What July Taught Us About Global Trade - And Why Currency Uncertainty Is Here to Stay

Bottom Line Up Front: July delivered a masterclass in trade diplomacy. Trump secured strong concessions from Japan and Europe while the dollar surged 3-5% against G10 currencies. But here's the twist: Trump's public comments about preferring a weak dollar suggest the administration's currency strategy is just getting started.

The July Dollar Surge - Financial Markets Award Trump's Team a Win

Financial markets delivered their verdict in July: Trump's trade strategy deserves a premium. The US dollar strengthened dramatically - 3-5% against major G10 currencies - as investors rewarded American assets while punishing the rest of the world.

Markets are pricing in a clear winner-takes-all dynamic. The breakthrough came from Trump's divide-and-conquer approach that left major economies scrambling for bilateral deals rather than standing united. Japan accepted 15% tariffs to avoid 25%. The EU rushed to preliminary agreements to prevent escalating barriers.

The market response was swift and decisive: capital flows back toward US assets while rest-of-world investments face systematic downgrades. Investors are betting that America emerges stronger while trading partners absorb the economic costs of resistance.

The Fiscal Bonus Nobody Talked About

Here's what financial media missed: tariffs are actually helping solve a problem markets were getting increasingly worried about - the US fiscal deficit. The numbers are staggering and exceed all expectations.

By July 2025, tariffs have generated $108 billion in net revenue in the previous nine months, representing 5% of federal revenue compared to 2% historically. To put this in perspective, customs revenue tops $100 billion for the first time in a single fiscal year, with $81.5 billion coming from tariffs imposed since Trump took office on January 20.

The revenue surge has been dramatic: the federal government collected $68.9 billion in tariffs and excise taxes during the first five months of the year, a 78% increase from the same period a year ago. As of May 30, the U.S. is on pace to set a new monthly record in tariff revenue—nearly $23 billion, about three times the amount collected in May 2024.

Looking forward, the projections are even more compelling. The Tax Foundation estimates that if imposed permanently, the IEEPA tariffs would raise an additional $1.8 trillion in revenue over the next decade, with the 10 percent baseline tariffs raising $777 billion. Penn Wharton projects Trump's tariffs would raise over $5.2 trillion over 10 years on a conventional basis.

This fiscal arithmetic is giving markets more confidence in US creditworthiness at exactly the moment when Trump's "One Big Beautiful Bill" tax cuts threatened to balloon the debt. The tariff revenues provide a meaningful offset that supports the dollar rally even as government spending plans expand.

The Strategic Weak Dollar Gambit

But wait - there's a plot twist that changes everything.

Trump has been making public comments about preferring a weak dollar. This isn't random policy meandering. It's perfectly aligned with the strategy his Chief Economic Advisor outlined in his academic papers. The weak dollar preference isn't a bug in Trump's trade strategy - it's a feature.

Think about the chess game being played:

1. Use tariff threats to secure trade concessions (✓ Done)
2. Let the dollar strengthen as markets price in success (✓ Happening)
3. Then actively weaken the dollar to boost exports and manufacturing competitiveness (← Next move?)

The Rest of the World Gets Played

What's becoming clear is that Trump has trading partners exactly where he wants them. They're negotiating bilateral deals, buying US debt to finance American spending, and essentially subsidising the US economic strategy.

The genius is in the sequencing. First, demonstrate that America can and will act unilaterally. Then, once everyone's scrambling for deals, you have maximum leverage to shape the terms - including currency arrangements.

As one senior trader put it: "Trump doesn't mind more debt as long as trade partners keep buying it. And right now, he has them playing his game."

Growth Divergence Becomes the New Normal

Markets are pricing in a new reality: US growth resilience versus rest-of-world weakness. As trade war uncertainty decreases for America (thanks to secured deals) while increasing for everyone else (thanks to ongoing threats), capital flows are shifting decisively toward dollar assets.

The OECD's growth forecasts tell the story:

• US projections holding steady despite tariff disruptions
• European and Asian forecasts are being systematically downgraded
• Emerging markets are facing the steepest headwinds in years

Corporate Treasury Implications: Currency Risk Is the New Black

For corporate treasurers and CFOs, July's developments point to one inescapable conclusion: currency risk management just became your most important skill.

The New Reality:

• Dollar strength can reverse on a Trump tweet about currency policy
• Bilateral trade deals create currency winners and losers overnight
• Traditional hedging strategies may not work in this policy-driven environment

What This Means: Whether your business needs to buy or sell dollars, managing currency exposure isn't optional anymore. The old world of predictable central bank policy and stable currency relationships is gone.

August 1st: The Strategy Crystallises

As this analysis was being completed, Trump delivered his latest masterstroke. On July 31st, the White House announced that the global baseline tariff will remain at 10% - resisting prior suggestions to raise it to 15% or higher. More importantly, country-specific "reciprocal tariffs" resume on August 1st for nations that haven't finalised trade frameworks.

This reveals the true sophistication of Trump's approach. Keep the baseline manageable to maintain business confidence, but use targeted tariffs as precise negotiating tools. The White House separately released a list of tariff rates on imports from several other trading partners that had yet to finalize trade frameworks as his August 1 deadline nears.

For markets, this clarity around methodology provides some relief while maintaining negotiating pressure. The Trump administration has demonstrated it can be both predictable (10% baseline) and flexible (bilateral negotiations) simultaneously.

The Strategic Implications Going Forward

This latest development confirms the three-phase strategy:

1. Establish credible threat - Done through Liberation Day tariffs in April
2. Negotiate from strength - July's bilateral successes prove this works
3. Maintain strategic flexibility - August 1st baseline decision shows disciplined execution

Currency volatility remains the key variable, with Trump's weak dollar comments still hanging over markets. But the methodical approach to tariff implementation suggests the administration has learned to balance market stability with negotiating leverage.

The Bottom Line

July taught us that Trump's trade strategy is more sophisticated than critics assumed. The administration delivered meaningful negotiations wins, fiscal benefits, and dollar strength exactly when needed.

But the real lesson is about what comes next. With trading partners now dependent on bilateral deals and US debt purchases, Trump has maximum flexibility to pursue the next phase - potentially including the weak dollar strategy his advisors have long advocated.

For investors and businesses, the message is clear: in a world where currency policy is now a weapon of trade diplomacy, the only certainty is uncertainty. Plan accordingly.

The global trade landscape continues evolving rapidly. Stay tuned for our ongoing analysis of policy developments and market implications.