Month: April 2025

Trump’s Exceptional Tariff Weekend His Customs office announced tariff-rate exceptions on electronics on Friday that he renounced on Sunday.

The WSJ Editorial Board:

President Trump is taking exception to the idea that his Administration is offering exceptions to his punishing tariffs. That’s the story after a confusing weekend that offers more lessons in the arbitrary nature of Trump trade policy.

Late Friday his own Customs and Border Protection (CBP) department issued a notice listing products that will be exempt from Mr. Trump’s so-called reciprocal tariffs that can run as high as 145% on goods from China. The exclusions apply to smartphones, laptop computers, hard drives, computer processors, servers, memory chips, semiconductor manufacturing equipment, and other electronics.

The CBP notice takes the tariff rate on these products down considerably. Barron’s calculates that the exceptions cover $385 billion in 2024 imports. That includes $100 billion from China, or 23% of U.S. imports from that country. The tariff rate falls to 20% on the newly exempted Chinese exports.

The press spent Saturday reporting this without cavil from the White House. We weighed in with a WSJ.com editorial on Saturday afternoon, noting that this meant a big reprieve for powerful tech companies, though not for small manufacturers.

But on Sunday morning Commerce Secretary Howard Lutnick said tariffs on electronic goods would go up again in the future, though he offered no details. Mr. Lutnick hasn’t been the most reliable voice on the Administration’s plans, so that was taken with some caution.

Finally Mr. Trump jumped in late Sunday afternoon. “NOBODY is getting ‘off the hook’ for the unfair Trade Balances, and Non Monetary Tariff Barriers, that other Countries have used against us, especially not China which, by far, treats us the worst!” he wrote. “There was no Tariff ‘exception’ announced on Friday. These products are subject to the existing 20% Fentanyl Tariffs, and they are just moving to a different Tariff ‘bucket.’”

Mr. Trump blamed the press for reporting the exceptions that his own CBP had announced, albeit in stealth fashion at 10:36 p.m. Friday. And he announced that his Administration is taking a “look at Semiconductors and the WHOLE ELECTRONICS SUPPLY CHAIN” for potential tariffs.

So what happened and what’s the real policy? Who knows? Perhaps Mr. Trump didn’t like the reporting that tech giants like Apple and its shrewd and capable CEO Tim Cook were getting exceptions. Other winners in the CBP notice would be Dell Technologies’ Michael Dell, Jensen Huang of Nvidia, and the executives and shareholders of Hewlett-Packard and TSMC.

This is no rap on them, since their job is to look out for the best interests of shareholders and that means getting tariff carve-outs if they can. Some of the companies may not have sought exemptions, though the opacity of the process for getting one is the Beltway Swamp’s dream.

These CBP exemptions would be good news for consumers who were otherwise facing much higher prices for smartphones that are a staple of modern life. How would you like a $2,400 iPhone? But after Mr. Trump’s broadside, tech companies and electronics firms are left wondering who will get reprieves.

Perhaps Mr. Trump doesn’t like that exceptions are a tacit admission that tariffs will make American companies less globally competitive, especially in the artificial intelligence race. That explains the exemptions for ASML’s chip-making equipment and Nvidia’s graphic processing units. Mr. Trump first makes U.S. companies less competitive, then he and his Administration pick exceptions worthy of help to remain competitive. Politicians, not success in the marketplace, pick business winners and losers.

Exemptions would also undermine the Administration’s legal justification that his tariffs are needed to meet a national “emergency.” Imports of glassware and umbrellas from China are an emergency but imports of electronics aren’t?

All of this exposes the political nature of tariffs. Some industries benefit but others don’t. Too bad if you make shoes, or clothing, or thousands of other consumer products that must pay the tariffs but lack the political or market clout to win exemptions. Too bad, too, if you’re a small manufacturer that relies on a component from China but can’t afford a K Street lobbyist.

Welcome to the new tariff economy, where you still pay onerous taxes, endure punishing regulation, and now must also navigate the political minefield of arbitrary tariffs.

Bloomberg:

Trump told reporters aboard Air Force One his decisions will come soon, indicating that details on a tariff rate for semiconductors would be announced in the coming week.

Yet Trump also signaled an openness to talks with companies over the scope of his sectoral tariff on semiconductors and products like iPhones and tablets that rely on them. “We’ll be discussing it, but we’ll also talk to companies,” he said. “You have to show a certain flexibility. Nobody should be so rigid.”

Sunday night’s “Nobody” seems different than Sunday afternoon’s “NOBODY”. In this Trump game, one is much better being “somebody” than “nobody”.

Still, the maneuver means weeks, maybe months, without extra tariffs on the array of phones and computers before the specific sectoral tariff on electronics kicks in — one virtually certain to be lower than the 125% rate on China, another level of reprieve. It also opens a window for companies and lobbyists to push for different parameters and exclusions.

Trump, aboard Air Force One late Sunday, said the tariffs would be in place “in the not too distant future.”

The semiconductor tariffs are “coming in probably a month or two,” Lutnick said. He said a notice will be published in the federal registry this week related to semiconductors, but he didn’t elaborate. The administration will likely need to launch a so-called Section 232 investigation as a next step, which would require a report within 270 days and then open the door to tariffs. (…)

In some ways, Trump’s Friday exclusions were an announcement of the products that will ultimately be under the “semiconductor” sectoral tariff.

It’s not clear what tariff rate the administration would apply to semiconductors and products it covers under that tax, but they’ve been 25% so far on other industries. Those Section 232 tariffs may prove more permanent than Trump’s country rates, which are based on a more vulnerable legal authority and which he’s said he will negotiate.

The tariff reprieve does not extend to a separate Trump levy on China — a 20% duty applied to pressure Beijing to crack down on fentanyl, including the shipment of precursor materials. Other previously existing levies, including those that predate Trump’s current term, also appear unaffected.

Trump, in his social media post Sunday, reiterated that the 20% rate still applies.

On China, “everyone pays at least the 20% and these particular components are being put through a separate process controlled by the Department of Commerce which is the 232,” Lutnick told ABC.

There you go!

Apple Was on Brink of Crisis Before Trump Tariff Concession

(…) On Friday night, the US president handed Apple a major victory, exempting many popular consumer electronics. That includes iPhones, iPads, Macs, Apple Watches and AirTags.

Another win: The 10% tariff on goods imported from other countries has been dropped for those products. (…)

“This is a major relief for Apple,” Evercore ISI analyst Amit Daryanani said in a note on Saturday. “The tariffs would have driven material cost inflation.” (…)

If Apple moves even more production from China at a rapid pace, how would the country retaliate? Apple generates about 17% of its revenue from the country and operates dozens of stores, making it an outlier among US-based companies. (…)

The iPhone is Apple’s biggest moneymaker, and about 87% of them are produced in China, according to estimates from Morgan Stanley. About four in five iPads also are made in the country, along with 60% of Macs. (…)

The company generates about 38% of its iPad sales in the US, as well as about half its Mac, Apple Watch and AirPods revenue, Morgan Stanley estimates. (…)

Though Trump has pushed Apple to make iPhones in the US, the lack of domestic engineering and manufacturing talent will make that nearly impossible in the short run.

