CONSUMER WATCH

Autos: How much gas is left in the tank?

One notable area where consumers appeared to be “buying ahead” before the imposition of tariffs, was autos. As we reported in the April Consumer Checkpoint, Bank of America data on consumer vehicle loan originations rose sharply in late March following the March 26 announcement of a 25% tariff on autos and auto parts imported into the US.

And, according to the Bureau of Economic Analysis data on auto sales for March and April showed a pronounced spike, with the seasonally adjusted annualized rate (SAAR) of sales peaking at 17.8m in March.

This increase in auto sales has moved the ratio of auto dealer inventories-to-sales lower over the past year, from an already depressed point compared to pre-COVID 19 levels. While Bank of America consumer vehicle loan originations indicate that demand for vehicles appears to be stabilizing – also evident in the drop back in auto sales data to 15.7m SAAR in May – the supply shock of tariffs means a further decline in inventory is likely, according to BofA Global Research.

This may leave consumers with fewer options and – while auto prices dropped in May according to the consumer price inflation data from the Bureau of Labor Statistics (BLS) – there remains a possibility of further pressure on car prices over time.

If auto prices rise due to tight inventory and tariffs, how much additional strain could be placed on consumers’ wallets? Bank of America payments data shows that overall median car payments are already more than 30% higher than the 2019 average and have now outpaced both new and used car prices, possibly as there is a push towards more expensive cars. In May, Bank of America monthly car payments accounted for 13% of households’ median deposit balances.

In fact, from June 2024 to May 2025, the share of households whose monthly average car payment increased by over $400 a month from the period two years earlier was 11 percentage points (pp) greater than those who saw a decline. And according to Bank of America data, of households who have a monthly car payment, 20% have one greater than $1000 a month.

According to data from the New York Federal Reserve, the contribution of auto debt to overall consumer debt balances actually fell quarter-over-quarter (QoQ) in Q1 2025, so the underlying pace of auto loan growth may be slowing even if buying ahead was a temporary upward pressure.

One reason for this may be a tightening in credit availability for auto financing, with the New York Fed’s most recent Credit Access Survey finding the average perceived probability of a rejection for an auto loan application reached 33.5% in February – the highest level since the start of the series.

Cooling auto loan growth alongside continued labor market strength and solid wage growth among younger households (see our June Consumer Checkpoint) is likely helping mitigate some of the risks from rising auto payments. And it appears a rise in newly delinquent auto loans may have levelled off. Still, in our view, there continues to be pressure on consumers’ finances and the situation warrants continued attention.

 

• Trump Floats Higher Auto Tariff, Guts California Gas-Car Ban

President Donald Trump said he may raise US auto tariffs in order to boost domestic auto manufacturing, a move that could further ratchet up tensions with trading partners.

Trump spoke Thursday at a signing ceremony for legislation terminating California regulations that would have banned the sale of gasoline-powered cars in 2035 — a long-sought victory for some carmakers and oil companies that attacked the rules as unachievable.

The president said raising auto tariffs from their current 25% level could offer further protection for the domestic auto industry, citing General Motors Co.’s plan to invest $4 billion in US plants over the next two years in order to avoid paying duties.

“I might go up with that tariff in the not too distant future. The higher you go, the more likely it is they build a plant here,” the president said.

The president’s latest threat comes more than a week after he doubled steel and aluminum tariffs to 50%, and as he faces negotiations with dozens of trading before his July 9 deadline for higher duties to take effect. (…)

The measures signed Thursday in the East Room of the White House revoke California clean air policies, including requirements that carmakers sell electric vehicles in greater numbers each year in the state.

“We officially rescue the US auto industry from destruction by terminating California electric-vehicle mandate once and for all,” Trump said. “They said it couldn’t be done, but boy it’s had us tied up in knots for years.”

The resolutions Trump signed Thursday repeal waivers granted under former President Joe Biden allowing California to set automobile pollution standards that are more stringent than federal requirements.

That power — enshrined in the Clean Air Act of 1970 — has helped the nation’s most populous state emerge as a global leader in setting industry-shifting clean-air and and climate policies.

Among the programs effectively voided by Trump on Thursday is a California initiative that compelled the sale of zero-emission vehicles over the next decade, ultimately banning the sale of conventional, gas-powered cars in 2035.

Trump applauded Congress for moving to strike the measures, saying it would prove longer lasting than if he acted on his own. (…)

The US Department of Transportation has separately signaled it plans to roll back Biden-era fuel efficiency rules that would require automakers reach a fleet average about 50 miles-per-gallon by 2031. (…)

• Wage Growth Tracker

The Atlanta Fed’s Wage Growth Tracker held steady in May at 4.3 percent.  For people who changed jobs, the tracker declined to 4.1 percent in May from 4.3 percent in April.  For those not changing jobs, the Tracker edged down to 4.3 percent in May from 4.4 percent the prior month.

That jibes with the BLS hourly earnings stable at the 4% YoY growth level. Crucially, overall inflation is now 2.4% with a rapid deceleration in CPI-Essentials, now 2.9%, down from 4.4% one year ago, mainly thanks to energy, down 3.1% YoY. Lucky break from the Saudis or slowing demand from weaker economies?

Meanwhile, unemployment claims are creeping up, particularly continued claims now at their highest non-pandemic level since March 2018. Job losses are not exploding but people losing their job have a hard time finding a new one.

Spiking oil prices could put sand in the gears of the Trump’s tariffed engine, eating into Americans’ discretionary income and quickly boosting costs throughout the economy, particularly in services which have nicely contributed, so far, to keeping overall inflation subdued.

