On July 4th, after the passage of the &#34;Great Beauty&#34; Act, one of the three major factors determining the overseas market in the second half of the year, fiscal and tax reform, has basically settled (Global Market Outlook for the Second Half of 2025: The Consensus on &#34;De-dollarization&#34;). Trump's focus has once again shifted to trade and tariffs, recently announcing a series of &#34;dazzling&#34; new policies, raising concerns in the market about whether the tariff war, which had finally &#34;calmed down&#34; for three months, is facing the risk of escalation again. Indeed, if one does not closely track tariff changes, it is easy to feel that there is a significant escalation again, but the market's reaction has been surprisingly &#34;calm,&#34; with U.S. stocks repeatedly hitting new highs.
So, what new changes have occurred in tariffs, and have they significantly escalated? Do they have an impact on the macro environment and asset paths? We will outline the updates in this article.
<h2>What are the &#34;new changes&#34; in tariffs? Time &#34;delayed&#34; in disguise, overall tax rates change little, and nearly 70% of import shares include Canada, Mexico, and the European Union.</h2>
In our outlook for the second half of the year, we clearly indicated that tariffs, as Trump's main source of fiscal revenue during this term, are likely to: 1) continue to advance, even if the &#34;reciprocal tariffs&#34; imposed under IEEPA face restrictive court rulings, they may still be promoted through Section 301, Section 201, and Section 232;
Chart: Apart from IEEPA, Trump may still promote tariffs through Section 301, Section 201, and Section 232.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/44387fde-9363-4b85-8596-06f1c9202e40.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/44387fde-9363-4b85-8596-06f1c9202e40.jpeg"/>
Source: White House, PIIE, CICC Research Department; Data as of July 13, 2025.
2) A certain basic tax rate needs to be maintained (an effective tax rate of 10-14% corresponds to annual tariff revenue of USD 300-400 billion, while the effective tax rate at the end of 2024 was only 2.3%), to offset most of the increased expenditures from the &#34;Great Beauty&#34; Act (an average annual increase of USD 340 billion), allowing overall finances to marginally improve without significantly exacerbating concerns about debt sustainability (The Impact of the &#34;Great Beauty&#34; Act on U.S. Debt, U.S. Stocks, and Liquidity);
3) But it cannot be too high, otherwise it will increase inflation risks. Thanks to inventory replenishment, the current tax rate has limited inflationary pressure (How Long Can the U.S. &#34;Hold On&#34;?);
4) The market is gradually desensitized; as long as tariffs do not systematically escalate, the market believes that Trump's tariff increases are aimed at boosting fiscal revenue.
Chart: Overview of recent major changes in tariff policy.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/8e0f12b2-ef09-4b98-aac8-ddd0b64b0bfc.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/8e0f12b2-ef09-4b98-aac8-ddd0b64b0bfc.jpeg"/>
Source: White House, PIIE, CICC Research Department
As the original negotiation deadline of July 9 approaches, new changes in tariff policy have occurred, giving everyone a sense of &#34;escalation&#34; once again. The main points are as follows:
1) Time has been effectively postponed: Since April, negotiations with other trading partners have not been completed as scheduled, except for trade agreements reached between Vietnam [1] and the UK [2] with the Trump administration. Therefore, the negotiation deadline has been &#34;effectively&#34; extended from July 9 to August 1.
2) Overall tax rates have not changed much: On July 7 [3] and July 9 [4], the U.S. sent &#34;taxation letters&#34; imposing new tax rates ranging from 20% to 50% on 22 countries, including Japan and South Korea. However, the tax rates for most countries remain unchanged from the &#34;equivalent tariffs&#34; announced on April 2, such as South Korea and Thailand; even countries like Cambodia and Sri Lanka have seen significant decreases in tax rates, dropping from 49% and 44% to 36% and 30%, respectively. Brazil has the highest increase, with the tax rate rising from 10% to 50%. On July 10 and July 13, Trump announced on social media that tariffs would be increased on Canada [5], Mexico, and the EU [6] starting August 1, with increases ranging from 5 to 10 percentage points.
3) If the import share includes Canada, Mexico, and the EU, it accounts for nearly 70%: Among the first two batches of the 22 countries announced, except for Japan (4.5%) and South Korea (4.0%), which have a relatively high share of U.S. imports, most countries account for less than 0.1% of U.S. imports. Therefore, the weighted impact on the effective tax rate in the U.S. can be &#34;ignored.&#34; However, if the tariff changes for Canada (12.6%), Mexico (15.5%), and the EU (18.5%) are included, the share of U.S. imports affected will significantly increase from 21% to 67%. We estimate that this change will raise the effective tax rate by 3 percentage points, which is still within the exemption period.
4) Tariffs on copper: On July 9, Trump announced that a 50% tariff would be imposed on imported copper starting in August [7]. Based on an import scale of $17 billion in 2024, we estimate that this move will raise the effective tax rate by 0.2 percentage points.