The size and scale of the facilities in China makes it unmatched in speed and efficiency. The China production also is crucial for Apple’s sales in the world beyond the US. The Cupertino, California-based company gets nearly 60% of its revenue outside of the Americas. (…)

The potential impact was even more stark after Trump paused higher tariffs on other countries. That meant Apple rival Samsung Electronics Co., which makes its phones outside China, would have had an edge. (…)

Darn! This is so complex …

BTW: Research from the US Department of Commerce found that at least 48% of all manufactured goods purchased in America were reliant on direct or indirect imports.

John Authers:

• Why is the US complaining of being victimized for 70 years when in reality, it’s ruled the world and enjoyed great prosperity?

This might be the greatest mystery of all. In absolute terms, nothing bad has happened to the US economy over the last few decades. Its gross domestic product per capita is much greater than that of the European Union or China, and continues to grow healthily. If the US is being taken advantage of, it doesn’t show up in the aggregate figures (…):

• Why is the dollar falling, even though Treasury yields are rising?

(…) Put all these together, and the only explanation is a loss of confidence in the US as a destination for funds. Last week’s combination of rising yields and a falling currency is reminiscent of any number of emerging markets crises, and of the one for gilts and sterling that followed Prime Minister Liz Truss’s unfunded UK tax cuts in 2022. It’s amazing that such a fate can befall the US. Truss capitulated and sterling rebounded; that’s generally the pattern that emerging crises follow. Amazingly, that is now the template for the US.

• How is anyone supposed to make sense of this?

(…) The bottom line for markets: The US is in a weak place and making concessions. That’s good news compared to the last couple of weeks, so an equity rally at Monday’s open seems likely. That said, the sheer ad hoc nature of policymaking over a sector as important as iPhones and laptops shows ever more conclusively that the children are in charge. This is amateur hour, and terrifying. Ultimately, nobody can give a confident answer to the question. Risks and volatility are likely to continue.

FYI:

In new research, Hanson and Enrico Moretti find that in 1980 manufacturing accounted for 39% of the U.S. jobs where workers earned high wages (after adjusting for factors such as education). By 2021 that had dropped to 20%. Over the same period, the share of high-paying jobs in the finance, professional and legal industries jumped from 8% to 26%. (WSJ)

CONSUMER WATCH

Buying ahead, easing or doing fine?

Credit and debit card spending per household increased 1.1% year-over-year (YoY) in March after a decline of 2.3% YoY in February, according to Bank of America aggregated card data. Seasonally adjusted (SA) spending per household rose 0.2% month-over-month (MoM), following the 0.3% MoM rise in February and –0.4% in January. (…)

Looking at spending by income, we see a consistent trend: higher-income households show no clear sign yet of easing their spending. The top third of households by income (which accounts for over half of overall US consumer spending according to Bureau of Economic Analysis data) have largely had higher card spending growth than middle- or lower-income peers for more than a year. (…)

However, the pace of growth for higher-income households broke a four-month acceleration streak in March 2025, with after-tax wage and salary growth for this cohort up 2.6% YoY in March versus 3.6% in February. And, notably, after-tax wage growth for lower-income households was just 1.4% YoY, the lowest rate of wage growth since April 2017, according to Bank of America deposit data.

As we move further into the tax season, returns continued to help buoy consumers, though somewhat more so for lower- and middle-income households. Over the 2025 tax filing season, average federal and state tax refund payments into Bank of America deposit accounts for households at the lower-end of the income distribution were up around 1.5% YoY as of April 4, with increases of about 1.8% YoY for those earning middle-incomes and 0.4% YoY for higher-income households. However, particularly for the highest earners, the impact of recent declines in global equity markets may prove more consequential to their spending. (…)

Looking at large household durables (washing machines, refrigerators etc.), the University of Michigan March 2025 Survey of Consumers continues to suggest that some consumers do think it is a “good time to buy large household goods (or vehicles) as prices are going higher.” This survey response remains close to its highest point in 10 years. (…)

 

Within total card spending, retail spending (ex-gas and restaurants) increased 0.5% MoM in March, while overall spending on services increased by 0.1%

Services spending is comprised of both “nice-to-have” discretionary choices – such as dining out, going to the movies or traveling – and “must-have” nondiscretionary expenses such as rent, utilities, and insurance. Looking at Bank of America card data, it appears that consumers are easing up on “nice to have” spending by pulling back across restaurant, travel/tourism and leisure spending in February and March. By contrast, these categories had strong growth in the fourth quarter of 2024.

 

Additionally, our proxy for durables spending using Bank of America credit and debit card spending data, which includes auto parts, furniture, electronics, and building materials, increased 1.5% MoM in March after two months of declines

One category where buying ahead is clear appears to be vehicles. Car and truck sales surged in March. And using Bank of America internal data on consumer vehicle loan (CVL) applications, we see that there was a surge in loan applications at the end of March following the March 26 announcement that tariffs on vehicle and vehicle parts will go into effect April 2. In fact, vehicle loan applications were up 23% YoY for the period between March 27-April 1.

Some of the weakness in discretionary services spending likely reflects weather-related disruptions at the start of this year. But the sharp drop in consumer sentiment along with rising cost of living pressures may also be a factor. Reflecting these cost pressures, nondiscretionary services spending growth continues to rise (Exhibit 17). Importantly, much of this spending is partly a function of rising prices – insurance, rents and utilities are all seeing price growth above the overall US CPI inflation rate. So, while the nondiscretionary part of services spending may well persist, this itself might chip further away at discretionary spending.

‘From Anxious to Petrified’: Consumer Sentiment Plunges Further The University of Michigan’s closely watched index hit its second-lowest reading on record, dragged down by fears of higher prices and unemployment

(…) Sentiment is now at its second-lowest level in history, according to the survey. It was slightly lower in June 2022, when inflation was soaring thanks to snarled supply chains and pandemic buying. Back in 2022, the index touched 50, which was the lowest reading on record going back to 1952.

Sentiment declined for Democrats, Republicans and independents alike.

Sentiment for independents reached the lowest level on record. Sentiment for Republicans was the lowest it has been for almost any time during a Trump administration. (…)

Respondents also said they were bracing for prices to surge 6.7% in the year ahead—a level of pessimism about costs last seen in the inflation-wracked early 1980s. That suggests Americans expect tariffs will push up prices fast (…).

Longer-run expectations, for inflation over a five-year horizon, increased to 4.4%. A year ago, they stood at 3%.

The share of consumers expecting unemployment to rise in the year ahead rose for the fifth consecutive month to the highest since 2009. (…)

Consumers appear to be blaming Trump for his handling of the economy, said James Knightley, chief international economist at ING. He noted that 67% of respondents in the Michigan survey said the government is doing a poor job fighting inflation and unemployment, up from 44% in January.

“So you’ve got income, prices and wealth all moving against the consumer, and that is not a pretty picture,” he said.