Ed Yardeni:

May’s PPI inflation report, released today, was lower than expected as was May’s CPI inflation report yesterday. The PPI final demand for personal consumption edged down to 2.6% y/y in May, while the CPI rose only 2.4% during the month (chart). Both suggest that May’s PCED inflation rate might have dropped to 2.0%, which would finally be down to the Fed’s target for this inflation rate. The Cleveland Fed’s Inflation Nowcasting for PCED inflation is a bit higher at 2.3% for both May and June. Either way, the relevant data suggest that President Donald Trump’s tariff hikes have yet to boost consumer price inflation as widely expected.

The Case for Rate Cuts Is Growing Tariff inflation has been muted, and cracks are appearing in the labor market

(…) In May, the Treasury Department collected roughly $15 billion more in customs duties than in February. That is equal to about 3% of total consumer spending on goods. Some goods prices have risen, but not by that much. And in May, prices fell on some obvious tariff targets such as apparel and new cars.

This is a head scratcher. If consumers aren’t paying the tariffs, who is? Not foreign producers, at least through April, when import prices excluding fuel rose. Not, apparently, retailers and wholesalers, whose margins took a hit in April but bounced back in May, according to the producer price report released Thursday. (…)

Economists think tariff effects will become more apparent in coming months. But that alone isn’t reason enough for the Fed to stay on hold. Tariffs represent a one-time boost to the price level, which means after a year inflation should revert to its pre-tariff trend. The question is whether tariffs push the trend higher.

The good news is that in the last few months the trend has eased. A key reason inflation has been slow to return to the Fed’s 2% target had been stubborn service prices, and that can in great part be blamed on housing costs cooling more slowly than economists and the Fed expected based on private rent data. (…)

Services inflation has also been damped by plunging airfares, thanks to more empty seats and cheaper jet fuel.

Together, this is why excluding energy, services inflation fell to 3.5% in May, from 4.5% in December, which in turn has nudged core inflation (which excludes food and energy) to a four-year low of 2.8% in the last three months. Inflation according to the Fed’s preferred gauge, the price index of personal consumption expenditures, is also near its lowest since the pandemic, likely between 2.5% and 2.6% in May. It is running at around 1.3% annualized in the last three months. But for tariffs, the Fed would probably declare mission accomplished by year-end. (…)

The labor market today isn’t tight; it’s showing cracks. The unemployment rate, to two decimal places, has risen every month since January, by a quarter percentage point in all. At that pace it would reach 4.6% in the fourth quarter. This suggests the economy is growing slightly below its potential, which should keep a lid on price and wage pressures. (…)

Payroll growth looks healthy, at 139,000 in May. This, though, could be a head fake. From January through April. the Bureau of Labor Statistics initially reported hefty job growth only to revise that down sharply in later months. The same could happen with May data.

RBC Capital Markets recently noted that a string of negative revisions like this is common around recessions. Another hint: payroll processor ADP estimates that, based on a survey of its clients, private job growth was just 37,000 in May. (…)

Though not as out of whack as last September, rates are still roughly 0.5 to 1.5 percentage points above what Fed officials consider “neutral,” the level that keeps growth, inflation and unemployment stable. That restrictive stance make sense so long as inflation is all the Fed has to worry about. It no longer is.

Grep Ip wrote this before Israel attacked Iran’s nuclear facilities…

• The Latest Casualty of the Tariff War: Free Shipping Retailers are raising the bar for free delivery—or eliminating the perk—as they seek to mitigate tariff costs

Some online merchants are eliminating free shipping, while others are raising the amount customers must spend to qualify for the perk as part of broader efforts to pass along higher costs to consumers. (…)

The average cost to ship a parcel including surcharges is $12.50 today, up from $9.53 in 2019, according to ShipMatrix. Parcel carriers United Parcel Service and FedEx this year raised their average prices 5.9%. (…)

Cass Freight Index® – Shipments

The shipments component of the Cass Freight Index was down 0.4% m/m in May.

• Since volumes usually rise seasonally in May, shipments fell 3.4% m/m in SA terms.
• The y/y decline in shipments was 4.0% in May, after a 3.6% y/y decline in April.

The trade war is having a variety of effects, with pre-tariff consumer spending still supporting freight demand. The negative consequences of tariff effects are partly reflected in May data, as pre-tariff inventory stocking has started to turn to destocking, and those stocks will start to thin in the coming months.

After rising 13% in 2021 and 0.6% in 2022, the index declined 5.5% in 2023 and 4.1% in 2024. So far, it is trending toward another decline in 2025.

In June, the shipments component of the Cass Freight Index would decline 2% y/y on the normal seasonal pattern.

GOP Megabill Boosts Wealthy Households While Hurting Poor, CBO Says Middle-income Americans also would see gains from Trump’s agenda of tax reductions and spending cuts

Republicans’ tax-and-spending megabill would give more money to middle-income and high-income households while taking benefits away from low-income people, according to a Congressional Budget Office analysis released Thursday. (…)

The bill’s benefits increase steadily with income. Households near the middle of the income distribution would see their resources increase because of the bill by an annual average of $500 to $1,000, providing a boost worth 0.5% to 0.8% of their income. The top 10% of households would see a gain of about $12,000, or about 2.3% of income, largely because of tax cuts. That is all compared with current law, a scenario in which Trump’s 2017 tax cuts expire as scheduled Dec. 31.

On average, according to CBO, the bottom 30% of households would come out worse off, losing household resources. Income groups above that get more resources than they would under current law, on average. The bottom 10% of households would lose about $1,600 because of benefit cuts, equal to about 3.9% of income. (…)

The tax cuts do relatively little for lower-income people who don’t work or who pay federal payroll taxes but not income taxes. But many of them would be affected by the proposed changes to the Medicaid and food-aid programs, changes the Republicans have hailed as a major step toward lowering federal spending. Medicaid, a joint federal-state program, provides health insurance to more than 70 million low-income and disabled people.

The CBO analysis examines only the House version. Overall, the bill would increase budget deficits by $2.4 trillion over a decade. It also includes money for border security and national defense. Republicans say that estimate misses the economic growth the bill would create, and they contend that the growth would raise wages and help middle-income households.

