Trump Tariffs: China, UK, Europe Among US Trade Partners Targeted | Daybreak Europe 06/03/2026

ELI5 / TLDR

Trump is trying to rebuild his tariffs after the Supreme Court struck down the old version, this time using “forced labor” allegations as the legal hook to slap at least 10% on most major trading partners. Markets shrugged — they’ve watched this administration change its mind too many times to take any tariff threat seriously. What markets actually care about, in order, is AI, AI, and SpaceX’s record $75 billion IPO. Underneath the AI euphoria, the real story is that central banks are now talking about raising rates, not cutting them, because a Middle East war has pushed oil up and inflation is creeping back.

The Full Story

The tariff do-over

The headline is tariffs, but the interesting part is the legal maneuvering. Trump’s original country-by-country tariffs leaned on emergency powers, and the Supreme Court threw them out. So the administration found a different statute. The new lever is an investigation into goods “allegedly produced by forced labor,” which lets them impose 10% to 12.5% levies on a wide spread of countries — the EU, UK, Japan, India, China.

Bloomberg’s Roz Matheson described it as a frog hopping across lily pads: each step is a workaround to rebuild the same wall by other means.

“In a way it is… like a frog trying to hop across a lily pad. All those steps to rebuild his tariff regime because his use of emergency powers was overturned, so they used another act to enact tariffs.”

The current tariffs are short-term and expire in July. The plan is to have a more “legally sticky” system ready to drop in when they roll off. There may be exemptions for food, textiles, and metals, and a public consultation period first — so a lot is still unknown.

The retaliation question is where the geopolitics shows through. China has demonstrated it can hit back, and just held a warm-seeming summit with Trump. But as Matheson noted, beneath the rapport are “deep structural differences.” Most countries will probably wait, ask for details, and try to negotiate — betting, reasonably, that this administration changes its mind.

Why markets don’t care

The most useful soundbite of the show came from an MLIV strategist asked why markets ignore tariffs entirely. His answer: markets care about three things — “AI, AI, and IPOs.” Not geopolitics, and certainly not tariffs.

“This administration has been known to change his mind often. Governments know it, and no one is taking it as seriously as if he had announced it the first time.”

The S&P had just logged its ninth straight up day, the longest winning streak since 1995, on AI optimism. Asian stocks hit a fresh record. The strategist admitted valuations are “excessively enthusiastic” but expects the rally to continue anyway, because the single biggest driver is the belief that AI will deliver productivity and earnings.

The Fed is talking about hiking, not cutting

This is the durable macro signal worth flagging. The conversation has flipped. The Cleveland Fed president said she’s now more worried about persistently elevated inflation than about jobs, and that policy “may not be sufficiently restrictive.” US job openings hit a near-two-year high, layoffs are falling — a resilient labor market that gives the Fed room to tighten. The same hawkish turn is happening at the Bank of England, where officials are openly arguing to raise rates sooner rather than later, the longer the Middle East war drags on oil prices.

Think of it like this: for two years the question was “when do central banks cut?” Now, with a war pushing energy costs up, the question is quietly becoming “do they have to hike?”

Japan’s tightrope

Two threads here. First, the yen is flirting with 160 per dollar, the level that triggered intervention in late April. Markets are already pricing an 83% chance the Bank of Japan hikes on June 16, and a hawkish speech from the BOJ governor could do the currency’s work for the finance ministry without a single yen of intervention.

Second, and more telling, Prime Minister Takaichi just announced a $19 billion extra budget to cushion households from war-driven inflation — embarrassing, because she’d promised “responsible fiscal policy” and no extra-budget habits. Bloomberg’s Paul Jackson explained how they softened the blow: a bit of creative accounting, shifting bond issuance from last year’s budget (where higher tax revenue meant they didn’t need it) onto this one.

“Everything evens out over time. By explaining that to markets ahead of today’s announcement, I think they have managed to ease a lot of the concerns.”

The point that survives the day: Japan has piling fiscal pressures — a sales-tax cut, rising defense spending, higher debt-servicing costs as the BOJ raises rates — and bond markets will keep worrying.

The corporate texture

A few items worth keeping. Nvidia’s Jensen Huang said on stage that chip-networking firm Marvell — which Nvidia has a stake in — could be the next trillion-dollar company, adding over $50 billion to its market cap in a day. Read that as a stakeholder talking his book, but also as a measure of how desperate investors are for any AI exposure.

The most interesting counter-signal: Uber is capping its employees’ use of professional AI tools (the show named Anthropic’s Claude) because the per-token cost is too high. One strategist called it a possible “canary in the AI coal mine” — the first hint that companies might decide AI isn’t yet returning what it costs.

And Inditex, Zara’s owner, posted a gross margin climbing to 61.2%. Its edge is “proximity sourcing” — roughly half its production sits in Spain, Portugal, Morocco, and Turkey, close to its hubs, which insulates it from the freight and energy shocks that hammer rivals like H&M.

Key Takeaways

• Trump is rebuilding struck-down tariffs via a new legal route — a “forced labor” investigation — imposing 10–12.5% on the EU, UK, Japan, India, China. Current versions expire in July; the goal is a more legally durable replacement.
• Markets are ignoring tariffs entirely. The working assumption is that the administration reverses itself, so threats carry little weight until enacted.
• The central-bank narrative has flipped from cutting to hiking. The Fed (Cleveland president) and Bank of England are both leaning hawkish, driven by war-fueled oil and sticky inflation.
• US labor market is resilient: job openings near a two-year high, layoffs falling — which removes the Fed’s excuse not to tighten.
• The yen near 160/dollar is the intervention trigger line. A hawkish BOJ speech could substitute for direct currency intervention; the BOJ decision is June 16, with an 83% hike priced.
• Japan’s PM Takaichi announced a $19B extra budget despite promising fiscal restraint, using accounting shifts to reframe it as bond-neutral.
• SpaceX is pricing a record $75B IPO (~556M shares at $135), with heavy retail demand — itself an extension of the AI trade.
• Uber capping employee AI-tool spend (per-token cost) is a possible early sign of AI cost fatigue — a “canary” for whether AI returns justify the bills.
• Inditex/Zara’s moat is proximity sourcing: ~50% of production near home (Spain, Portugal, Morocco, Turkey), shielding margins from freight and energy spikes.

Claude’s Take

This is a morning markets show, so most of it is ephemeral ticker chatter that won’t matter in a week. The score reflects that — it’s competent live news, not analysis with a long shelf life.

But two ideas are worth carrying out of it. First, the regime shift: the entire developed-world central-bank conversation has inverted from “when do we cut” to “do we need to hike,” and the trigger is a Middle East war feeding into oil and inflation. That’s the kind of structural turn that’s easy to miss when the headlines are all about tariffs and AI records. Second, the Uber AI-cost item is a genuinely useful tell. Everyone models AI as a cost-cutter; the first evidence that companies find the bills too steep to justify is exactly the sort of crack worth watching.

The “markets don’t care about tariffs” point is honest and probably right, but it carries its own risk — markets have been wrong before about how long they can ignore something. The frog-on-lily-pads framing of the tariff workaround is the cleanest explanation you’ll get of what’s actually a fairly tedious legal story.

Treat the rest — the IPO excitement, the Marvell trillion-dollar call, the index streaks — as weather, not climate.