European travellers cancel US visits as Trump’s policies threaten tourism International visitors stay away as political and economic tension and fears of a hostile border rise

Visitors from western Europe who stayed at least one night in the US fell by 17 per cent in March from a year ago, according to the International Trade Administration. (…)

The total number of overseas visitors travelling to the US dropped by 12 per cent year-on-year in March, the steepest decline since March 2021 when the travel sector was reeling from pandemic restrictions, according to the ITA data.

The trend poses a threat to the US tourism industry, which accounts for 2.5 per cent of the country’s GDP. (…)

“In just two months [Trump] has destroyed the reputation of the US, shown one way by diminished travel from the EU to the US,” said Paul English, co-founder of travel website Kayak. “This is not only one more terrible blow to the US economy, it also represents reputation damage that could take generations to repair.”

(…) other data, including from US airports and land crossings from Canada, all showed “it’s very clear something is happening . . . and it is a reaction to Trump”. (…)

Naren Shaam, CEO of travel booking site Omio, said cancellation rates for bookings to the US were 16 per cent higher in the first quarter than a year earlier — with travellers from the UK, Germany and France showing an even higher cancellation rate of 40 per cent. (…)

Accor last week said bookings for Europeans visitors to the US this summer were down 25 per cent.

Last year, international visitors spent more than $253bn on US travel and tourism-related goods and services, according to the ITA, or more than 19 per cent of $1.3tn in US travel spending in 2024. (…)

Places in the US such as Las Vegas, for example, welcomed 1.4mn Canadians in 2023 — or a quarter of all international visitors. (…)

• Arrivals at Top 10 US Airports Slowing

• How Trump 2.0 Is Already Impacting Our Travel Choices Backyard travel, here we come!

(…) At least a third of the 1,000 US consumers who were surveyed by travel research and marketing firm MMGY earlier this month say they plan to travel closer to home this year. (…)

Travel agents we spoke to this week say their clients are rethinking established plans to go abroad. (…)

Clients, she says, are asking questions such as “ ‘Are we not popular abroad? or ‘Are things getting too expensive?’ ” while also worrying that their investment portfolios and 401(k)s have just gone “down by a whole lot.” The net effect, Vazquez says, is that they’re focusing “a little bit more on domestic travel rather than going abroad.” (…)

But making Americans refocus their travels domestically won’t exactly make the US travel industry great again. The economic turmoil around the “reciprocal tariffs” we read about all week is not only making it harder for Americans to commit to trips abroad, it’s also making it harder for foreigners to access the country.

Canadian flight bookings to the US through September are down 70% year-over-year, according to a report by OAG Aviation Worldwide, causing United Airlines to pull back on routes that cross the northern border. In another report, 50% of Brits said they also plan to travel locally this year. Delta Air Lines has cut down on capacity increases this year, and demand has been low enough on Air France that the carrier is reducing international economy fares. (…)

European bookings to the US this summer have fallen by 25%, according to Sébastien Bazin, chief executive officer of French hotel group Accor SA, which is estimated to result in a $9 billion loss in visitor spending.

Hotels up and down the West Coast (and in Florida) are feeling iced out by Canadians, who normally come thaw from their chilly winters in places such as Palm Springs, California, whose downtown is now plastered with signs saying “Palm Springs loves Canada.” We’ve even heard that some hotels in California are considering offering discounts to our northern neighbors to try to curb the damage. (…)

• Canadians Are Cashing Out Their American Vacation Homes Political uncertainty, coupled with a weak Canadian dollar, is driving owners to sell properties they’ve had for decades

(…) Many Canadians are giving up their U.S. vacation homes, selling properties they have owned for decades in popular snowbird spots like Florida and Arizona, according to local real-estate agents.

One factor is economics: The Canadian dollar in recent months had weakened against the U.S. dollar—earlier this year hitting its lowest level in 22 years—making it more expensive for Canadians to pay HOA fees, insurance and property taxes in the U.S. On the flip side, selling their homes in U.S. dollars was more of a boon, especially since property values in popular winter escapes have risen significantly. 

While the broader economic arguments for selling have been compelling for months, what’s pushing many over the edge now is politics, real-estate agents say.  (…)

Brokers say their clients talk about feeling increasingly unwelcome and worry that the government may increase taxes on properties owned by Canadians. Other measures, such as the new rule requiring foreign nationals who stay in America for more than 30 days to register with the government, have made them nervous about future travel restrictions, agents say. 

“The key word is ‘uncertainty,’” says Catherine Spino with Lyonsgate Realty in Boca Raton, Fla., where she has been a real-estate agent for nine years. Since January, she has seen twice as many Canadian clients list their homes compared with the usual amount this time of year—and a sharp decline in Canadians looking to buy homes in the area.  (…)

The firm typically got calls from about two Canadian clients a week who had either sold or were selling in the U.S. For the past couple months, that has surged to 20 to 30 a week, he says. (…)

In the greater Phoenix area, there has been a dramatic increase in Canadians selling their property, says Miles Zimbaluk, a real-state agent with HomeSmart in Scottsdale, Ariz. Such listings climbed to around 700 in January through March, up from around 100 at the same time last year, according to Zimbaluk’s review of tax records. He says he has also seen a 40% decline in the number of Canadians buying property in Arizona during that period. (…)

In Arizona, Canadians own almost 20,000 residential properties, accounting for more than 90% of the properties owned by foreigners in the state, according to an analysis of tax data by Zimbaluk, the agent with HomeSmart. Canadians made up 17% of the number of residential purchases by foreigners in Florida in 2024, the most of any foreign buyers, according to Florida Realtors, a trade association. (…)

Also:

Source:  @LizAnnSonders

CHINA

Tariffs to Impact Millions of Chinese Workers in Blow to Economy

(…) Trump’s 145% tariffs on China’s goods are threatening to obliterate its access to the world’s biggest economy, with Goldman Sachs Group Inc. estimating that up to 20 million people — or about 3% of the labor force — may be exposed to US-bound exports. A full economic divorce would roil a workforce already drained by widespread salary cuts and layoffs.

(…) a measure of job openings compiled by Paris-based QuantCube Technology plunged nearly 30% from a year ago over the past two months, based on a data set that tracked online postings from over 2,000 companies.

An index of future hiring plans fell in March to a six-month low, according to results of a poll of mostly private companies surveyed by the Cheung Kong Graduate School of Business, or CKGSB. The employment sub-gauge of China’s non-manufacturing purchasing managers’ index is also in decline. (…)

But Quantcube’s analysis also reveals that

Recent observations highlight notable disparities across economic sectors, with Technology, Financials, Consumer Discretionary, and Real Estate experiencing pronounced slowdowns as shown. The slowdown in the real estate sector is particularly noteworthy, given its substantial impact on consumer spending, with approximately 70% of Chinese household wealth tied to real estate.

On the other hand, sectors closely tied to industry, such as Industrials and Materials, have shown positive trends recently

This improvement can be attributed to recent monetary stimuli that are boosting factory activity as indicated by the recent rebound in the QuantCube Manufacturing Nowcast. Exhibit 5 showcases the trend evolution of the components of the QuantCube manufacturing Nowcast. Over the last few weeks, we have been observing an improvement in China’s manufacturing activity in terms of output, new orders and exports.