They are also pointing to trillions in tariff revenue that isn’t in the bill but could help cover its costs, though most analyses say that middle-income consumers would bear much of the burden of tariffs.

Republicans say that their bill is essential to preventing a tax increase in 2026 and that the economy and working households would suffer if the tax cuts all expire.

“It would be what is known in economics as a sudden stop. It would be cataclysmic,” Treasury Secretary Scott Bessent told the Senate Finance Committee on Thursday, warning of significant job losses. “Working Americans would bear the brunt.”

Republicans say many of the people losing benefits under the bill are those who are in the country illegally or who otherwise should be ineligible. (…)

How many is “many”?

Chinese consumption amid the new reality

Much like the US economy, China’s economy needs a strong and active consumer in order to sustain acceptable GDP growth rates.

In the US, housing is both a source of strength (wealth effect) and restraint (affordability).

In China, where housing can impact more than 20% of the economy, the main handicap is confidence that house prices will not collapse.

At the end of 2024, McKinsey’s Consumer and Retail Practice in China completed a nationwide survey covering more than 17,000 Chinese consumers.

Based on an analysis of our survey findings, along with macroeconomic analysis of consumption and urbanization trends provided by the McKinsey Global Institute, we highlight three key trends shaping the new reality of China’s consumer market:

1. Consumers are accepting the new reality and moving on: After several challenging years that have dampened their confidence and willingness to spend, Chinese consumers are starting to move past this phase and are adjusting their shopping behavior.
2. Confidence has stabilized: Consumer confidence has stabilized, though urban confidence has experienced a slight decline.
3. Consumers are prioritizing personal fulfillment: Consumers are shifting their spending toward products and services that help them achieve personal fulfillment.\

Our survey shows that the consumer outlook for consumption growth in 2025 remains at a similarly cautious level as the previous year. Growth of annual consumption is expected to rise by 2.3 percent in 2025, roughly level with the 2.4 percent growth seen in 2024. This number is driven by a few key factors, such as China’s continued pace of urbanization, which expanded from 65.2 percent in 2022 to 67 percent in 2024. This is driving a rise in the growth of urban households in China, from 0.4 percent in 2024, to an expected 0.9 percent growth in 2025. (…)

Chinese consumers, on average, expect to grow their household income by 1.4 percent in 2025, down from 2.5 percent in 2024, and keep their savings rate unchanged.

The cautious attitude that persists among Chinese consumers is driven largely by their uncertainty regarding future financial prospects, which is driven by concerns over job security and the depreciation of their real estate holdings. Thirty-six percent of respondents in our survey reported experiencing “job anxiety,” aligning with broader data from the People’s Bank of China (PBOC) Q2 2024 survey, which found that 48 percent of urban residents viewed the job market as “challenging/uncertain.” Depreciation of real estate assets remains a key factor restraining consumption for those who hold a pessimistic outlook toward their financial future.

My reading of McKinsey’s data makes me concludes that confidence actually looks worse this year than last: city consumers, the largest spenders, are actually significantly less confident than at the end of 2023. Rural people help keep the overall confidence level constant.

And while McKinsey says that “Chinese consumers continue to increase their spending across most product categories”, I only see them increasing their spending on services while intentions on goods are negative.

In the first quarter of 2025, services accounted for 43.4% of total per capita consumer spending in China, with goods making up the remaining 56.6%. Kuang Xianming, vice president of the China Institute for Reform and Development, projected that services consumption will exceed 50% of China’s total consumption by 2030.

Trump Vows to Shield Farmers From Deportations That Are Depleting Workforce

President Donald Trump conceded that his immigration crackdown was hurting US businesses and said policy changes covering farmworkers and the hotel industry will be made to address worker shortages.

“Our great Farmers and people in the Hotel and Leisure business have been stating that our very aggressive policy on immigration is taking very good, long time workers away from them, with those jobs being almost impossible to replace,” Trump said in a post on Truth Social. “Changes are coming.”

The post seemed to mark a rare acknowledgment by Trump about risks to the world’s biggest economy as he seeks to fulfill his campaign pledge to undertake the biggest deportation operation in history. Data last week showed the US workforce shrunk in May, partly because of the largest back-to-back decline in the number of foreign-born workers in the labor force since 2020. (…)

Trump told reporters at the White House on Thursday that he was going to issue an order soon to help shore up the workforce. He said farmers have told him that some employees, while not citizens, “turned out to be, you know, great, and we’re gonna have to do something about that. We can’t take farmers and take all their people and send them back.”

“So we’re going to have an order soon,” he said. “I think we can’t do that to our farmers and leisure to hotels.” (…)

Almost half of the more than 850,000 crop workers in the US are undocumented, the Department of Agriculture estimates. (…)

Some 5.8 million immigrants — both undocumented and legal — joined the US workforce during former President Joe Biden’s term in office. There are now 32.7 million estimated immigrants in the labor force, accounting for nearly one in five workers.

Recent migrants are more likely to take jobs in industries that face chronic labor shortages, which also include construction and food processing, data show. In places like New York and Texas, for instance, more than half of construction workers are foreign-born.

“With foreign-born workers having been an outsized driver of labor force growth in recent years, sharply lower net immigration — let alone an outright decline — stands to weigh heavily on labor force growth,” Wells Fargo & Co. economists Sarah House and Nicole Cervi wrote Thursday in a note before Trump’s comments. (…)

Morgan Stanley economists estimate policy changes could sharply reduce net immigration to 300,000 this year and 200,000 in 2026, down from 2.9 million last year. In the longer term, a smaller contribution of foreign-born workers to the labor supply will magnify the challenges posed by the aging native-born population, they wrote in a note Thursday.

