US Flash PMI: Growth accelerates in July as rising demand for services offsets manufacturing dip

The headline S&P Global US PMI Composite Output Index rose sharply from 52.9 in June to 54.6 in July, according to the ‘flash’ reading (based on about 85% of usual survey responses). The latest reading signalled the fastest rate of growth recorded so far this year, with output having now increased continually for 30 months.

July’s expansion was powered by the services economy, where business activity rose at a rate not seen since last December. Although manufacturing output also rose, up for a second successive month, the rate of production growth moderated to signal only a modest expansion.

New orders growth also accelerated to match the pace seen back in May, albeit with an improvement in new business inflows into the service sector being offset by the first (albeit marginal) drop in factory orders recorded so far this year. In both cases, total new orders were adversely impacted by a fall in exports, which collectively fell for the third time in the past four months and at the sharpest rate since April.

While service providers saw improved domestic demand from both households and businesses, the renewed drop in demand in the manufacturing sector was often attributed to tariffs, higher prices and heightened economic uncertainty.

The deteriorating manufacturing picture was also linked to inventory control. Having built up their inventories of both raw materials and finished goods in May and June, often attributed to factories and their customers seeking to front-run tariffs, manufacturers reported lower stock holdings in both cases during July. Purchasing of inputs likewise rose at a sharply reduced rate amid reduced reports of the need to front-run potential tariff hikes on imported goods. Supplier deliveries quickened as a result of the reduced pressure on supply chains.

Price pressures intensified across both manufacturing and service sectors during July, widely blamed on higher goods prices due to tariffs but also in some cases due to rising labor costs. Average prices charged for goods and services rose at a rate just shy of May’s recent high to register the second-strongest monthly increase since September 2022.

Services price inflation accelerated to register the second-steepest increase since April 2023 and, although factory gate selling price inflation eased, the rise in charges for manufactured goods was the second largest since November 2022.

Input cost inflation also picked up again, having eased slightly in June, registering the second-steepest rise since January 2023. The rate of input cost inflation remained especially sharp in manufacturing, despite cooling compared to June’s post-pandemic peak, and accelerated in services.

Close to two-thirds of all manufacturers reporting higher input costs attributed these to tariffs, whilst just under half of respondents explicitly linked their increased selling prices to tariffs. However, the tariff impact was by no means limited to factories, as around 40% of service providers reporting higher selling prices explicitly mentioned tariffs.

Employment rose for a fifth straight month as companies took on additional staff in response to rising backlogs of work. Uncompleted orders rose at a pace not witnessed since May 2022.

However, these trends varied markedly by sector. Backlogs rose at the steepest rate for over three years in the services economy as firms struggled to meet demand, despite reporting the largest gain in payroll numbers since January. In contrast, manufacturing backlogs fell, causing a drop in factory payrolls for the first time in three months.

Companies’ expectations about output in the year ahead fell for a second successive month in July, dropping further below the survey’s long-run average amid declines in both manufacturing and service sector confidence. Although optimists continued to outnumber pessimists, sentiment in July was the lowest recorded for just over two-and-a-half years bar only April’s recent nadir.

Reduced optimism again primarily reflected broad-based concerns over tariffs and cuts to state funding following recent federal government policy changes. Even in manufacturing, any protectionist benefits of import tariffs were often outweighed by concerns over higher prices and rising costs.

The S&P Global Flash US Manufacturing PMI fell to 49.5 in July, down from June’s 37-month high, signaling a renewed deterioration of factory business conditions for the first time since December.

Production growth slowed as new orders placed at factories fell for the first time this year. Both employment and inventories of purchases also dropped for the first times since April. Supplier delivery times meanwhile quickened for the first time since September last year, improving to the greatest extent for 17 months in a sign of less-busy supply chains (and hence also pulling the PMI lower).

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence:

“The flash PMI data indicated that the US economy grew at a sharply increased rate at the start of the third quarter, consistent with the economy expanding at a 2.3% annualized rate. That represents a marked improvement on the 1.3% rate signalled by the survey for the second quarter.

“Whether this growth can be sustained is by no means assured. Growth was worryingly uneven and overly reliant on the services economy as manufacturing business conditions deteriorated for the first time this year, the latter linked to a fading boost from tariff front-running.

“Business confidence about the year ahead has also deteriorated in both manufacturing and services to one of the lowest levels seen over the past two-and-a-half years. Companies cite ongoing concerns over the impact of government policies, notably in terms of both tariffs and cuts to federal spending.