Businesses reported rising confidence in sales and financing in the first three months, according to indexes built by CKGSB on the basis of its poll, which found the highest optimism in almost two years.

S&P Global’s March PMI showed the Chinese economy chugging along:

Central to the rise in activity was greater inflows of new business, including new export business. Backlogs also accumulated for a second straight month. Employment levels declined, however, linked mainly to job shedding in the service sector. Overall business sentiment remained optimistic, with the level of confidence still above the 2024 average, despite easing since February.

• China says ‘sky won’t fall’ as exports surge ahead of Donald Trump’s tariffs Rush of shipments preceded escalation of trade war between world’s two biggest economies

Exports rose 12.4 per cent in dollar terms in March on a year earlier, figures from China’s customs administration showed on Monday, well above expectations and the biggest rise since October. Imports fell 4.3 per cent. (…) Exports to the US rose 4.5 per cent in March. But they rose more sharply to south-east Asia, increasing 17 per cent to Vietnam and 18 per cent to Thailand. (…)

Last week:

“China also wants to make a deal, badly, but they don’t know how to get it started. We are waiting for their call. It will happen!” Trump posted this week on social media.

White House officials have said the steep tariff rates will eventually push Xi to pick up the phone. Trump’s top economic adviser Kevin Hassett suggested it’s only a matter of time “because the pressure on China right now is extreme.”

“China will by no means be coerced into coming to the negotiation table,” said Shen Jianguang, who met with Premier Li Qiang this week along with other experts consulted for their views on the economy. China needs positive signal from Trump that he’s sincere about a “mutually beneficial deal” for talks to happen, said the Hong Kong-based chief economist of JD.com Inc.

“Both sides are unwilling to talk at the moment and are unlikely to start talks until there’s enough pain at home,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics. “On the US side, that means the market and especially popularity among Trump space. And on the Chinese side it means the economic impact for exports and jobs.”

Some prominent Chinese scholars are framing US-China relations as a competition of who suffers less, a “negative sum game” where both sides lose.

“As long as my rival suffers a greater loss than me, that is an acceptable outcome,” Zhang Yuyan, director of the Institute of World Economics and Politics at Chinese Academy of Social Sciences, said in January, referring to the mindset driving some of the US policy decisions on China.

One option — according to Wu Xinbo, director at Fudan University’s Center for American Studies in Shanghai — would be for Trump to open talks on fentanyl and reward any progress by removing the 20% tariffs tied to the US complaint.

The president could then pause the broader tariffs and allow face-to-face dialogue at a ministerial level, paving the way for leadership talks, Wu added. (WSJ)

• Why Xi holds a stronger hand than Trump The White House has miscalculated the balance of power in its tariff war with China

(…) Scott Bessent, the US Treasury secretary, argued that China is “playing with a pair of twos . . . We export one-fifth to them of what they export to us, so that is a losing hand for them.” (…)

The American market represents only about 14 per cent of Chinese exports. Joerg Wuttke, the former head of the European Chamber of Commerce in Beijing, argues that American tariffs are “inconvenient, but it’s not going to be a threat to the economy . . . It’s a $14tn-$15tn economy and the exports to the US are $550bn.” (…)

An authoritarian system — tightly controlled by the Chinese Communist party — is also probably better prepared to absorb a period of political and economic pain than the US, where economic turmoil swiftly translates into political pressure. (…)

Trump has dealt himself a losing hand. Sooner or later he is going to have to fold. Textbook Art of the Deal!

• The Chinese goods Americans most rely on, from microwaves to Barbies

Goods that the U.S. imports can hardly be sourced elsewhere, at least for a while, and/or at similar costs. Most of what China imports from the U.S. (agriculture, energy-related,chemicals) can easily be sourced elsewhere. (cahrt from the FT)

Here and there:

• For now, Bessent’s status in the administration is on the rise. One senior official described him as an “adult in the room,” saying he has gained favor with the president. Trump is now giving Bessent a leading role in negotiating with countries, a senior administration official said.  Bessent gave a speech to the American Bankers Association telegraphing the Trump team’s new strategy. “We can probably reach a deal with our allies,” Bessent said. “And then we can approach China as a group.”
• She said she had refused US customers’ requests to slash prices after the tariff war broke out, even though cancelled orders have forced her to lay off more than 10 per cent of her workers. “Chinese people think differently from foreigners. We save money, and we can survive on our savings for one, two, even three years. (FT)
• Mike Harlan is chief executive officer of the tool and die and machining shop Whitworth Tool Inc., which has about 125 employees in Hardinsburg, Kentucky. He said a major challenge has been quoting prices for customers: The price quotes he gets for the steel he buys are only good for 24 hours, and prices have risen as much as 20% from one week to the next.
• Multiple surveys of capital-spending intentions — by business groups including the National Association of Manufacturers as well as regional Federal Reserve banks — already show a decline in capital-spending intentions in recent months after initial gains following Trump’s election. “It is the lack of ability to plan,” she says. “You step away from the news for 5 seconds and you discover there is yet another change,” she said.
• While many Chinese businesses are reeling from the trade war, Qi, the Maga merchandise maker, brushed off any suggestion his might suffer. Trump supporters, he said, were willing to pay any price for items bearing the image of their beloved president — and US suppliers were making such a huge profit on them that they could afford to partially absorb the tariff impact. A Trump baseball cap, for instance, cost only Rmb7.50 ($1) to produce. Tariffs might raise that cost to Rmb20, but the caps were being sold for $50 in the US. “American sellers could even use the tariffs as an excuse to raise the price to $60 — yet the extra cost will still be borne by the US consumers,” said Qi.

OIL

• Shale Drillers Idle US Rigs at Fastest Pace in Almost Two Years The number of US rigs drilling for crude — a closely followed metric that can point to future oil output — fell by nine to 480 this week, the biggest drop since June 2023, according to data released by Baker Hughes Co. on Friday.
• Putin’s war chest under threat as oil prices slide

(…) Moscow’s budget — about a third of which comes from oil and gas — may be as much as 2.5 per cent lower than expected in 2025 if crude prices stay at current levels. (…) Urals was trading at about $50 a barrel as of Thursday, according to price reporting agency Argus. Russia planned its budget for 2025 based on Urals at $69.70 a barrel. (…)

One category where buying ahead is clear appears to be vehicles. Car and truck sales surged in March (Exhibit 13). And using Bank of America internal data on consumer vehicle loan (CVL) applications, we see that there was a surge in loan applications at the end of March following the March 26 announcement that tariffs on vehicle and vehicle parts will go into effect April 2. In fact, vehicle loan applications were up 23% YoY for the period between March 27-April 1

EARNINGS WATCH

A Clearing Event or More Uncertainty?

This is from LSEG:

Using the April 4^th publication of the S&P 500 Earnings Scorecard, Q1 earnings growth is forecasted at 7.8%– the slowest pace in five quarters. Health Care and Information Technology are driving the bulk of earnings growth–excluding these sectors, growth would fall to just 0.1%. 

