[New York Stock Exchange] All Indices Fall After Trump Sends Tariff Letters... Tesla Plunges 6.8%

Trump Sends Tariff Letters: "25% for Both South Korea and Japan"
Effective August 1... Three More Weeks for Trade Negotiations
US Treasury: "Several Trade Deals Within 48 Hours"
Tesla Drops 7% After Musk Announces New Political Party

All three major indices on the New York Stock Exchange closed lower on July 7 (local time). Investor sentiment was dampened by concerns over trade policy uncertainty after U.S. President Donald Trump sent tariff letters to various countries, including South Korea and Japan. Tesla plunged nearly 7% as CEO Elon Musk not only criticized President Trump's key tax cut legislation, but also further strained their relationship by announcing the launch of a new political party.

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On this day, the blue-chip Dow Jones Industrial Average closed at 44,406.36, down 422.17 points (0.94%) from the previous trading day. The large-cap S&P 500 index fell 49.37 points (0.79%) to 6,229.98, while the tech-heavy Nasdaq index dropped 188.59 points (0.92%) to close at 20,412.52.

The tariff letters President Trump sent to major trading partners on this day fueled a wave of stock selling. Around 12 p.m., he first revealed the tariff letters to the leaders of South Korea and Japan via his social networking service, Truth Social, announcing that each country would face a 25% reciprocal tariff starting August 1. These reciprocal tariffs are to be applied separately from existing item-based tariffs. He also warned that high tariffs would be imposed on transshipped goods passing through third countries in an attempt to evade tariffs. In addition, he notified new tariffs for Malaysia (25%), Myanmar and Laos (40%), Kazakhstan (25%), and South Africa (30%).

However, President Trump left the door open for negotiations. In the letter sent to South Korea, he wrote, "If you want open trade markets and the removal of tariff, non-tariff, policy, and trade barriers, we may consider revising the contents of the letter," adding, "Tariffs may be adjusted up or down. South Korea will never be disappointed by the United States." As a result, major trading partners, including South Korea, secured roughly three additional weeks for negotiations until August, which is seen as having averted the worst-case scenario.

The White House also confirmed that the grace period for reciprocal tariffs would be extended from July 8 to August 1. White House spokesperson Karoline Leavitt announced at a briefing that President Trump would sign an executive order extending the grace period for reciprocal tariffs to August 1 on this day.

President Trump's dispatch of tariff letters is interpreted as a move to maximize pressure on countries currently engaged in trade negotiations, urging further concessions and swift agreements. After announcing country-specific reciprocal tariffs on April 2, the U.S. imposed additional tariffs by country, in addition to a basic 10% tariff, and applied a 90-day grace period. During this period, the U.S. conducted negotiations with each country aiming for trade agreements, and the grace measure is set to expire at 12:01 a.m. on July 9. The only countries with which the U.S. has currently reached trade agreements are the United Kingdom and Vietnam.

U.S. Treasury Secretary Scott Besant stated that additional trade agreements could be reached within the next two days. In an interview with CNBC, Secretary Besant said, "Many people have changed their positions regarding the negotiations," and that several trade agreements would be announced within the next 48 hours. He added, "Last night, my inbox was filled with numerous new proposals and offers," and "We will be very busy in the coming days."

Jed Ellerbrock, portfolio manager at Argent Capital Management, commented, "Given the optimistic outlook, with the market reaching all-time highs, tariff discussions are not helpful to the market," adding, "The more talk there is about tariffs, the less euphoria there will be in the market."

Seth Carpenter, global chief economist at Morgan Stanley, analyzed, "Short-term agreements are limited in scope and leave many unanswered questions," and "A comprehensive trade agreement that reduces trade uncertainty will take much longer to finalize, and ongoing investigations and legal issues must also become clearer."

By stock, Tesla plunged 6.79%. Concerns that CEO Musk's announcement on July 5 to establish a third party, the "America Party," as an alternative to both the Republican and Democratic parties, could negatively impact Tesla's business were reflected in the stock price. Musk, who was formerly one of President Trump's closest allies, intensified their conflict by criticizing the tax cut bill, and with the announcement of the new party, their relationship is now considered irreparable. Following President Trump's statement that separate item-based tariffs would also be imposed on Japan, Toyota and Honda fell 4.02% and 3.86%, respectively. Nvidia slipped 0.69%. Apple and Microsoft (MS) each weakened by 1.69% and 0.22%.

U.S. Treasury yields are rising, led by long-term bonds. The 10-year U.S. Treasury yield, the global benchmark for bond yields, is trading at 4.38%, up 6 basis points (1bp=0.01 percentage point) from the previous day. The 2-year U.S. Treasury yield, which is sensitive to monetary policy, is up 1 basis point from the previous day at 3.89%.