“Inflation pressures have meanwhile intensified. Companies most commonly attributed higher costs and selling prices to tariffs, though increased labour costs are also prevalent, in part reflecting labor shortages.

“The rise in selling prices for goods and services in July, which was one of the largest seen over the past three years, suggests that consumer price inflation will rise further above the Federal Reserve’s 2% target in the coming months as these price hikes feed through to households.”

 

Trump’s Tariffs Are Being Picked Up by Corporate America Neither consumers nor foreign countries are assuming much of the tariff burden. At least not yet.

The U.S. has collected an additional $55 billion in tariffs this year. Corporate America has largely shouldered the bill. (…)

It is becoming increasingly clear that U.S. businesses, from General Motors and Nike to the local florist, are absorbing much of the costs for now. In a competitive market, a company that hikes prices could lose market share to a rival that keeps its prices steady. Many are reluctant to raise prices until they absolutely must, and until they know the ever-changing tariffs are sticking around. In some cases companies have said they plan to raise prices in the months to come. (…)

Inflation has begun to tick up for some tariffed goods, including furniture, toys and clothes. So far those increases have been relatively mild. The June inflation reading moved to 2.7% from a year earlier, versus a 2.4% increase in May. The increase has been slower than expected partly because many companies pulled back on buying or stocked up on inventory before tariffs took effect, and partly because companies are choosing to absorb the hit for now. (…)

General Motors said this week it paid more than $1 billion in tariffs on automotive imports in the second quarter. The company hasn’t implemented wide-scale price increases in response to tariffs but hasn’t ruled out price hikes, Chief Executive Officer Mary Barra said Tuesday. Stellantis, the Netherlands-based parent of the U.S. brands Ram and Jeep, this week said tariffs on automotive imports cut $350 million from its bottom line.

Tariffs clipped the profit of RTX, the aerospace and defense company said. The toy maker Hasbro said Wednesday that the financial impact of tariffs was less than expected in the most recent quarter, but that some of the effects could still be coming. Tariffs will likely create a $60 million expense for the full fiscal year, the company said.

Toy prices are likely to go higher later this year, Hasbro Chief Executive Chris Cocks said. “Usually it takes five to eight months for a toy to go from the factory to the shelf,” he said. For now some retailers are delaying their purchases, and Hasbro is compensating for higher tariff costs through cost cuts, working with new suppliers, introducing new products and increasing prices, he said.

Last month, Nike executives said tariffs would trim the company’s profit by around $1 billion this fiscal year, with most of the hit in the first half, before their mitigation efforts can take effect. “Surgical” product price increase will flow to shelves later this year, said Matthew Friend, Nike’s chief financial officer.

Economists estimate the effective average tariff rate on all imported goods is now nearing 17%, up from 2.3% last year. (…)

Goldman Sachs conducted what it called a more granular analysis of import prices and concluded that foreign companies, particularly those in China, appear to be absorbing around 20% of tariff costs through price cuts. (…)

In May, Walmart said that it had started raising some product prices to offset the cost of tariffs and that more price increases would come this summer. (…)

Shayai Lucero, a florist near Albuquerque, N.M., is swallowing some of the extra cost of tariffs, while also raising prices. The imported long-stem roses from South America she buys from U.S. wholesalers used to cost $1.15 to $1.35 each but are now running $1.95 to $2.15 apiece. That has forced her to raise her price for a vase of a dozen roses to $69 from $60, she said.

The floral wreaths and foam she imports from China have also climbed in price since Trump added 30% tariffs on those imports. A heart-shaped wreath from China that used to cost $24 recently jumped to $38. That and higher flower prices cut the profit on an arrangement she recently made for a funeral to $6 from $30, she said.

She worries that higher prices could lead to lost business. “It’s that real fine line of do I lose customers or do I stay in business?” she said. (…)

Some footwear companies have announced plans to increase prices in the coming weeks, said Matt Priest, CEO of the Footwear Distributors and Retailers of America, a trade association.

“A lot of the impact has so far been absorbed by the brand and the retailer, but they can only hold on for so long,” Priest said of his member companies. About 99% of shoes sold in the U.S. are imported from China, Vietnam, Italy and other countries.

From my July 18 post:

Some import prices: last 3m a.r., June YoY (%)

• All imports excluding food and fuels: 3.3  1.0
• Industrial supplies & materials excluding fuels: 3.7  4.3
• Industrial supplies & materials, durable: 8.5  5.7
• Unfinished metals related to durable goods: 13.0  5.7
• Finished metals related to durable goods: 19.3  12.3
• Capital goods: 3.6  1.0
• Automotive vehicles, parts & engines: 0.8  0.9
• Nondurables, manufactured: 1.6  -1.2
• Durables, manufactured: 2.0  –0.1

The consumer side has been spared for the most part so far (last 3 lines) but there is acceleration. Industrial prices are exploding. Remember, import prices do not include tariffs.