Q1 is expected to be the weakest quarter in 2025, with growth expected to reaccelerate to 10-12% in the remaining quarters of the year. (…)

The distribution of Q1 earnings growth is skewed to the upside. Roughly 30% of index constituents are projected to grow earnings by more than 10%, while just 21% are expected to contract by more than 10%.

While still early in the Q1 reporting cycle, only 57.9% of the 19 companies that have reported so far have exceeded analyst expectations—well below the four-quarter average of 77%. If this trend holds through earnings season, it will mark the weakest beat rate since 2008.

Heading into earnings season, Q1 growth expectations were revised down by 4.3 percentage points—above the long-term average of -3.3 points. This marks the largest downward revision since Q4 2023 and the third straight quarter of estimate cuts leading into the reporting season.

At the sector level, revisions were broad-based. All sectors except Utilities saw estimates decline, with the most significant reductions in Materials, Consumer Discretionary, and Industrials. At a constituent level, the primary drivers of the Q1 downgrade include Ford, Apple, and Tesla, along with insurers such as Travelers Companies, Chubb, and Allstate. The insurance group was impacted by losses related to the Los Angeles wildfires.

Q1 2025 Revisions by Sector

A key driver of estimate downgrades heading into the quarter appears to be weaker-than-usual forward guidance.  In Q1, there were 120 total pre-announcements, with 78 negative and 32 positive—resulting in a negative-to-positive (N/P) ratio of 2.4x. This exceeds the prior four-quarter average of 2.1x and suggests a more cautious tone from management teams. 

Importantly, many companies noted during Q4 earnings calls that Q1 guidance does not yet reflect the impact of proposed tariffs. This omission adds a layer of uncertainty for analysts and investors, complicating efforts to accurately model earnings trajectories–a trend that is likely to continue in Q1.  We may find companies withdraw guidance altogether or widen the range of guidance provided to account for heightened uncertainty.  Another question will be whether companies use this quarter to recalibrate expectations (i.e. a clearing event) for the rest of the year.

The Magnificent-7 are still expected to play a large role in Q1, but the trend is pointing towards a relative rotation into the S&P 493.  Five of the seven companies are in the top 10 list of companies expected to drive earnings growth in Q1–Nvidia, Amazon, Microsoft, Apple, and Meta Platforms.  As a group, they are expected to contribute 45% of the net earnings growth in Q1.  Notably, Mag-7 earnings (+18.3%) are expected to outpace S&P 500 earnings by smallest margin since 2023 Q1. The forward four-quarter P/E for the group is currently 23.8x–the lowest in three years.

Magnificent-7 Earnings Growth Rate

Net profit margins reached an all-time high last quarter (12.2%) and are expected to decline to 11.6% in Q1, marking a reversal after five quarters of improvement. Most sectors have seen downward revisions to margin forecasts—excluding Health Care and Technology—with Materials, Real Estate, and Industrials experiencing the most significant cuts.

This will be a critical data point as tariff policy evolves. Rising input costs force a strategic decision: either absorb the inflation and compress margins or pass pricing through to end consumers. In a more adverse macro scenario, margin compression could be exacerbated. Slowing economic growth would dampen top-line revenue while operating leverage and tariff pressures weigh simultaneously on profitability.

• Bears and Recessions: The big open question from here is whether you get a recession, as that will determine whether markets can just shrug it off and head higher vs getting mired into a deeper and more drawn-out draw-down.

Source:  @dailychartbook via @SpecialSitsNews

• Drawdowns:  On the daily closing prices the drawdown from peak to trough so far has been just shy of -20% — which is a relatively common area to visit (30-40%+ down are less common, but happen about once per decade on average). (Callum Thomas)

Source: Topdown Charts

Iran Says Any Future US Sanctions Relief Must Be Guaranteed

Iran said that it’s “extremely important” that any sanctions relief agreed with the US as part of a potential future nuclear deal is “guaranteed” to last.

The country’s Foreign Ministry Spokesman, Esmail Baghaei, told reporters in a televised press conference on Monday that Iran expects the Trump administration to provide assurances that any sanctions it agrees to lift can’t be easily reimposed by future US governments. (…)

China Raises Tariffs on US to 125% and Says It Won’t Go Higher

China will raise tariffs on all US goods from 84% to 125% starting April 12, and said it plans to ignore any further increases announced by Washington from here because the Trump administration’s moves have become a “joke.”

The announcement by the Ministry of Finance on Friday came after the White House clarified that levies on Chinese goods rose to 145% this year. China said it no longer makes economic sense if the US imposes more tariffs.

“Given that American goods are no longer marketable in China under the current tariff rates, if the US further raises tariffs on Chinese exports, China will disregard such measures,” according to the statement.

In a separate statement, the Commerce Ministry said Washington’s repeated use of excessively high tariffs has become little more than a numbers game — economically meaningless and revealing its use of tariffs as a tool for bullying and coercion. “It’s become a joke,” the ministry said.

However, China warned that it will “resolutely counterattack and fight to the end” if the US continues to infringe on its rights and interests. It also said America should take full responsibility for the damage caused by the tariffs. (…)

Authorities on Thursday moved to cut the number of American films allowed in Chinese theaters, suggesting broader retaliation beyond goods may be underway.

Chinese officials on Wednesday cautioned citizens against traveling to the US, and warned students of security risks related to studying in “certain US states” — a departure from Xi’s push to improve people exchanges. (…)

Almost $700 billion of goods are now exchanged between the US and China each year. If a deal to deescalate the situation isn’t reached, the steeper duties will result in both Chinese and American consumers and companies facing higher prices across the board as people work out how to rejig their supply chains to minimize their tariff bill.

Last year, the three biggest US imports from China were smartphones, laptops and lithium-ion batteries, while liquid petroleum gas, oil, soybeans, gas turbines, and machines to make semiconductors were some of the most valuable US exports to China.

The WSJ adds:

(…) Some of the most intense action has shown up in foreign exchange. The U.S. dollar was falling Friday for a fifth straight day, dropping more than 1% and putting it on track for its worst week since 2022. The euro was up 2% Friday and at a three-year high. The Swiss franc surged 3.5% Thursday, a large move for a heavily traded currency. (…)

Chinese leader Xi Jinping said that if the showdown continued, his country “is not afraid.” (…)

Does Trump Have a China Trade Strategy? If he wants Beijing to change, he needs the allies he’s tariffing.

The WSJ Editorial Board is not mincing words:

It’s all going according to plan, says the White House, and you almost have to smile at this spin in trying to sell President Trump’s partial tariff reversal this week as a triumph. The reality is that Mr. Trump is making it up as he goes, and it would help if he had an actual strategy to deal with China in particular. (…)

Treasury Secretary Scott Bessent says the U.S. trade goal all along has been to isolate China as a main offender. (…)

But it isn’t clear what Messrs. Trump and Bessent want from China, and what their strategy is to achieve it. Do they want a complete decoupling of the two economies? That’s what tariff levels of 145% suggest. But that also means large economic disruption in the near and medium term, as some $600 billion in two-way trade goes away or finds new sources and destinations. Strategic decoupling on key goods makes more sense.