This chart illustrates the contribution to employment, and to the economy, and to inflation through lower wages, that foreign born workers have had in the last 10 years, even more so in the last 5 years. Native Americans in the labor force have barely increased since 2019 while the total labor force rose by 12.5 million, virtually all foreign born. That is truly part of American exceptionalism, isn’t it?

Trump is now considering shielding farming, hotel and leisure sectors, but how about construction, so crucial for MAGA plans, and all others listed in the above chart?

Gosh, the economy is so complicated!

US Wine Exports to Canada Fall by Most in Over 20 Years

Wine shipments from the US to the northern nation fell 93%, the largest year-over-year decrease in monthly data from the US Census Bureau going back to 2002. The next two biggest wine markets for US producers — the UK and China — also imported less in April.

The collapse contributed to a 41% global decline in US wine exports in the month, following a 28% drop in March. (…)

Canada was the largest buyer of US wine in 2024, data from the United Nations show, accounting for about a third of total export value.

In March, Canadian provinces began removing US-made alcohol from government-run stores in response to US tariffs on Canadian goods — though some have recently resumed buying again. Canada still has a 25% import tax on US wine, which it implemented after the Trump administration started the tariff war. (…)

US 30-Year Bond Sale Spurs ‘Sigh of Relief’ After Weeks of Angst

The $22 billion sale followed weeks of fretting over whether spiraling budget deficits and President Donald Trump’s trade war would deter buyers from lending to the US for such a lengthy period. But it drew a yield of 4.844%, below the yield around the auction deadline. That was a sign of solid appetite, and 30-year bonds proceeded to extend their gains, leaving the yield down about 8 basis points at around 4.84% in late afternoon New York trading. (…)

Underscoring the buying interest, the group of primary dealers that underwrite US Treasury debt offerings were awarded 11.4% of the sale, the lowest amount they’ve been left with since November. The result followed a well-received sale of 10-year notes on Wednesday. (…)

Jurrien Timmer, Director of Global Macro @Fidelity

The chart illustrates the math: as long as the funding rate (10-year yield) remains below the nominal growth rate of GDP, the rising debt burden can be considered sustainable.

If it rises above the growth rate while debt levels are high and rising, we fall into a debt spiral. Makes sense, right?

If an entrepreneur takes out a loan to start a business, and that business grows faster than the interest cost, it’s a good use of leverage. But if a loan is taken out just to stay afloat, it’s not a good use of leverage.

The same applies to governments. We see that the nominal growth rate has generally been above the borrowing rate (…).

Now debt levels are at 117% and rising to 140% (per the CBO), while at the same time the 5-year annualized growth rate in potential nominal GDP is peaking at 6% and is projected (by the CBO) to fall to 4% in the coming years. That means that barring renewed growth in the labor force or a lasting burst in productivity (from AI?) the 10-year yield needs to stay at or below 4% in order to avoid a debt spiral.

That might be a tall order without help from the Fed. The math is very challenging here and suggests that the Fed Model will be a significant driver for equity returns in the years ahead. Less beta.

AI CORNER

Tech war: Nvidia CEO says Huawei has everyone ‘covered’ if US chip ban on China stays

Nvidia founder and CEO Jensen Huang said his company’s technology remained a generation ahead of those developed by China, but warned that Huawei Technologies was in a position to expand its semiconductor business should US chip export curbs stay in place.

In an interview with US broadcaster CNBC on Thursday, Huang appeared to echo recent published remarks made by Huawei founder and CEO Ren Zhengfei, who said the Chinese company’s Ascend artificial intelligence (AI) processors lagged behind those from the US “by a generation”.

Ren, however, added that using methods like “stacking and clustering [on Ascend-powered machines], the computing results are comparable” to the most advanced systems in the world.

“AI is a parallel problem, so if each one of the computers are not capable … just add more computers,” Huang said in response to a question about Ren’s comments. “What he’s saying is that in China, [where] they have plenty of energy, they’ll just use more chips.”

“He was saying that China’s technology is good enough for China. If the United States doesn’t want to participate in China, Huawei has got China covered,” Huang added. “Huawei [also] has got everybody else covered.”

The 62-year-old Nvidia CEO’s televised comments, made on the sidelines of the annual VivaTech conference in Paris, reflect his concerns about Huawei’s growing AI chip capabilities, which he earlier raised during a closed-door meeting last month with the US House of Representatives Foreign Affairs Committee.

Remember my June 11 post in which I discussed the US energy problem vs China’s abundant energy.

(…) Energy has become a key ingredient in AI investments, themselves key factors in overall economic growth. The US economy is clearly facing energy bottlenecks ahead while China has been aggressively investing in its energy production infrastructure while reducing dependance on coal. (…)

China delays approval of $35bn US chip merger amid Donald Trump’s trade war Beijing’s antitrust regulator postpones sign-off on Synopsys and Ansys deal

A $35bn US semiconductor industry merger is being delayed by Beijing’s antitrust regulator, after Donald Trump tightened chip export controls against China in a move that exacerbated trade tensions between the world’s two largest economies.

China’s State Administration for Market Regulation has postponed its approval of the proposed deal between Synopsys, a maker of chip design tools, and engineering software developer Ansys, according to two people with knowledge of the matter.

The transaction between the American groups, which has received the blessing of authorities in the US and Europe, had already entered the last stage of SAMR’s approval process and was expected to be completed by the end of this month, said the people. (…)

Muted May Inflation Defies Tariff Fears Consumer prices rose 2.4% over the year, with a lower than expected month-over-month increase

Consumer prices rose 0.1% in May over the previous month, less than economists anticipated. Year-over-year inflation was 2.4%, in line with expectations and near a four-year low recorded in April. (…)

The report will raise questions over when a widely anticipated bump in prices this summer, expected by the Federal Reserve and private-sector economists, will materialize—and whether it will be as stiff as some have warned.