The Harvard Business School Pricing Lab uses real-time online pricing data from four major U.S. retailers to track the prices of more than 300,000 products by country of origin.

The lab monitors goods from Canada, Mexico, China and those produced domestically.

It released a paper on July 17 covering data through July 15.

(…) Our data span from October 1, 2024 to July 15, 2025. (…)

The 2025 tariffs on Chinese goods first became binding on February 4, at a rate of 10%, but had little immediate effect on these retail prices. The situation changed on March 4—marked by a dashed vertical line in the figure—when the U.S. imposed 25% tariffs on imports from Canada and Mexico, along with an additional 10% tariff on Chinese goods. Immediately afterward, the prices of imported goods increased by approximately 1.2 percentage points, while domestic goods prices rose by roughly half as much.

After Liberation Day on April 2, the rate of price growth for imported goods quickly accelerated, coinciding with the announcement of a baseline 10% tariff on goods from all countries.
For Chinese goods, the tariff was raised to 125% on April 10 as trade tensions between the two countries escalated. Domestic goods prices also increased during this period, but at a significantly slower pace.

Prices responded again after May 12, when the US temporarily reduced additional tariffs on Chinese goods to 10% for a 90-day period. Following the announcement, there was a modest and short-lived decline in prices across all goods. However, by early June, both imported and domestic goods appeared to resume their prior trends.

While these results show relatively quick price responses to tariff announcements, the overall magnitude of these changes remains modest. Across the entire sample, the cumulative increase in imported goods prices since early March is approximately 3 percent. This increase is still small relative to the size of some of the announced tariff rates, particularly for Chinese goods.

These findings are consistent with patterns observed during the first round of U.S. trade tensions in 2018–2019.

(…) the price increases observed for domestic goods suggest that tariffs have broader effects beyond directly targeted imports. (…)

Many U.S.-made products rely on imported inputs—such as components, packaging, or raw materials—from tariffed countries. Even when final assembly occurs domestically, firms may raise prices to reflect rising input costs. In addition, as tariffs make imported goods more expensive, firms may anticipate a shift in demand toward domestic substitutes. Expecting this substitution, they may increase prices on U.S.-made goods, especially in categories where domestic and foreign products are close substitutes. (…)

After the ”Liberation Day” announcements on April 2, price trends between these countries began to diverge. Chinese prices continued to rise steadily in the weeks that followed, as the trade tensions escalated, with the US imposing tarrifs rates up to 125% on Chinese imports. Canadian prices increased in late April but soon declined again. Mexican goods saw a more distinct divergence, with prices dropping after April 2.

This divergence likely reflects a higher number of exemptions for Mexico and Canada—particularly for goods compliant with USMCA—and growing expectations of an imminent trade agreement with these countries. (…)

The [next] figure shows that in early March, prices of domestically produced goods in affected categories rose in parallel with those of imported goods. However, starting in April, the two trends began to diverge: import prices continued to increase—driven by tariff pass-through and ongoing supply-chain frictions—while domestic prices in the same affected categories grew at a lower pace. Following the announcement of the tariff pause with China on May 12, domestic prices in these categories fell temporarily.

By contrast, domestic goods in unaffected categories experienced a more gradual and steady price increase. This pattern may reflect uncertainty regarding which sectors or inputs might eventually be subject to tariffs. Firms in these categories may have responded more slowly, incrementally adjusting prices in anticipation of future tariffs or disruptions.

Alternatively, retailers might have raised prices more broadly to protect margins amid growing uncertainty or to preserve relative pricing structures across different product categories. (…)

Our analysis reveals that the announcement of U.S. tariffs prompted rapid but still relatively modest price adjustments, with the extent of these changes varying by product origin and category.

The most pronounced price increases occurred among imported goods, which have risen approximately 3 percent since early March. However, domestic products also saw some gains, likely driven by expectations of rising input costs and shifts in consumer demand.

Notably, we observe differences across countries: price increases for Chinese goods were both larger and more persistent than those for products from Canada and Mexico, where retailers may have viewed the tariffs as more temporary or less likely to be sustained. Importantly, price pressures extended beyond directly affected categories, with even unaffected sectors showing gradual increases—suggesting broader strategic pricing and supply chain spillovers.