Yet that’s not what Mr. Trump says he wants, and on Wednesday he said he still hopes for a trade deal with China. The tariffs in that case are merely his lever for getting President Xi Jinping to the table. The problem is that tariffs are a blunderbuss weapon that hurts Americans as much as it does Chinese exporters. Markets are saying the U.S. economy will suffer too.

There’s also the contradiction of how Mr. Trump handles other China issues. The President is doing Mr. Xi a favor by refusing to enforce a law passed by Congress to force the sale of TikTok from Chinese-controlled ByteDance. Last week he extended the deadline for a TikTok sale by another 75 days after China walked away from a looming transaction. Mr. Trump also refuses to impose sanctions on Chinese firms that buy oil from Russia and thus help Moscow’s war machine. These decisions send Mr. Xi the message that Mr. Trump isn’t serious about challenging Chinese abuses.

If Mr. Trump is serious, the best strategy would be to rally allies to the cause of fighting Chinese mercantilism. But he shows no interest in that either. He squandered his best chance to isolate China on trade in his first term by walking away from the Trans-Pacific Partnership that didn’t include Beijing. China then cut its own deal with many of the countries that the U.S. left in the cold.

This term Mr. Trump is outright punishing the allies he needs for a coherent China strategy. He’s imposed tariffs on Canada and Mexico and insulted Canadian national pride. He’s hit Japan with 24% tariffs, South Korea with 25%, and Europe with 20%. He’s hit Vietnam with 46%, though the boom in that country’s exports to the U.S. since his first-term tariffs has come at China’s expense.

Those tariffs are now paused for 90 days, but all of these countries know Mr. Trump could hit them again at any time. He’s also insulted Japan by refusing to let Nippon Steel buy U.S. Steel despite its pledge to invest billions of dollars in U.S. manufacturing. Why should these allies trust Mr. Trump now, if he says he needs them to unite to slow China’s advance of artificial intelligence? They may need China’s market if they can’t access the U.S.

Mr. Trump’s intellectual problem, or at least one of them, is that he’s fixated on the U.S. trade deficit with friend and foe. The deficit is a non-problem in economic terms. And if there are trade issues with allies, they can be addressed with bilateral or multilateral trade deals.

By far the biggest problem in the global trading system is the abuse of free-trade rules by the authoritarian regime in China. Mr. Trump’s ad hoc, scattershot tariff policy won’t solve that problem. So far he’s hurting his own cause and country more than he’s hurting the Chinese Communist Party.

Back to BB:

The greenback has become the latest victim of market turmoil as the trade war risks pushing the US into a recession. The haven status of Treasuries and the dollar’s position as a reserve currency are being questioned amid a broader exodus from US assets.

“The question of a potential dollar confidence crisis has now been definitively answered – we are experiencing one in full force,” ING Bank NV strategists including Francesco Pesole wrote in a note. “The dollar collapse is working as a barometer of ‘sell America’ at the moment.” (…)

The dollar gauge has lost more than 6% since its February peak (…).

“The main player of global trade just tore down the play-book and we don’t know what his endgame is,” said Olivier Baduel, head of European equities at OFI Invest AM in Paris. “We’re witnessing a loss of visibility and we are still in a phase of uncertainty.”

• The Dollar and the Bond Market’s Ominous Message for Trump In the turmoil touched off by a trade war, the U.S. is no longer seen as safe

(…) Normally when investors are this scared they seek safety, and nothing is safer than the dollar and Treasury debt. 

But despite mounting fear of recession, the usual flight to safety hasn’t materialized. That is for several reasons, some relatively superficial, such as inflation risks, and one more fundamental. (…)

The U.S. is still exceptional, but it is also less predictable, more antagonistic, and more isolated. For foreign investors, that makes it less safe. (…)

Inflation might be part of the explanation now. Tariffs will hurt demand and economic growth, which would normally prompt the Fed to lower interest rates. But tariffs will also raise inflation, at least temporarily, which makes it harder to justify rate cuts.

Nonetheless, with recession risks rising sharply, traders are now betting the Fed will cut rates this year. So the Fed isn’t the main reason bond yields are up.

Technical factors might be playing a role. Hedge funds might have been forced to liquidate bondholdings after their positions went against them, and dealers have done less to smooth out volatility.

Nonetheless, technical factors can’t explain why bonds and the dollar began behaving strangely weeks ago. The more fundamental explanation is that global investors might be changing how they view the U.S. (…)

Jason Thomas, head of global research at Carlyle Group, noted that since early 2022, gold has strongly outperformed inflation-protected Treasurys, suggesting that gold is now the world’s preferred safe-haven asset.

Thomas said that after Russia invaded Ukraine, the U.S. and its allies froze the Russian central bank’s foreign-exchange reserves. In recent months, Trump’s policies suggest the U.S. will play a less central role in global trade, making the dollar less important for invoicing exports and imports, he added. As a result, Thomas said, “The global community and central bank reserve managers are just a bit more hesitant when it comes to adding to Treasury exposure.” (…)

Less demand for dollar assets makes it harder to finance the U.S.’s massive borrowing.

Now, if the trade deficit falls, the U.S. won’t have to sell as many assets to foreigners to finance that deficit.

And yet it would still be at the mercy of such investors. As of last June, foreigners held $7 trillion of Treasury bonds (half by official investors such as central banks). That is about a third of the total held by the public. The federal budget deficit is running at around $2 trillion a year, or 7% of gross domestic product, and Senate Republicans just passed a budget resolution that would continue outsize deficits for the foreseeable future.

So the U.S. needs foreigners to keep rolling over the bonds they hold, and buying new ones. Even a small pullback would cause yields to jump. Jay Barry, head of global rates strategy at JPMorgan Chase, estimates that yields rise a third of a percentage point for each $300 billion decline in foreign official holdings of Treasurys.

There were recent fears that China might try to retaliate against Trump’s tariffs by selling some of its own bondholdings. There is no evidence that it has, but the possibility has highlighted the risks to the U.S. of a trade war morphing into financial war.

In 2022, the U.K.’s new prime minister, Liz Truss, proposed a steep tax cut. British bond yields immediately skyrocketed, the tax cut was withdrawn, and Truss resigned. The dollar’s reserve status was long assumed to insulate the U.S. from such a fate. Events of the past few weeks suggest Trump shouldn’t take that for granted.

• Treasuries and the dollar get their strength from “the world’s perception of the competence of American fiscal and monetary management and the solidity of American political and financial institutions,” said Jim Grant, founder of Grant’s Interest Rate Observer, a widely followed financial newsletter. “Possibly, the world is reconsidering.” (Jim Grant)
• “Long-term interest rates are gapping up, even as the stock market moves sharply downwards,” Summers, who is also a paid Bloomberg contributor, wrote this week in a social media post. “We are being treated by global financial markets like a problematic emerging market,” he said, adding that “this could set off all kinds of vicious spirals, given government debts and deficits and dependence on foreign purchasers.”