Among the possible explanations: Demand isn’t strong enough for businesses to push along price increases to customers, leading tariffs to be less inflationary than expected. Another theory is that because businesses loaded up on inventories ahead of anticipated tariff increases, that allows them to wait until later in the year to test the ability of consumers to accept higher prices. (…)

Prices did rise for some items exposed to tariffs, including appliances, car parts and audio equipment. (…)

Many goods whose prices factor into the Labor Department’s calculations are sampled only every other month. (…)

John Authers:

The details reveal that the report was not quite as good as it looked. The Atlanta Fed divides inflation into products with flexible prices, and those that are “sticky” — where price changes take a while to execute and cuts are rare. Over the last three months, flexible prices dipped, possibly due to weak demand, while sticky price inflation declined very slowly.

The Cleveland Fed’s measure of the trimmed mean, which excludes outliers and averages the rest, ticked upward for the first time this year, and remains above 3% — another sign that underlying inflation pressures remain:

Also problematic for the Fed is an uptick in “supercore” inflation — services excluding shelter — that it has made a priority. Goods’ contribution to CPI, still tiny in aggregate, is rising steadily, even if there hasn’t been the step change that might be expected with new tariffs:

Ed Yardeni:

May’s headline and core CPI inflation rates remained subdued at 2.4% y/y and 2.8% y/y (chart). Prices-paid and prices-received indexes, based on national and regional purchasing managers surveys, have been rising in recent months, reflecting the inflationary consequences of Trump’s tariffs. However, these inflationary pressures have yet to show up in the CPI. They were expected to do so by now. It is possible that they might still do so during the summer months. But so far, they are also no-shows.

Interestingly, both the headline and core CPI inflation rates excluding shelter have been hovering at or just below 2.0% for the past year

Goldman Sachs:

Based on the details in the CPI report, we estimate that the core PCE price index rose 0.18% in May (vs. our expectation of 0.23% prior to today’s CPI report), corresponding to a year-over-year rate of +2.62%.

Additionally, we expect that the headline PCE price index increased 0.14% in May, or increased 2.29% from a year earlier. We estimate that market-based core PCE rose 0.22% in May.

US Tariff Revenue Hits Fresh Record, Helping Shrink May Deficit

The Treasury Department recorded $23 billion in customs-duties revenue for May, according the agency’s monthly budget statement. This represents a $17 billion, or 270%, increase from the same month a year earlier. May’s figure is more than triple the monthly average of 2024. (…) The jump in customs duties revenue reflects several new tariffs put in place by President Donald Trump, the bulk of which took effect in early April. The highest levies on China were reduced temporarily in mid-May, when the US and China reached a preliminary deal. This week, US-China talks yielded a framework for an agreement, though Chinese President Xi Jinping still has to sign off on it.

These costs will find their way either in prices or in margins.

World Bank Sees U.S. Growth Rate Halving as Tariffs Slow Global Economy Slowdown in U.S. and global economies could be more severe if tariffs rise from levels in effect in May, bank says

The Washington, D.C.-based development bank said it expects the world’s largest economy to grow by just 1.4% in 2025, a sharp deceleration from the 2.8% expansion recorded in 2024. In its January report on the outlook for the global economy, the World Bank forecast a 2.3% increase in U.S. gross domestic product.

The World Bank also lowered its forecasts for economic growth in the eurozone, Japan, India and many other countries around the globe, as the rise in duties crimps their exports to the U.S. Among large economies. Mexico is set to suffer the biggest blow, with growth in 2025 now forecast at just 0.2%, down from 1.5% in January.

The World Bank now expects world output to grow by 2.3% this year and 2.4% the next, having previously projected an expansion of 2.7% in each year. (…)

The World Bank warned that the slowdown in both the U.S. and global economies could be more severe if tariffs were increased further from the levels that prevailed in late May, as might occur if the increases announced on April 2—and then paused for 90 days to allow for negotiations—were to come into force in July.

Should duties on imports rise by a further 10 percentage points, global economic growth would be just 1.8% this year and 2% in 2026, the World Bank’s economists estimated.

“This sudden escalation in trade barriers results in global trade seizing up in the second half of this year and is accompanied by a widespread collapse in confidence, surging uncertainty, and turmoil in financial markets,” the World Bank said of such a scenario.

The World Bank’s forecasts are the latest warning from an international body about the perils of Trump’s trade policy. The Organization for Economic Cooperation and Development last week said U.S. economic growth could slow to 1.6% this year, with inflation nearing 4% as a result of higher tariffs. The White House has said the OECD’s report was among “a growing list of doomsday prognostications that are untethered to reality.”

However, the World Bank backed Trump’s claim that the U.S. faced higher tariffs on its exports than it levied on imports before the recent increases, and Gill said other countries should offer to lower their duties in an effort to secure trade peace.

“This favorable access to U.S. markets was not a sustainable policy,” he said. “The differences should be reduced quickly and this can only happen if everyone acts in good faith.”

Indeed, in a scenario where tariffs were halved compared with their levels in late May, economic growth would be slightly higher both this year and next, the World Bank said. (…)

The development bank left its forecasts for China unchanged, as it expects that weaker exports to the U.S. will be offset by greater support from government spending. India’s economy is expected to continue to grow rapidly, although at a slightly slower pace than previously forecast.

A number of developing economies that weren’t growing rapidly will also see weaker expansions than had been expected, including South Africa. Many are exporters of commodities, prices for which have fallen sharply since Trump’s tariff increases led to lower expectations for global demand. While slowdowns are expected to be widespread, outright contractions are likely to be rare, with Iran seen as one notable exception.

The World Bank said this latest setback would extend a long period of lower growth for developing economies.

“Outside of Asia, you’re not seeing improved living standards,” Gill said. “The developing world is becoming a development-free zone.”