These findings underscore the wide-ranging impact of trade policy, which can influence retail prices far beyond the specific goods targeted by tariffs.

• Volkswagen Cuts Guidance After $1.5 Billion Tariff Hit

(…) Net cash flow at its automotive division is now seen at between €1 billion and €3 billion from €2 billion to €5 billion previously (…). Volkswagen said the lower end of the forecast ranges assume the current U.S. import tariffs of 27.5% will continue to apply in the second half of 2025. The upper end assumes these tariffs will be reduced to 10%. (…)

“What really matters is cash in the bank,” Volkswagen Chief Financial Officer Arno Antlitz said in a statement. (…)

Tariffs are outgoing cash.

• Puma Plunges as New CEO Cuts Outlook on Weak Demand, Tariffs The company anticipates US tariffs to hurt gross profits this year by about €80 million.

  Year-to-date, 28% fewer Canadian residents have crossed the U.S. border by car than by this point in 2024.

Data: Statistics Canada. Chart: Axios Visuals

SENTIMENT WATCH

Independents Drive Trump’s Approval to 37% Second-Term Low

Six months into his second term, President Donald Trump’s job approval rating has dipped to 37%, the lowest of this term and just slightly higher than his all-time worst rating of 34% at the end of his first term. Trump’s rating has fallen 10 percentage points among U.S. adults since he began his second term in January, including a 17-point decline among independents, to 29%, matching his lowest rating with that group in either of his terms.

For their part, Republicans’ ratings have remained generally steady near 90% and Democrats have been consistently in the low single digits.

These latest findings are from a July 7-21, 2025, Gallup poll, which began days after Trump signed into law the One Big Beautiful Bill Act on July 4. The law addresses many of Trump’s second-term priorities, including tax cuts for individuals and corporations and increased spending for border security, defense and energy production. It also cuts funding for healthcare and nutrition programs such as Medicaid and the Supplemental Nutrition Assistance Program to offset some of the costs of the tax cuts and spending increases.

Trump closes out the second quarter of his second term in office having accomplished much of what he said he would do if elected. Yet, outside of his Republican base, relatively few Americans are pleased with his performance. His rating has fallen to the lowest point of his second term, essentially matching where he was at the same time in his first term, which is not much higher than his all-time worst rating. He also gets generally poor marks for handling key issues, including immigration and the economy, which were major focuses of his campaign.

“No more than 36% of independents approve of the president’s job performance” on any of the eight issues Gallup polled: (Axios)

• The situation with Iran (36%).
• Foreign affairs (33%).
• Immigration (30%).
• The economy (29%).
• Foreign trade (27%).
• Israel (27%).
• The situation in Ukraine (24%).
• The federal budget (19%).

Data: Gallup. Chart: Axios Visuals

Five-Cent Meme Stock Makes Up 15% of Trading on US Exchanges

Shares of tiny Healthcare Triangle Inc. stood out as the most actively-traded name on US exchanges on Thursday, another example of how investor exuberance is fueling wild gyrations throughout the equity market.

The little-known healthcare information technology company saw its stock price more than double to just above five cents, with over 3 billion shares changing hands. That was equivalent to about 15% of the total shares traded on US exchanges for the day, data compiled by Bloomberg show.

After surging 138% at the open, Healthcare Triangle’s shares closed up 115%, with no apparent news to spark the eye-popping move.

The total value of shares traded for the day stood at approximately $150 million, nearly seven times the company’s market capitalization.

The surge was among the latest manifestations of the meme stock mania that has sparked rallies in speculative names, with Kohl’s Corp., GoProInc. and Krispy Kreme Inc. among the list of companies whose shares have seen big moves. Shares of Opendoor Technologies, which shot higher on Monday, were also notable for massive trading volumes.

China’s Unitree Offers a Humanoid Robot for Under $6,000

Unitree Robotics is marketing one of the world’s first humanoid robots for under $6,000, drastically reducing the entry price for what’s expected to grow into a whole wave of versatile AI machines for the workplace and home.

The startup, among the frontrunners in Chinese robotics, on Friday announced its R1 bot with a starting price of 39,900 yuan (or $5,900). The machine weighs just 25kg and has 26 joints, the company said in a video posted to WeChat. It’s equipped with multimodal artificial intelligence that includes voice and image recognition.

The four-figure price tag highlights the ambitions of a new generation of startups trying to leapfrog the US in a groundbreaking technology. Unitree rose to prominence in February after CEO Wang Xingxing joined big names like Alibaba Group Holding Ltd.’s Jack Ma and Tencent Holdings Ltd.’s Pony Ma at a widely publicized summit with Chinese President Xi Jinping.