Chart: The U.S. sent &#34;taxation letters&#34; on July 7 and July 9 imposing new tax rates ranging from 20% to 50% on 22 countries, including Japan and South Korea.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a08cf7c9-b721-4fd9-80b4-f1e9f1fb0cdb.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a08cf7c9-b721-4fd9-80b4-f1e9f1fb0cdb.jpeg"/>
Source: White House, PIIE, China International Capital Corporation Research Department
<h2>How to understand the &#34;new tariffs&#34;? The effective rate and inflation path may not change significantly, and it should be viewed as &#34;negotiation tactics,&#34; but attention should be paid to re-export trade restrictions on tariffs against China</h2>
After August 1, the effective tax rate is likely to remain at 15-16%. If the &#34;new tariffs&#34; are fully implemented, it may rise to 18%. The current effective tax rate during the exemption period is about 12-13% (30% in China, 10% in other countries). Aside from the already agreed upon rates with the UK (10%) and Vietnam (20%), if we assume the &#34;new tariffs&#34; proposed by Trump are fully enforced, the increase in the equivalent tariff portion will rise from the current 4.7ppt to 8.7ppt, raising the overall effective tax rate to 18%, far exceeding the 10-14% level corresponding to the $300-400 billion in tariff revenue. Therefore, we temporarily regard the &#34;new tariffs&#34; as a &#34;negotiation tactic.&#34; If negotiations go smoothly and countries other than China, Vietnam, and the UK return to a 10% tariff, the effective tax rate will be at 15-16%, which will not significantly alter the inflation trajectory.
For inflation, the limited increase in the effective tax rate has little impact on the magnitude of inflation; rather, it is more about the delayed transmission due to the deadline being pushed to August. We expect the year-end CPI to be 3.3% year-on-year, and the core CPI to be 3.4%, with inflation pressure mainly in the fourth quarter.
Chart: After August 1, the effective tax rate is likely to remain at 15-16%, and if the &#34;new tariffs&#34; are fully implemented, it may rise to 18%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/777cf1a1-80ac-41a4-aa9c-9eabd3660452.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/777cf1a1-80ac-41a4-aa9c-9eabd3660452.jpeg"/>
Source: Haver, White House, CICC Research Department
Chart: The effective tax rate is likely to return to 15-16% after August 1.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/68637802-7c0f-48e3-a6ea-61748473189b.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/68637802-7c0f-48e3-a6ea-61748473189b.jpeg"/>
Source: Haver, CICC Research Department
Chart: We expect the year-end CPI to be 3.3% year-on-year, and the core CPI to be 3.4%, with inflation pressure mainly in the fourth quarter.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/ea4a5cb5-e2dd-47b7-9850-4942014e66d5.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/ea4a5cb5-e2dd-47b7-9850-4942014e66d5.jpeg"/>
Source: Haver, CICC Research Department
From the market response, the market also believes that recent policies are more of a pressure and negotiation tactic. After the announcement of the &#34;taxation letter,&#34; the market &#34;waited and watched,&#34; with major asset fluctuations being minimal. The US stock market even reached new highs, while long-term US Treasury yields slightly rose to around 4.4%, and the US dollar index even slightly increased to 97.7. This aligns with our previous judgment that once the market realizes that the tariff policy is primarily aimed at &#34;increasing fiscal revenue&#34; and is constrained by the upcoming midterm elections, it will not lead to a repeat of the panic seen after the equivalent tariffs, and the volatility will not return to the extreme situation of April 2 (《Global Market Outlook for the Second Half of 2025: The Consensus on &#34;De-dollarization&#34;》)
What are the expectations for tariffs on China? Since the &#34;de-escalation&#34; of China-U.S. tariffs on May 12, the U.S. tariff rate on China has decreased from 145% to 30% (20% for fentanyl + 10% for equivalent tariffs) before August 12, and will rise to 54% (20% for fentanyl + 34% for equivalent tariffs) after August 12 (《The Asset Implications of the &#34;De-escalation&#34; of China-U.S. Tariffs》). Currently, it seems unlikely that there will be further reductions from this level, as the trade agreement between the U.S. and Vietnam stipulates a third-party transshipment tax rate of 40%. This also means that if the U.S. tariff rate on China is below 40%, there is no need for transshipment trade. Therefore, we need to pay further attention to whether other countries are involved in transshipment restrictions, which will help us assess the final range of tariffs on China.
<h2>What are the implications for assets? Liquidity &#34;drain&#34; in the third quarter, tariff negotiations, etc., may still cause disturbances, but volatility will provide reallocation opportunities.</h2>
Overall, the recent changes in tariff policy can still be temporarily understood as &#34;negotiation tactics,&#34; and have not significantly altered the macro growth and inflation trajectory, with the market choosing to &#34;wait and see.&#34; However, entering the third quarter, the liquidity &#34;drain&#34; of about one trillion dollars per quarter brought about by the passage of the &#34;Great Beauty&#34; Act (《U.S. Treasury, U.S. Stocks, and Liquidity After the &#34;Great Beauty&#34; Act》), the &#34;maximum pressure&#34; in tariff negotiations, coupled with inflation that is bound to rise due to base and inventory factors in July-August, and the current high sentiment in the U.S. stock market, do not rule out the possibility of renewed volatility. Recently, U.S. Treasury yields have already risen.