Trump Says Again He’ll Set Unilateral Tariffs in Two Weeks

President Donald Trump said he intended to send letters to trading partners in the next one to two weeks setting unilateral tariff rates, ahead of a July 9 deadline to reimpose higher duties on dozens of economies. (…)

It’s unclear if Trump will follow through with his pledge. The president has often set two-week deadlines for actions, only for them to come later or not at all. The president on May 16 said he would be setting tariff rates for US trading partners “over the next two to three weeks.”

Trump in April announced higher tariffs on dozens of trading partners only to pause them for 90 days as markets swooned and investors feared the levies would spark a global downturn. Yet despite the ongoing negotiations, the only trade framework the US has reached is with the UK, along with a tariff truce with China. (…)

Commerce Secretary Howard Lutnick said earlier Wednesday that the European Union is likely to be among the last deals that the US completed, expressing frustration with conducting talks with a 27-nation bloc.

Trump Has No China Trade Strategy Washington and Beijing stage a tactical retreat that shows China’s leverage.

The WSJ Editorial Board:

President Trump on Wednesday hailed the result of the latest trade talks with China as a great victory, but the best we can say is that it’s a truce that tilts in China’s direction.

Details are few, but the countries appear to be resetting their trade relationship to where it was a few months ago before a tit-for-tat escalation. Mr. Trump had agreed to reduce tariffs on China to 30% (55% including those he imposed during his first term) from 145% while China dropped its tariffs on U.S. goods to 10% from 125%.

Beijing will ease its restrictions on rare-earth minerals and magnets for six months while the U.S. will relax its restrictions on the sale of jet engines and ethane to China. The U.S. will keep its export controls on advanced chips, which are a hindrance to Mr. Xi’s AI ambitions though some developers like DeepSeek are using work-arounds.

The Administration also agreed to rescind restrictions on Chinese student visas so the children of Communist Party officials can study at U.S. universities. (…)

U.S. manufacturers will no doubt welcome the rare-earth mineral reprieve, but China is keeping the gun on the bargaining table by putting a six-month limit on export licenses. That means if trade tensions flare again, Mr. Xi can resort to the same threat.

China first weaponized its dominance in rare-earth minerals in a conflict with Japan in 2010 involving the Senkaku Islands, but the U.S. and its allies were slow to develop alternatives. Will they now get the message?

Developing an alternative supply will take years and require cooperation with allies because the U.S. can’t produce and process all the rare earths it needs. Japan has pitched a rare-earths alliance as part of tariff negotiations, and the Administration would be wise to expand such a partnership with other allies.

This gets to the larger problem with Mr. Trump’s tariff strategy—that is, he doesn’t have one. His latest walk-back shows he can’t bully China as he tried to do in his first term. China has leverage of its own.

A smarter trade strategy would be to work with allies as a united front to counter China’s predatory trade practices. Instead, Mr. Trump has used tariffs as an economic scatter-gun against friends as well as foes. This increases China’s leverage, and, like this week’s trade truce, that’s nothing to cheer about.

Supply Chains Become New Battleground in the Global Trade War U.S.-China talks on trade resemble arms-control negotiations, with export controls the key weapons in each side’s arsenal

(…) Today, instead of warheads, the U.S. and China are wielding a range of new economic weapons that have the potential to cause widespread economic pain. Following the latest skirmish, China agreed to resume exports of rare-earth magnets and critical minerals needed by U.S. companies—but only for six months, The Wall Street Journal reported. (…)

In many essential sectors of the modern economy, China has the upper hand. The world’s second-largest economy accounts for around a third of global manufacturing output, giving it a potential chokehold on auto parts, basic ingredients for drugs, key parts of the electronics supply chain and a host of other industrial sectors. It is the world’s No. 1 exporter of machinery, ships, steel, ceramics, textiles and dozens of other goods, according to data from the International Trade Center, a U.N.-backed agency that promotes open trade.

The U.S. dominates fewer sectors—but its clout in advanced technology gives it an outsize advantage. (…)

Under the Biden administration, the U.S., which for years made abundant use of its dominant position in global finance to impose sanctions on countries including Iran and Russia, wielded one of the most powerful economic tools America possesses: its tech prowess. Washington tightened controls on exports of high-end semiconductors to China, and persuaded allies including Japan and the Netherlands to limit supplies to China of lithography machines and other essential chip-making tools. The goal was to thwart China’s ambition to supplant the U.S. as the world’s foremost technological power.

In response, China has begun flexing its own economic muscle by tightly controlling the export of rare earths and other critical minerals that are essential for the manufacture of car engines, chips, smartphones and a host of other advanced technologies. It upped the ante this year by extending those controls to the export of rare-earth magnets, indispensable components in everything from air-conditioning units to jet fighters.

The U.S. said China agreed to speed approvals of magnet exports as part of a trade truce agreed in Geneva in May, which lowered substantially tariffs imposed by both countries on the other’s imports.

Yet Washington soon grew frustrated at the slow pace of approvals, which automakers complained was hurting production. Officials again reached for export controls to raise the pressure on Beijing, notifying companies that exports to China of jet engines and related parts, chip-making software, and ethane, a component of natural gas used in manufacturing plastics, were suspended, The Wall Street Journal reported. (…)

President Trump in a post on his Truth Social network said Wednesday that a deal is done and that the supply of magnets and rare earths from China to the U.S. economy will resume.

But China’s move to put a six-month limit on rare-earth export licenses for American manufacturers signals that Beijing could use this weapon against the U.S. if trade tensions erupt again.

The potential for export controls to disrupt trade adds to the pressure on companies already struggling to navigate tariffs and mushrooming trade conflicts. Companies operating in the U.S. and China will increasingly need to split their supply chains into two, said Eric Zheng, president of the American Chamber of Commerce in Shanghai.

“Companies will, generally speaking, continue to derisk, however you define this, essentially by treating the U.S. and China as two separate markets,” he said.

The US advantage on tech has diminished in recent years as Chinese entrepreneurs accelerated developments and found work-arounds, often less costly (e.g. DeepSeek).