The new robot’s launch coincides with China’s biggest AI forum, set to kick off this weekend with star founders, Beijing officials and AI-hungry venture investors converging in Shanghai. The World Artificial Intelligence Conference will bring together many of the key figures expected to drive China’s efforts around AI, which is finding a physical expression in the rapid development of more humanoid robots.

After decades of dominance by American companies like Boston Dynamics, Chinese companies are pushing ahead with humanoids for factories, households and even military use. Pricing is crucial to their proliferation. (…)

Rival UBTech Robotics Corp. said recently that it planned a $20,000 humanoid robot that can serve as a household companion this year, seeking to expand beyond factories.

If it works as advertised, Unitree’s new robot would mark a milestone for the robotics industry, particularly when it comes to complex humanoids. Morgan Stanley Research estimates that the cost of the most-sophisticated humanoid in 2024 was around $200,000.

FLASH PMIs

Eurozone output growth at 11-month high as new orders stabilise

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index rose to 51.0 in July from 50.6 in June. The latest reading signalled a seventh consecutive monthly increase in business activity across the euro area. Although modest, the pace of growth quickened for the second month running and was the sharpest since August last year.

Output increased across both the manufacturing and services sectors, but for the first time in four months the services category posted the stronger pace of growth as the rate of expansion quickened to the fastest since January. Meanwhile, manufacturing production rose marginally, and at a fractionally slower pace than in June.

Differing trends were recorded across the various areas of the Eurozone covered by the flash PMI release. Germany posted a marginal increase in output for the second month running. In France, activity decreased again but at the slowest pace in the current 11-month sequence of decline. Meanwhile, the rest of the euro area registered a solid expansion in output that was the most marked since February.

July data pointed to a stabilisation of new orders, thereby ending a 13-month sequence of contraction. Services new business increased for the first time in six months, but this was cancelled out by a renewed fall in manufacturing new orders. While total new business stabilised, new export orders (which include intra-Eurozone trade) decreased again. The latest fall was modest, but quicker than that seen in the previous survey period. New business from abroad has declined continuously on a monthly basis since March 2022.

Higher activity requirements and a stabilisation of new orders encouraged companies in the Eurozone to raise their staffing levels again in July, extending the current period of job creation to five months. The pace of job creation was marginal and unchanged from June. Employment increased in the services sector but continued to fall in manufacturing, although the latest reduction was the least pronounced since June 2023. The overall increase in workforce numbers was reflective of job creation outside the largest two euro area economies as Germany and France continued to post declining staffing levels. In fact, outside the ‘big-2’ the pace of job creation was the strongest in just over a year.

Backlogs of work decreased again in July, but the pace of depletion was only slight, having eased for the second month running to the weakest since April 2023

Although input costs continued to increase in July, the pace of inflation eased to a nine-month low and was weaker than the series average. Services input prices rose at a slower pace, while costs in the manufacturing sector continued to decrease. That said, the latest fall was only fractional and the softest in four months.

Manufacturing output prices were unchanged in July, ending a two-month sequence of decreases. Meanwhile, the pace of services charge inflation softened. Overall, companies in the euro area raised their output prices modestly, and at the same pace as in June.

The pace of selling price inflation in Germany eased over the month, but faster increases were seen in France and the rest of the Eurozone.

After business sentiment hit an 11-month high in June, confidence dipped slightly in July. As such, optimism remained weaker than the series average. Sentiment was lower across both monitored sectors. Business confidence declined in France during the month, after having jumped in June. Elsewhere, however, optimism strengthened. In Germany, sentiment hit a 14-month high, while the rest of the euro area signalled the strongest confidence in the year-ahead outlook since February. (…)

There is good news for the ECB, as the disinflation trend has continued in the closely watched service sector. Prices for goods did not fall further in July, but the stronger euro and US tariffs are likely to exert downward rather than upward pressure on inflation in the coming months.

In the UK:

Overall export sales decreased for the ninth consecutive month, albeit to the least marked extent since January. Goods producers widely reported a negative impact on global demand for manufacturing items in the wake of US tariff announcements, with shipments delayed and investment decisions postponed. Manufacturers also noted that rising competition in international markets had constrained export order intakes.

Service providers also recorded a decline in new work from abroad in July, but the rate of contraction was only marginal. While survey respondents mostly noted subdued overseas demand, some firms commented on successful efforts to diversify into new export markets in response to weak domestic sales.

