starting August 1, with tariff rates for countries such as Brazil, Japan, the Philippines, Malaysia, Brunei, and Canada exceeding the reciprocal tariffs from April (Canada's was from March). Additionally, Trump threatened a 50% tariff on steel (effective August 1) and a 200% tariff on pharmaceuticals (which may take effect in one to one and a half years).

However, unlike the severe fluctuations in the stock market in April, this round of tariff negotiations shows a clear "dulling characteristic," with global stock markets beginning to desensitize to Trump's tariffs.

Looking back at April-May, "tariff negotiations" were one of the dominant clues in the stock market, with Trump's every word and action often significantly affecting stock prices.

For example, specifically regarding A-shares and U.S. stocks, the A-share export chain to the U.S. and domestic substitution chain, as well as U.S. tech stocks, were the three main varieties affected by "tariff negotiations." After the introduction of reciprocal tariffs, A-share export chains to the U.S. and U.S. tech stocks both experienced significant declines; on April 10, when Trump announced the 90-day exemption, A-share companies with high overseas capacity coverage to the U.S. rebounded sharply, and U.S. tech stocks also had a high rebound slope In addition, the domestic substitution chain of A-shares is also undergoing "tariff trading." On April 11, the China Semiconductor Industry Association issued a "country of origin" certification notice, leading to a surge in A-share sectors such as simulation, scientific instruments, and quartz, which then plummeted after the Sino-U.S. talks began on May 7.

Therefore, this week marks the expiration of the 90-day tariff exemption, and both the A-share export chain (including overseas computing power) and U.S. tech stocks have accumulated significant gains, raising market concerns about the repeated tariffs.

However, in hindsight, the tariffs escalated as expected this week, but global stock markets have clearly become desensitized to the "Trump tariff stick," showing characteristics of "dulling" in the "tariff trading."

From the overall performance of Japan, South Korea, Thailand, Malaysia, Indonesia, as well as A-shares and U.S. stocks, the global market no longer reacts to tariffs.

This is also true for the structure of A-shares and U.S. stocks. For example, on July 8, when Trump imposed additional tariffs on Thailand and other Southeast Asian countries, logically, it could affect A-share companies in the optical module, PCB, and some other export chains, subsequently impacting U.S. tech stocks. However, stock prices did not respond; instead, optical modules and PCBs surged. When Trump threatened to impose tariffs on pharmaceuticals, the logically affected A-share CXO and U.S. pharmaceutical companies continued to rise.

So, why has the global stock market begun to desensitize to the "Trump tariff stick"?

Trump's frequent "reversals" over the past three months is certainly one reason. The market has gradually realized that "tariffs can be negotiated, and if negotiations fail, they may be postponed," thus no longer trading linearly based on Trump's every move as it did in April.

More importantly, the fundamentals have begun to dominate market pricing, and the market may start to price in the possibility of a "global synchronized recovery." Similar to the early pandemic in 2020, the market initially did not believe that the stock market could quickly fill the gap, but as global synchronized easing improved economic expectations, "fundamentals" became the core pricing clue for the market, and the stock market gradually became desensitized to the pandemic's fluctuations. In this round, against the backdrop of a soft landing in the U.S. and rising recovery expectations in Europe, the market may indeed shift to pricing changes in fundamentals, gradually becoming desensitized to external variables such as tariffs.

Can the current global fundamentals gradually recover? First, from the static PMI perspective, there is indeed a trend of synchronized recovery globally. Currently, PMIs in the U.S., Europe, ASEAN, Brazil, and India are mostly bottoming out or showing marginal improvements.

Looking ahead, the "Great Beauty Act" brings expectations of a soft landing for the U.S., while interest rate cuts and fiscal expansion drive recovery in Europe. The "fundamentals" may continue to be the core of market pricing, and tariffs should no longer be regarded as the main trading factor.

In the U.S.: On July 4th, the "Great Beauty" Act officially came into effect. According to CRFB data, the final version will increase the basic fiscal deficit by $3.4 trillion over the next 10 years and raise the federal statutory debt ceiling by $5 trillion, marking the largest adjustment of the debt ceiling in U.S. history. This avoids the risk of the U.S. government hitting the debt ceiling "X-Date" in August-September 2025 and provides "buffer space" for government spending in the fiscal years 2025-2026. In the short term, the Great Beauty Act is expected to stimulate U.S. economic growth.

In Europe: After 24 years, Europe has experienced 8 interest rate cuts, and the PMI has stabilized and rebounded. Based on the overnight index swap implied outlook for ECB interest rate cuts, the ECB's rate-cutting cycle is nearing its end, with one more cut expected in the second half of the year. Looking ahead, Germany's fiscal policy is shifting after more than a decade of the "debt brake" system, with a trillion-euro fiscal stimulus plan introduced, which is also expected to support the economy. On June 24, 2025, the German government cabinet approved the draft budget for 2025 and the fiscal budget framework for 2026 (including a medium-term fiscal plan extending to 2029). According to the budget framework, investment amounts will significantly increase in the coming years. In 2024, Germany's investment amount is only €74.5 billion, while the newly approved investment amount for 2025 will rise to €115.7 billion, and the investment amount for 2026 is approximately €123.6 billion. By 2029, Germany will maintain an annual investment of about €120 billion.

Returning to A-share investment, global markets have already desensitized to tariffs, and it is recommended to similarly downplay "tariff trading" and return to fundamental pricing. The main varieties related to the global economy are in the export industry chain, so what is the current fundamental position of the export industry chain? It can be roughly divided into three tiers—

(1) The export chain to the U.S. is mostly in the fundamental "topping" phase and is already in a deceleration cycle.

(2) The export chain to Europe, including offshore wind, motorcycles, and construction machinery, is in an expansion phase. The differentiation in fundamental positions is behind the divergence in demand recovery between the U.S. and Europe (with the U.S. recovering in 2024 and Europe in 2025).

(3) On the more left side, there are some export varieties to Europe and the Belt and Road Initiative that are expected to see a reversal of difficulties, such as energy storage inverters, military trade, and civil aviation supply chains

For investment, the export chain is difficult to value (hard to track, too many interference factors such as exchange rates/tariffs/freight/geopolitics), mainly earning performance money. Historically, the valuation of export chain companies has fluctuated mainly between 10-30X, with a central tendency around 15X. In 2023-2024, the valuation of the export chain represented by Yutong Bus reached a maximum of around 25X.

Therefore, it is recommended to prioritize motorcycles, marine wind, and construction machinery that are in the expansion phase of prosperity, and secondarily consider energy storage inverters, military trade, and civil aviation supply chains that are expected to reverse from difficulties. For the export chain to the U.S. that is in a deceleration phase, it is preferable to select leading companies with supply-side logic such as independent brands/store openings/increasing market share, such as certain home furnishing and four-wheeled vehicle leaders.

Article authors: Liu Chenming, Zheng Kai, Yang Zezhen, Source: GF Securities, Original title: "Behind the Global Stock Market's Desensitization to Trump's Tariffs"

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