Trump Tariffs Put US Services Trade Surplus With China at Risk

China is signaling it may target US services exports as payback for President Donald Trump’s record tariffs, putting a lesser-known but sizable part of their trade relationship at risk.

While most of the focus in Washington is on the US goods deficit with China, services have long been a bright spot for American companies. Last year alone, the US sold a net $32 billion in services to China — including education, travel, and entertainment — and nearly $300 billion globally.

That flow could now be in Beijing’s sights. Two prominent Chinese bloggers posted identical lists of possible countermeasures this week that included curbs on US services. Authorities have already moved to cut the number of American films allowed in Chinese theaters, suggesting broader retaliation beyond goods may be underway. (…)

Here’s a revelation! The U.S. is the foremost exporter of services globally.

In the NYT on April 2:

President Trump says he is outraged by the fact that the United States imports more goods than it sends to the rest of the world. What he rarely mentions, though, is that when it comes to services, the tables are turned.

Service sectors — which include the finance, travel, engineering and medical industries and more — make up the bulk of the American economy. Exports of these services brought more than $1 trillion into the United States last year. (…)

The United States is the largest exporter of services in the world, and a large share of those services, from financial services to cloud computing, are delivered digitally. The country ran a trade surplus in services of nearly $300 billion last year.

Every time a European tourist stays at a U.S. hotel, for example, the money spent is counted in the services export basket. And every time someone in Canada or Japan or Mexico pays to listen to music or watch movies and television shows made in the United States, they are adding to America’s surplus in the services trade.

Many of the countries that the United States is targeting for tariffs run a services deficit with the United States, including Canada, China, Japan, Mexico and much of Europe, according to the U.S. Census Bureau. (…)

I asked my favorite AI agent to search for Trump ever discussing or even referring to services:

The search results do not indicate any specific instances where Trump has directly addressed or focused on trade in services in his public statements or policy announcements regarding trade.

It’s not that Trump knows nothing of the service industries, he spent his life and made his fortune in services such as real estate, tourism, and entertainment.

The NYT continues:

“The E.U. is now equipped with policy tools to extend the range of retaliation against U.S. tariffs to target imports of U.S. services,” Filippo Taddei, a managing director of global investment research at Goldman Sachs, wrote in a research note about possible European responses.

Arguably the most extreme option is known as the Anti-Coercion Instrument. First proposed in 2021, the tool is largely untested, but it allows the European Union to hit a trading partner with a “wide range of possible countermeasures.”

Such measures could include tariffs, restrictions on trade in services and limits on trade-related aspects of intellectual property rights. That could affect American tech giants like Google. Several European diplomats said that use of the tool is a distinct possibility, should the trade war escalate.

It’s one thing to bully the world when your 344 million population is gobbling some $7 trillion in manufactured goods per year with some $2.3T imported according to the Domestic Market Share Index (DMSI).

But it could be something else when it comes to services, 70% of the U.S. economy, aimed at Europe (745M people), Latin America (653M), Africa (1.3B) and Asia (4.6B).

Remember how “giant” Gulliver was eventually put down by a horde of tiny Lilliputians.

Bloomberg has more China-centric info:

• Almost a third of US services exports to China were related to education, coming from tuition and living expenses for the 270,000 Chinese students studying in the US, according to the most recent data from the Institute of International Education.
• Travel is another major US export to China, thanks to the millions of Chinese tourists visiting each year, which far outnumber the Americans who travel in the other direction.
• US banks and insurers ran a $2.5 billion surplus with China in 2023.
• Companies like Microsoft Corp. and Amazon.com Inc. exported $1.6 billion more in software, cloud computing and other digital services to China than the the US imported in 2023.
• The US is still running a surplus in entertainment exports to China — including books, movies and TV shows.

Meanwhile:

As U.S. Fights China, Europe Courts It

As the U.S. and China hits out at each other, Europeans are forming an orderly line to Beijing.

On Friday, Chinese President Xi Jinping hosted Spain’s Prime Minister Pedro Sánchez to discuss the impact of U.S. tariffs, Madrid’s trade deficit with Beijing and other matters, according to the Spanish government. (…)

The meeting followed a discreet trip to China from the head of Britain’s military, Admiral Tony Radakin. “We agreed that in an unstable world we must play our part as responsible nations with global interests,” Radakin announced on X.

Ursula von der Leyen, the president of the European Union’s executive arm, is set to visit Beijing for a summit with Xi in late July, the South China Morning Post reported.

Deepening Trade Fight With China Poses New Threat to U.S. Farmers Soybean producers warn that farms could go under as the Trump administration hits China with new tariffs of 145 percent.

After China unveiled steep retaliatory tariffs on American exports on Wednesday, Treasury Secretary Scott Bessent issued a sharp and somewhat surprising response: “So what?” (…)

But Beijing’s decision to retaliate against President Trump’s punishing tariffs by raising levies on American imports to 84 percent could sting more than Mr. Bessent let on.

“American companies that have been selling to China, and have been enormously successful doing that, are not going to be able to do that because of Chinese retaliation,” Sean Stein, the president of the U.S.-China Business Council, said in the hours before Mr. Trump ratcheted up his tariffs again. (…)

The loss of China as an export market will deal a particularly hard economic blow to agricultural workers in many red states, hitting many of the voters who helped Mr. Trump win the presidential election. (…)

The first trade war with China, which lasted from 2018 to 2019, resulted in billions of dollars of lost revenue for American farmers. To help offset the losses, Mr. Trump handed out $23 billion in subsidies from a fund that the Department of Agriculture created to stabilize the farm sector. Large farm operations and farmers in the South benefited the most, fueling concerns about fairness and leaving some farmers feeling cheated. (…)

China is America’s largest soybean export market, but when Mr. Trump imposed tariffs on Chinese goods during his first term, Beijing retaliated by buying soybeans from other countries, including Brazil.

“If this lasts long term, we’re going to have a significant number of farmers going out of business,” said Caleb Ragland, a Kentucky farmer who is president of the American Soybean Association. “We still bear scars from the last trade war.” (…)

U.S. corn farmers, who sell about 2 percent of their products to China, have also been on edge about the trade fight. (…)

“The longer that uncertainty exists, the more concerned we become that our growers could harvest billions of bushels of corn for which they will not have reliable markets,” said Kenneth Hartman Jr., president of the National Corn Growers Association. “Our farmers want certainty that our customers at home and abroad will buy our products in the months and years ahead.” (…)

Mr. Bessent downplayed the impact of China’s response on Wednesday morning, arguing on the Fox Business Network that the United States exports relatively little to China. (…)

The retaliation could force the Trump administration to revive the bailouts to American farmers that were offered during the president’s first term.

Brooke Rollins, the agriculture secretary, said on Wednesday that such a relief package was being considered and that “everything is on the table.”

(…) almost all of the tariff proceeds the United States collected during that trade war were used to provide relief to the agriculture industry. (…)

Who Noticed the Good News?