Japan: Stronger service sector growth offsets fresh decline in manufacturing output

At 51.5 in July, the headline seasonally adjusted S&P Global Flash Japan PMI Composite Output Index was unchanged from June and signalled a further modest increase in overall private sector output. Business activity has now risen in each of the past four months, with the rate of expansion slightly quicker than seen on average over the first half of 2025.

A solid and accelerated rise in service sector activity contrasted with a renewed drop in factory production during July. Improved activity levels were generally linked by survey respondents to firmer demand conditions and increased client numbers. However, lingering uncertainty over future US trade policy and general market malaise were cited as key factors that had dampened the performance of the manufacturing industry.

New business across Japan’s private sector as a whole rose at a pace that, though marginal, was the strongest in three months. As was the case for output, this reflected a sustained rise in new work placed with services companies, as factory orders continued to decline.

At the same time, there was a broad-based reduction in new orders from abroad, with manufacturing firms registering a steeper decline than service providers. Overall, new export business fell at a modest pace that was the most pronounced in nine months.

Overall business confidence regarding the year-ahead weakened during July, hitting the second-lowest level since August 2020 (after April 2025). Lower levels of optimism were seen across both the manufacturing and service sectors, with companies often expressing concerns over US trade tariffs and the potential impact on demand. A shrinking population, labour shortages and high costs were also cited as headwinds to growth.

Subsequently, Japanese private sector firms adopted a more cautious stance regarding staff hiring, with overall employment rising at a marginal rate that was the weakest in a year-and-a-half.

Although the rate of input cost inflation across the private sector as a whole eased to its weakest in just over four years, it remained sharp overall. Firms often mentioned that higher labour, fuel and raw material costs had pushed up expenses in the latest survey period. As a result, companies increased their selling prices again in July. At the composite level, the rate of output charge inflation slowed from June but was nevertheless solid overall.

Trump’s Japan Trade Deal Raises Fears He Gave Away Too Much

US industries and protectionists are raising alarms with President Donald Trump’s pact with Japan, saying it risks undercutting his stated goals of rebalancing America’s trading relationships and reviving domestic manufacturing. (…)

The president’s decision to grant Japan relief on automobiles, however, provoked criticism that the agreement wouldn’t address the main source of the US’s trade deficit with Japan even as it disadvantages Detroit’s Big Three. Around 80% of the US-Japan trade gap is in cars and car parts.

Tuesday’s announcement marked the latest signal that Trump is willing to negotiate on industry-specific duties on products including chips and pharmaceuticals, potentially undermining the most durable pillar of his tariff strategy.

The reaction underscores the risks of the president’s transactional negotiating style. Industries that have championed much of Trump’s trade strategy and stand to benefit from robust levies on foreign rivals could be left in the lurch as his plans shift.

“Any deal that charges a lower tariff for Japanese imports with virtually no US content than it does North American built vehicles with high US content is a bad deal for the US industry and US auto workers,” said Matt Blunt, president of the American Automotive Policy Council that represents Ford Motor Co., General Motors Co. and Stellantis NV.

Trump defended his approach, which resulted in a deal to reduce Japan’s country-specific rate to 15% and put US levies on cars and parts at the same level — lower than the 25% global charge on vehicles.

“I WILL ONLY LOWER TARIFFS IF A COUNTRY AGREES TO OPEN ITS MARKET. IF NOT, MUCH HIGHER TARIFFS! Japan’s Markets are now OPEN (for first time ever!). USA BUSINESSES WILL BOOM!” Trump posted.

His Commerce Secretary, Howard Lutnick, argued in a Bloomberg Television interview on Wednesday that it was also ratcheting up pressure on South Korea and Europe to make additional concessions or risk their automakers being left at a significant disadvantage. And White House Press Secretary Karoline Leavitt said Trump’s approach was breaking down barriers for US products abroad. (…)

Even so, automakers and other industry stakeholders were crying foul Wednesday. They warned that giving Japan an unlimited reduction on auto tariffs undermines the use of those levies not just for cars, but also metals, semiconductors and other goods.

“Unlimited imports at tariff rates below existing Section 232 rates critically undermine” the intention of the law and could actually encourage offshoring, said Jon Toomey, executive director of the Coalition for a Prosperous America, an advocacy group representing import-threatened industries that supports tighter trade controls.