However, we still reiterate that if volatility occurs, it remains a good re-entry opportunity for both U.S. stocks and U.S. Treasuries. We recommend paying attention to the subsequent deadlines for the two rounds of tariff negotiations on August 1 and August 12, inflation data for July-August, the peak of bond issuance from July to September, the July FOMC meeting, and the second-quarter reports of U.S. stocks.
► Short-term disturbances may be transmitted to U.S. stocks through rising U.S. Treasury yields. 1) U.S. Treasury yields, if compared to the extreme increase of 120bp from the bottom of U.S. Treasury yields in the third quarter of 2023, an additional increase of 80bp from the current 4.3% would break 5% (having already risen 40bp since April). However, this comparison may be overly mechanical. On one hand, the current term premium is already at a high level, with the term yield before the increase in 2023 being negative (-0.8%), while the current yield has reached as high as 0.9%, a new high since July 2014. On the other hand, the outflow of funds from U.S. Treasuries after the &#34;equivalent tariffs&#34; in April was more than twice that of the third quarter of 2023, and even if supply pressure increases in the third quarter, it is unlikely to be that extreme.
Chart: After the debt ceiling resolution in the third quarter of 2023, the 10-year U.S. Treasury term premium drove nominal yields up by 120bp.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/23b11cdd-6f64-40e8-b5d4-747a34412c3c.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/23b11cdd-6f64-40e8-b5d4-747a34412c3c.jpeg"/>
Source: Bloomberg, China International Capital Corporation Research Department
2) U.S. Stock Valuation: From the end of June 2023 to mid-October, the rising interest rates led to a significant contraction in valuations (dragging down by 8%), but U.S. stock earnings still grew by 4%, so the overall pullback was not that large. Assuming other conditions remain unchanged, if the 10-year U.S. Treasury yield breaks above 4.8%, it could drag the S&amp;P 500 valuation down from the current 22.3 times to 20.3 times, a decrease of about 9%.
Chart: The S&amp;P 500 center is between 6000 and 6200; if interest rates return to the peak of bond issuance in 2023, it corresponds to the S&amp;P 500 at 5500 points.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/cdc27852-09cd-4edd-949c-6e7fa7b4450d.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/cdc27852-09cd-4edd-949c-6e7fa7b4450d.jpeg"/>
Source: FactSet, China International Capital Corporation Research Department
► In the medium term, volatility instead provides allocation opportunities. 1) The rise in U.S. Treasury yields will tighten financial conditions, and coupled with the possibility of the Federal Reserve cutting interest rates in the fourth quarter, this can provide reallocation opportunities. Under the baseline scenario, we expect the Federal Reserve to cut interest rates twice this year, corresponding to a U.S. Treasury yield center of around 4.2%. The current real interest rate in the U.S. (1.78%) is still 0.78 percentage points higher than the natural rate (1%), indicating that the Federal Reserve needs to cut rates. However, tariff negotiations have not yet been finalized, so the timing may need to wait until the tariffs are finalized in September and uncertainties dissipate before rate cuts can begin.
Chart: The Federal Reserve cutting rates twice corresponds to a U.S. Treasury yield center of around 4.2%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e9a08b11-f32a-42bb-baec-0e92c9a05032.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e9a08b11-f32a-42bb-baec-0e92c9a05032.jpeg"/>
Source: Bloomberg, Haver, China International Capital Corporation Research Department
2) The restart of the U.S. credit cycle is the main support and driving force for U.S. stocks, benefiting from strong AI investments, a quarter-on-quarter improvement in government fiscal impulses, and the restart of traditional demand in the U.S. private sector after interest rate cuts. Based on two interest rate cuts this year and a rebound in earnings growth to 9% (with tax cuts offsetting tariff drag), we estimate that the S&amp;P 500 index center corresponds to 6000-6200 points.
Authors: Liu Gang, Yang Xuanting, Source: CICC Insights, Original Title: &#34;CICC: Have Tariffs Upgraded Again?&#34;
Risk Warning and Disclaimer
The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment objectives, financial conditions, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk

Recently, Trump announced a series of new tariff policies, raising concerns in the market about an escalation of the trade war. However, the market reacted calmly, with U.S. stocks hitting new highs repeatedly. The changes in tariffs include delays in implementation, with overall tax rates not changing significantly, and nearly 70% of imports coming from Canada, Mexico, and the European Union. It is expected that Trump will continue to promote tariff policies to maintain fiscal revenue, avoid debt risks, and control inflationary pressures

- Following the passage of the "Great Beauty" Act on July 4, 2025, significant changes in tariffs have emerged, raising concerns about a potential escalation in the trade war.  
- The U.S. has extended negotiation deadlines and adjusted tariffs on various countries, with overall rates remaining relatively stable, while the market has reacted calmly, with U.S. stocks reaching new highs.  
- The article suggests that recent tariff changes are primarily negotiation tactics, with limited impact on macroeconomic growth and inflation, and highlights upcoming deadlines for further negotiations.

How to view Trump's new round of reciprocal tariffs? Pressure and negotiation tactics