The Netherlands was persuaded during the Biden administration to limit the supply to China of crucial lithography machines used in advanced chip making.

ASML is the world’s sole supplier of extreme ultraviolet (EUV) lithography machines, essential for manufacturing the most advanced semiconductor chips. This unique position gives the Netherlands a critical role in the global semiconductor supply chain. ASML’s presence has fostered a robust high-tech ecosystem in the Netherlands, supporting numerous suppliers, research institutions, and spin-off companies.

ASML is considered the “corporate jewel” of the Netherlands and Europe’s most valuable technology company, with a market capitalization exceeding €275 billion.

Actually, ASML is a linchpin of the Dutch national economy, a driver of innovation, a major employer, and a strategic asset with global influence. Its continued presence and growth are vital to the Netherlands’ economic prosperity, technological leadership, and geopolitical standing.

But the US-China standoff is significantly impeding ASML’s, and the Netherlands’, growth and profitability. How long will the Dutch government accept to pay the huge price of preventing ASML to sell to the world’s largest market because the US is asking?

Importantly, ASML plays a crucial role in Europe’s technology ecosystem. Barring ASML from China is effectively impeding the EU’s technological development.

The recent sequence of events is quite interesting:

Last January, Chinese Vice Premier Ding Xuexiang met with Dutch PM Dick Schoof. From various accounts:

• Dutch Prime Minister Dick Schoof said: “We are in talks, good talks and we are also watching out very specifically for the economic interests of ASML, those need to be weighed against other risks and the economic interests are extremely important. “ASML is for the Netherlands an extremely important, innovative industry that should not suffer under any circumstances, because that would damage ASML’s global position,” he added.
• “China is an extremely important trade partner, particularly for the Netherlands” Schoof said.
• Schoof said the Dutch government did not expect a change in policy from U.S. President Donald Trump on semiconductor equipment exports – and that the Netherlands decides its own export policies – but that the two countries remain close allies.
• Ding encouraged the Netherlands to play a constructive role in promoting China-EU ties.
• Both countries emphasized the importance of openness and mutual trust. This could translate into increased trade opportunities, with Dutch businesses exploring the Chinese market and China fostering partnerships in the Netherlands.
• The shared commitment to safeguarding free trade and ensuring stable global supply chains indicates further collaboration to mitigate trade disruptions and enhance economic resilience, particularly in the face of growing geopolitical tensions.

The Chinese envoy extensively used the word “trust” in his conversations and statements.

Now, the recent collapse of the Dutch government and the upcoming snap election on October 29, 2025, have injected significant uncertainty into the country’s political and economic landscape. With the far-right Party for Freedom (PVV), the Labour-Green Left alliance (PvdA-GL), and the liberal VVD all polling closely, the direction of future policy—especially on issues crucial to ASML—remains unclear.

Some Dutch parliamentarians have voiced concerns about national sovereignty and the risk of the Netherlands being caught between U.S. and Chinese interests. There is ongoing debate about how much Dutch policy should be influenced by U.S. geopolitical goals, especially as the U.S. has previously imposed unilateral restrictions on ASML’s exports.

The Dutch cabinet has expressed worries about ASML becoming a “weapon” in the U.S.-China trade war, and ministers have discussed possible scenarios if U.S. pressure increases. These discussions reflect anxiety about the Netherlands’ ability to maintain independent policy choices amid global tensions.

Christophe Fouquet, ASML CEO, has become more open about his concerns that government policies risk upending decades-old supply chains, slowing development of artificial intelligence and other technologies and motivating China to expand its homegrown semiconductor industry, which could ultimately undercut ASML’s dominance and harm Western interests.

While China has a way to go before matching ASML’s technology, he said, “the people you try to stop will work harder to be successful.” “It doesn’t matter how many obstacles you put in the way,” he added.

He said the European Union and the Netherlands could do more to protect ASML and the semiconductor industry from being caught in the crossfire of US-Chinese fights.

Nvidia’s CEO Jensen Huang recently said “Shielding Chinese chipmakers from US competition only strengthens them abroad and weakens America’s position.”

Interestingly, last March,

The Netherlands’ parliament approved a series of motions calling on the government to reduce dependence on U.S. software companies, including by creating a cloud services platform under Dutch control. While such initiatives have foundered in the past due to a lack of viable European alternatives, lawmakers said changing relations with the United States under the presidency of Donald Trump have given the issue fresh urgency.

“The question we as Europeans must ask ourselves is: do we feel comfortable with people like Trump, Zuckerberg and Musk ruling over our data?” said Marieke Koekkoek of the pro-European Volt party, who authored one of the eight motions, in an email to Reuters.

In addition to launching a sovereign cloud services platform, the motions called on the government to re-examine a decision to use Amazon’s web services for the Netherlands’ internet domain hosting, and to develop alternatives to U.S. software and preferential treatment for European firms in public tenders.

The Dutch vote came a day after dozens of European tech firms called on the European Commission to create a sovereign fund to invest in European technology, including cloud infrastructure, and a “Buy European” mandate.

Bert Hubert, a Dutch technology expert who has advocated for reducing dependency on the U.S., said: “This is only the first step in potentially doing something.”

But he said one important outcome would be forcing agencies to publicly report on risks related to their reliance on U.S. cloud firms.

“With the advent of Trump 2.0, it has become clear that this is not something you can harmlessly sign off on,” he said.

No wonder China is using the word “trust” as often as it can.

You can bet that the Trump administration will closely monitor the upcoming Dutch elections.

What’s at Stake If Trump Scraps Security Pact With UK, Australia

The Trump administration has launched a review into the Aukus defense pact that the US signed with Australia and the UK in 2021 to counter China’s military expansion in the Indo-Pacific region.

Central to the agreement is a controversial project — expected to cost hundreds of billions of dollars — to help Australia develop a fleet of nuclear-powered submarines over a 30-year period.