The provision on Japanese autos is far more expansive than the steel and aluminum tariff reduction Trump gave the UK, which allows a limited quota of imports to enter the US at a reduced rate. (…)

Other countries already are clamoring for sectoral tariff relief, and the US-Japan trade deal sends a signal that they are up for negotiation, people familiar with the matter said. Two of those individuals predicted the agreement will also add leverage to the auto and oil industries’ pleas for relief from steel duties.

“It doesn’t make sense to allow for unlimited vehicle imports at 15%, while charging rates of 25% on auto parts and 50% on steel,” Toomey added. (…)

The US-Japan deal’s emphasis on investment suggests the promise of more revenues has taken priority over the push to protect domestic industries, one person familiar with the matter said.

While direct foreign investment in the US could help expand domestic manufacturing and artificial intelligence capacity, it won’t necessarily make the country’s exports more competitive on its own.

And some analysts raised doubts about whether Japan’s promises to open its markets to US products would prove meaningful. (…)

Even so, a major impediment to US auto sales in Japan is the American designs themselves — not just trade barriers. Put simply, Japanese consumers are less interested in driving Fords and GMs than Americans are in Toyotas and Hondas. Japan sells the US about 84 cars for every one the US sells there.

“American cars that are big just don’t comport well with the needs, desires and demands of the Japanese public” said Colin Grabow, an associate director at the Cato Institute’s trade policy center. “It’s unclear what the payoff here is.”

The WSJ Editorial Board:

(…) The new tariff rate is good news only as relief from 25%. This is still a 15% tax increase on imports from Japan. (…)

By the way, more investment inflows by definition mean a larger trade deficit in the U.S. balance of payments. Has someone told the President about this? (…)

One positive development is the apparent reduction in U.S. auto tariffs from 25%. Perhaps the Administration is noticing that forcing Americans to pay higher prices for the cars they want to buy isn’t a political winner. Yet the 15% rate still marks a substantial increase over the 2.5% tariff that applied to passenger cars before Mr. Trump took office. The U.S. already applies a 25% tariff on imported trucks.

This highlights the economic bramble into which Mr. Trump has stumbled with his tariffs-first-negotiate-later approach to trade. U.S. auto makers are worried that Japanese companies will enjoy preferential tariff rates while Detroit could be stuck paying 25% on imports of cars and parts that U.S. companies ship from Mexico and Canada. (…)

By the time this trade war ends, if it ever does, the average U.S. tariff rate may settle close to 15% from 2.4% in January. That’s an anti-growth tax increase. The question for Trumponomics now, as in the first term, is whether the pro-growth elements of his tax and deregulatory agenda overwhelm the tariff damage. (…)

Tourists Tame Their Shopaholic Ways, If They Even Come to the US

(…) President Donald Trump’s global trade war and border policies — combined with broader economic uncertainty — are threatening billions of tourism dollars. Bloomberg Intelligence estimates almost $20 billion in retail spending is at risk this year.

Some travelers are avoiding the US altogether, and of those who are coming, many are rethinking their budgets. Although some major currencies have recently gained against the dollar, international visitors are still confronting years of US inflation that has driven up the price of hotel stays and restaurant meals, leaving less money in their pockets for shopping.

Travel-related spending, which typically grows each year, has been virtually flat this year through May when compared to the same period in 2024, data from the US International Trade Administration show. Meanwhile, foreign arrivals to the US by air were down 6.6% in June compared to last year, according to the ITA. (…)

“Compared with Europe, it’s unbelievable,” said van der Meer, 64, who’d just visited the Macy’s store near the Empire State Building. “Food is very expensive, alcohol is very expensive — I think in Europe we pay two times less than here.” (…)

Tariff Risk Drives Another Round of Asia Forecast Downgrades Southeast Asia will be hit hardest by worsening trade conditions and persistent uncertainty, the ADB warned

The Asian Development Bank and multilateral organization Asean+3 Macroeconomic Research Office, or Amro, both lowered growth projections for major Asian economies, citing the impact of U.S. trade policy.

Asia-Pacific has weathered a tough external environment this year, “but the economic outlook has weakened amid intensifying risks and global uncertainty,” said ADB chief economist Albert Park.

Strong domestic demand and export front-loading supported regional economies in the first half of the year, but that momentum is expected to weaken, the Philippines-based multilateral bank said in a report Wednesday.

The ADB now projects gross domestic product growth for developing Asia at 4.7%, down from April’s forecast of 4.9% and the 5.1% expansion recorded in 2024.

Next year, growth in developing Asia, which comprises 46 ADB members including China, South Korea and India, is forecast to slow further to 4.6%.

Southeast Asia will be hit hardest by worsening trade conditions and persistent uncertainty, the ADB warned.

