July ninth, twenty twenty-five
《50% ON COPPER, 200% ON PHARMA?》
The 232 provision we mentioned in the weekend edition has officially been triggered (Read article), Trump plans to impose 50% tariffs on copper imports; see https://mp.weixin.qq.com/s/A3xrPVqya6z_eXVEEI4P4Q。 for a detailed analysis.The conclusion is simple, no matter how many words we use: ultimately, it comes down to 1) U.S. copper inventories are already substantial, so the impact will not reach crisis levels; 2) tariff rates will not be fully priced in, and this incomplete pricing will be reflected in both prices and spreads; 3) copper prices in LME and non-U.S. markets will pull back.
Copper tariffs are essentially a subsidy for U.S. domestic production and an implicit tax on domestic consumption.
Chinese nonferrous metals companies do not export copper products directly to the United States. Once the United States formally confirms the tariffs, this could trigger another potential decline in LME copper prices, because the United States will stop importing copper from non-U.S. regions, causing inventories in LME and non-U.S. markets to rise. This would naturally be a negative for Asian copper-related stocks.
One quick additional point: it should be a very difficult period for companies that produce both gold and copper; I’d rather not name names.
What is interesting is that the direct logical chain was not fully priced in after the Asian session opened, which to some extent also reflects differences in the caliber of market participants, looking at the price movements of the nonferrous metals companies listed on AH, we can see that H-share pricing did not go through many rounds of trading, while A-share investors seemed to settle on what was happening only after midday.
LME copper prices have tested the 55 daily line. If copper tariffs are confirmed within a few weeks and implemented within 30 days,
Prices have strong support only above 9000 (weekly view) to 9030 (monthly view).
More views on CMX will have to wait until the end of this week(It is crucial to see whether the weekly candle can hold above 5.4.)。
Apart from copper, another tariff trade in the market is in pharmaceuticals, Trump again mentioned imposing 200% tariffs on pharmaceutical imports, triggering notable volatility during the U.S. trading session, although most assets, including European ADR, recovered most of their losses. Lutnick said more details of the 232 investigation would be released at the end of this month.
1) For pharmaceuticals, the more important variable is the additional condition of a “one-to-one-and-a-half-year grace period”, specifically, the details of how the grace period is implemented will have the greatest impact. This means whether the companies concerned must begin production locally in the United States, or at least announce plans to build factories there, and so on.
In fact, technology transfer for pharmaceutical manufacturing usually takes about two years, and greenfield projects may take even longer—from this perspective, the situation could actually benefit certain tooling and equipment companies.
2）Given a grace period of at least one year, another variable to consider is front-loading inventory:During this window, companies have the ability to ship finished medicines to the United States on a large scale, buying time to adjust their supply-chain structure. This also means that, from a rational perspective, the first phase of the trade’s shock should favor buying (although fear dominates and actual price action is generally ordinary).
200%’s tariffs will be phased in over 12 months, which looks more like the beginning of a long and complex negotiation.
In negotiation games, the worst-case scenario, or political posturing, is often put forward first. After the statements, as specific details and additional conditions are disclosed, the market gradually gains some relief. Unlike the objective evolution of the natural world, in collective human action and the processing of incremental information, the shift from the extreme toward moderation is often the norm. Tariff negotiations, Russia–Ukraine, and Israel–Iran are no different.
The semiconductor sector may be the next target.
The dollar rebounds, gold weakens, and small caps (domestic trading) outperform large caps.
Although ongoing tariff news in the days leading up to 8 month 1 day may cause some disruption, the truly important milestone is 8 month 1 day itself; before then, the market may not pay too much attention, The real focus is the upcoming new earnings season.
Finally, a supplementary reading, How much of the effect of tariffs on consumer prices has actually been passed through so far?
Although the market generally expects the additional tariffs imposed by the Trump administration to be passed through clearly to consumer prices, as they were during his first term, the recent softness in inflation data raises a question: how much of these tariff costs has actually been passed on to U.S. businesses and consumers?
It is not surprising that the impact of tariffs has not yet shown up significantly in official consumer prices. The reasons include:
1) The main tariff increases only took effect at the beginning of 4;
2) U.S. Customs and Border Protection allows importers using the Automated Clearing House system to defer tariff payments for up to 1.5 months;
3) Importers’ front-loading of shipments and uncertainty about tariff policy may also have delayed consumer-price adjustments.
The GS research team estimates that the tariffs implemented so far will raise the U.S. effective tariff rate by about 9 percentage points, while other sector-specific tariffs expected to be announced in the future will bring the total increase to about 14 percentage points. But customs tariff-revenue data show that, as of 5, the U.S. effective tariff rate had risen by only 7.2 percentage points.
One explanation is that foreign exporters are absorbing some of the tariff costs by lowering their export prices to the United States, which is reflected in falling U.S. import prices.Although overall import prices (excluding tariffs) have not fallen significantly this year, More granular analysis shows that whenever the product-level tariff rate rises by 1 percentage points, import prices for that category of goods fall by an average of 0.2% over the following three months, Most of this was driven by Chinese exporters.
This estimate suggests that foreign exporters absorbed about 20% of the tariff costs.
In addition, the study shows that the share of tariff costs passed through to consumers rises over time:
It was almost 0% in the first month after the tariffs took effect, then rose to 10% in the second month,
It rose to 40% in the third month...
Overall, consumers may ultimately bear about 70% of the direct tariff costs. If we also account for the “spillover effect” of protected domestic industries raising prices for their own products, this share would rise to nearly 100%.
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Wishing you all the best.
2025.07.09
Note: All content in this article is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for their decisions.