If the US ends up abandoning the pact, it would deal a major blow to Australia and its defense capabilities. It would also raise questions for other Asia-Pacific allies about the US commitment to their security interests in the face of a rising China. (…)

Trump Plan to Kill Dozens of NASA Missions Threatens US Space Supremacy The White House’s spending plans would further the space agency’s evolution toward becoming an incubator for private industry

(…) The White House is calling for a roughly 50% cut to NASA’s science spending to $3.9 billion, part of an overall pullback that would deliver the lowest funding level in the agency’s history and kill more more than 40 NASA science missions and projects, according to detailed plans released last month. The Trump administration has also left the agency without a permanent leader and without a vision for how America’s civilian space policy is going to work with US allies and compete with China and other rivals. (…)

Researchers worry that abandoning missions would mean investments made by earlier generations might be lost or forgotten.

“Once you launch and you’re operating, then all those costs are behind you, and it’s relatively inexpensive to just keep the missions going,” said Amanda Hendrix, the chief executive officer of the Planetary Science Institute, a nonprofit research organization. “So I’m very concerned about these operating missions that are still producing excellent and really important science data.” (…)

“This is a NASA that would be primarily human spaceflight focused,” Casey Dreier, chief of space policy for The Planetary Society, a nonprofit that advocates for space science and exploration, said of the proposed changes. “This is a NASA that would say, ‘The universe is primarily the moon and Mars,’ and basically step away from everything else.”

There are signs that the administration’s proposed cutbacks won’t satisfy lawmakers who view space as vital to US interests. Senator Ted Cruz, the Texas Republican who leads a committee that oversees NASA, has proposed legislation that would would provide nearly $10 billion to the agency.

“American dominance in space is a national security imperative,” Cruz said in a statement to Bloomberg. “The Commerce Committee’s bill carefully invests in beating China to the Moon and Mars — while respecting every taxpayer dollar. It’s rocket fuel for the commercial space companies and NASA that are working to keep America ahead of China in the Space Race.” (…)

During Trump’s presidency, NASA’s transformation into an incubator for private industry is likely to gain speed. Throughout its budget proposal, the White House calls for mimicking past programs that have leaned more on outsourcing to the private sector. (…)

Pulling back is likely to have consequences. Trump’s broader push to curtail funding for science — the administration has choked off money for medical, climate and other research — risks eroding an important source of American soft power.

After the end of the Cold War-era space race, NASA became a vessel for international cooperation, proving countries with lofty goals can work together. Many of the NASA missions Trump has proposed canceling or pulling away from entailed collaboration with European allies. (…)

US Moves Some Diplomats Out of Mideast as Iran Tensions Rise

The US ordered some staff to leave its embassy in Baghdad, officials said, after Iran threatened to strike American assets in the Middle East in the event it’s attacked over its nuclear program.

The decision to reduce staffing in Iraq was “based on our latest analysis,” according to the US State Department. Defense Secretary Pete Hegseth authorized family members of US military stationed across the region to leave, according to a Pentagon statement.

The State Department also said US government employees and family members in Israel are restricted from traveling outside major cities such as Tel Aviv and Jerusalem until further notice.

None of the statements cited a specific threat. But they came after the New York Post published an interview with President Donald Trump in which he said he was less confident the US will reach a deal with Iran. The countries are negotiating an agreement that would curb the Islamic Republic’s nuclear activities in return for sanctions relief.

Trump has consistently said he wants an agreement with Iran and to avoid a war, but that the US could resort to military action if Tehran doesn’t accept a deal.

“I sincerely hope it won’t come to that and that the talks reach a resolution,” Iran’s Defense Minister Aziz Nasirzadeh said on Wednesday. “But if they don’t, and conflict is imposed on us, the other side will undoubtedly suffer greater losses.”

Iran announced the start of military drills on Thursday, “with a focus on enemy movements.” The head of its Islamic Revolutionary Guard Corps said the force was “ready for any scenario.”

The same day, the Islamic Republic said it would establish a new uranium-enrichment center in response to a decision by the United Nations atomic watchdog to censure it. (…)

US officials have been told that Israel is ready to launch an operation into Iran, which is part of the reason why the Trump administration advised some Americans to leave the region, CBS News reported on Wednesday evening, citing multiple sources it did not name.

Israel is wary Tehran can be trusted to adhere to any diplomatic accord with Washington and says it reserves the right to attack the Islamic Republic, with or without US help. (…)

While the US and Iran have broadly said all five rounds of talks in the past two months have been positive, a key sticking point is whether Tehran is allowed to continue processing uranium, albeit to a low level. Iran says it won’t end its enrichment. The US has given conflicting comments, though in recent weeks Trump has more firmly stated that Tehran must stop its enrichment altogether.

Trump open to dialogue with North Korea’s Kim Jong Un, White House says Remarks come after report said North Korean officials refused to accept letter from Trump to Kim.

Remembering Brian Wilson, a Surfer of Sound The leader of the Beach Boys, who has died at age 82, made a profound impact on music and American culture through his experimental production, captivating harmonies and timeless celebration of teenage life.

Though his most creative period lasted roughly six years in the 1960s, Brian Wilson, whose death at age 82 was announced today, left a profound impact on pop music, record production and American culture. In an ascent that ran from 1962 to 1967, the songwriter, bassist, arranger, falsetto singer and original Beach Boys leader pioneered vocal harmony, studio experimentation and songs that fed teens’ dreams of an endless summer. (…)

Over the course of Mr. Wilson’s seven-decade career, he won two Grammys (in 2005 and 2013) and received a Grammy Lifetime Achievement Award in 2001 as a member of the Beach Boys. The band’s first Top 10 Billboard pop hit, “Surfin’ U.S.A.,” reached No. 3 in 1963. In all, they had four No. 1 Hot 100 entries, 15 in the Top 10 and over 50 that charted. (…)