Although several Southeast Asian nations have negotiated for lower tariffs, analysts say that won’t offset the blow of high trade barriers, economic fragmentation and policy shocks.

Growth in Vietnam, the first to get a deal, is still expected to slow through 2025 and 2026 as U.S. tariffs dampen export demand. The ADB cut Vietnam’s GDP growth projections to 6.3% in 2025 and 6.0% in 2026, from 6.6% and 6.5%, respectively.

Those who have yet to reach a compromise, such as South Korea or Taiwan, face significant “reciprocal” tariffs on U.S.-bound exports if no agreement is reached by Aug. 1. The temporary trade truce between the U.S. and China is also set to expire in August.

“A renewed imposition of the U.S. reciprocal tariffs or a re-escalation in US-PRC [People’s Republic of China] trade tensions could reduce regional growth by 0.5 to 1.4 percentage points,” the ADB said.

A faster deterioration in China’s property market also poses a risk to regional growth, it added. (…)

For now, it maintains its growth forecasts for China at 4.7% this year and 4.3% in 2026. Beijing has a target of 5% for this year.

Tariff pressures also led ADB to trim growth views for India to 6.5% and 6.7% in 2025 and 2026, respectively. South Korea’s forecast was lowered to 0.8% this year and 1.6% the next year. (…)

The resulting global slowdown will further impact ASEAN+3, which includes the 10 Association of Southeast Asian Nations members, plus China, Japan, and South Korea. Amro expects regional growth to slow to 3.8% this year and 3.6% next year.

Under a scenario where U.S. tariffs on China revert to April 2 levels, BRICS-aligned economies face an additional 10% duty, and previously exempt goods incur a 25% levy, growth could drop below 3% next year, Amro estimates.

Non-tariff protectionist measures, such as stricter investment regulations, could magnify the impact, it added.

European Firms Becoming More Reliant on China, Chamber Head Says

(…) “In order to have the best product at the most attractive price, you obviously need to source the components where you get the best components at the most attractive price. And in many, many cases that is here in China,” said Jens Eskelund, president of the European Union Chamber of Commerce in China.

“So we see actually in many ways that European business is becoming not less dependent, but perhaps more dependent on China,” he said in an interview with Bloomberg TV on Thursday. More than a quarter of the group’s members are increasingly onshoring in the Asian country, he added. (…)

• Von der Leyen Says EU-China Ties Are at ‘Inflection Point’

European Commission President Ursula von der Leyen told Chinese leader Xi Jinping that the bloc’s ties with his country “have reached an inflection point,” illustrating what’s at stake in their summit shadowed by tensions spanning trade to the war in Ukraine.

“As our cooperation has deepened, so have the imbalances,” von der Leyen said on Thursday, according to her prepared remarks. The head of the European Council, Antonio Costa, called on China “to use its influence on Russia to respect the United Nations Charter and to bring an end of its war of aggression against Ukraine.”

“Rebalancing our bilateral relation is essential,” von der Leyen said. “To achieve this, it is vital for China and Europe to acknowledge our respective concerns and come forward with real solutions.”

The first in-person EU-China summit since 2023 is exposing a divide between the bloc and Beijing just months after earlier signs of a possible detente. In his opening remarks, Xi said their ties are “at a historical juncture,” urging stronger trust and communication amid global uncertainty, state broadcaster CCTV reported.

Xi said he was hopeful the EU will keep its trade and investment markets open while refraining from using restrictive economic tools, according to the official Xinhua News Agency. (…)

“China and the EU have extensive common interests and no fundamental conflicts. No matter how the international landscape evolves, cooperation should be the keynote and partnership the correct definition of China-EU relations.” (…)

The strains flared into view in April with Beijing’s decision to impose export controls on rare earth magnets, which shook European car companies and other sectors. In its statement after Thursday’s talks, the EU took aim at a range of Chinese trade policies, demanding it end investigations into pork, brandy and dairy that it called “unjustified and retaliatory” and asked China to lift the export restrictions imposed on rare earth magnets.

The EU inflamed trade tensions when it imposed tariffs on Chinese electric vehicles last year in a bid to ward off a flood of cheap imports. In response, China launched anti-dumping probes into European brandy, dairy and pork.

Brussels also takes issue with what it considers as Beijing’s support for Moscow. The EU on Friday sanctioned two Chinese banks and five China-based companies as part of its latest measures against Russia.

EU and China Pledge Climate Leadership Role as US Retreats A symbolic show of unity as the US steps back under President Donald Trump.