Irony of ironies. On a day when the battle to save the value of the dollar in the pockets of US consumers seemed finally to be won, its value to everyone else sank. Inflation is yesterday’s news, it appears, and the currency’s fate is now driven by confidence and the uncertainties surrounding tariffs that are yet to affect prices.

The consumer price index data for March, announced Thursday morning, were about as good as anyone could have reasonably expected.

(…) core measures were remarkably healthy. Sticky prices, on products whose prices are difficult to move, dropped to the lowest rate since early 2022. The trimmed mean and median measures both fell, showing disinflation was broad-based, while the “supercore” measure of services excluding shelter, much emphasized by the Federal Reserve, has suddenly tumbled below 3%:

Shelter, central to the crisis in living costs and main driver of the overall index for the last two years, dropped below 4%; exclude it and the rest of the index is inflating at less than 2%:

If there is any carping to be done, it’s that the reduced price pressure owes much to a slowdown in activity driven by the early actions and pronouncements of the Trump administration. Air fares fell, surprisingly, while hotels in the northeastern US had to reduce their rates — both probably attributable to Canadians’ new-found aversion to visiting their neighbors to the south. (…)

All of this after the good news that the dollar was retaining more of its value at home, thanks to lower inflation. More remarkably, the European economy is far weaker and the euro zone is under intense pressure — yet traders behaved as though the euro was almost as reliable a haven as the Swiss franc. (…)

The dollar’s slump has come as Treasury yields have risen sharply above German bunds — itself a remarkable occurrence only weeks after Germany committed to its biggest fiscal expansion in generations (largely in response to the Vance speech as it decided it could no longer treat Washington as a reliable ally). (…)

The real 30-year yield, as pure a measure of the cost of long-term money as exists, has now reached a high only previously seen during the spasm that followed the Lehman Brothers bankruptcy in 2008:

It’s hard not to write about this in terms that sound apocalyptic. But it’s also hard to cast this as anything other than a significant loss of confidence in the US. It doesn’t have to be terminal. The shock of the debt-ceiling crisis in 2011 turned out to be a major turning point that was followed by a decade of American Exceptionalism. But the moves in the bond and currency markets — to a far greater extent than stocks (which by the way endured a massive selloff Thursday and gave up more than half of Wednesday’s gains) — ram home that a lot is at stake. And the US is currently embarked on what appears to be a wholesale change in foreign policy, not struggling to get things back to normal as Barack Obama tried in 2011. (…)

The problem is that almost all economic data is now coming off as backward-looking. Nobody cares. Similarly with the corporate earnings season, kicked off Friday morning by the big banks, there will be minimal interest in how things went in the first quarter. All now depends on what CEOs have to say about how they’ll live in a new world in which the US and China have effectively imposed a trade embargo on each other.

Is anything more sinister afoot? It’s possible that some large hedge fund is in trouble, and likely that central banks and sovereign wealth funds are having a role in driving these moves. That wouldn’t necessarily be motivated by politics; they might simply and prudently be deciding to scale back exposure to the US. And as Points of Return has pointed out, international exposure to American assets is historically high, so such a move could go on for a while and become self-reinforcing.

Here’s why nobody cares about this good CPI:

April 10: The Yale Budget Lab estimated the effects all US tariffs and foreign retaliation implemented in 2025 through April 9, including the revised April 9 tariffs.

Consumers face an overall average effective tariff rate of 27%, the highest since 1903. Even after consumption shifts, the average tariff rate will be 18.5%, the highest since 1933.

The price level from all 2025 tariffs rises by 2.9% in the short-run, the equivalent of an average per household consumer loss of $4,700 in 2024$. Annual pre-substitution losses for households at the bottom of the income distribution are $2,100. The post-substitution price increase settles at 1.7%, a $2,700 loss per household.

“That’s almost 18 months of normal inflation happening in very short order,” said Ernie Tedeschi, economics director at the Budget Lab.

Tariffs are a regressive tax, especially in the short-run. This means that tariffs burden households at the bottom of the income ladder more than those at the top as a share of income. The regressivity is about the same when looking at all 2025 tariffs: the burden on the 2^nd decile is 2.5x that of the top decile (-4.9% versus -2.0%). The average annual cost to households in the 2^nd, 5^th, and top decile rise to $2,100; $3,700; and $10,000 respectively.

The 2025 tariffs disproportionately affect clothing and textiles, with consumers facing 64% higher apparel prices in the short-run. Apparel prices stay 27% higher in the long-run.

Food prices rise 2.6% in the short-run and stay 3% higher in the long-run. Fresh produce is initially 5.4% more expensive while stabilizing at 3.9% higher.

Motor vehicle prices rise 12% in the short-run and 19% in the long-run, the latter the equivalent of an additional $9,000 to the price of an average 2024 new car.

All 2025 US tariffs plus foreign retaliation lower real GDP growth by -1.1pp over calendar year 2025 (Q4-Q4). The unemployment rate ends 2025 0.55 percentage point higher, and payroll employment is 740,000 lower that same quarter. The level of real GDP remains persistently -0.6% smaller in the long run, the equivalent of $170 billion 2024$ annually, while exports are -16% lower.

The unemployment rate rises 0.6 percentage point by the end of 2025, and payroll employment is 740,000 lower.

Canada has borne the brunt of the damage from US tariffs so far, with its long-run economy -2.2% smaller in real terms (reflecting both US tariffs and Canadian retaliation to date). China’s economy is -0.6% smaller, identical to the hit to the US. The EU economy is 0.1 percentage point larger in the long-run, while the UK’s is 0.2% bigger.

The FT adds: “The first changes would be on the produce aisle, where price increases would begin before the end of the month, Tedeschi said. The US imports 59 per cent of the fresh fruit and 35 per cent of the vegetables Americans consume, according to the agriculture department.”

$50-a-Barrel Oil Is a Problem for US Trade Deficit Shale producers reversed the US oil deficit. Now they face ruin at $50-a-barrel.

The US oil industry has done more to reduce its country’s trade deficit than any other.
Thanks to geological luck, engineering prowess, and shrewd capitalism, the shale revolution turned what two decades ago was a nearly $400 billion-a-year oil trade deficit into a $45 billion surplus in 2024. Now, President Donald Trump, in theory the champion of “drill, baby, drill,” risks killing it. (…)

As oil prices plunged 17% in a week, US Treasury Secretary Scott Bessent was on television cheerleading the crash. Part of the decline is the collateral damage from the tariff drama of recent days, but the White House’s fingerprints are all over the other part: diplomatic pressure on OPEC+ to increase output.
The Trump administration seems to be motivated by a desperate attempt to cushion the inflationary impact of the trade war with cheap oil. Yet, $50-a-barrel will have another macroeconomic consequence: widening the trade deficit that Trump wants to reduce. Drill, baby, drill doesn’t work at $50-a-barrel – and if the US doesn’t drill, it must import. (…)

US total oil production – including crude, condensates and other liquids — boomed, rising to 20.1 million barrels a day last year, up from 6.7 million in 2008. Alongside, oil imports collapsed. The 11 million barrels a day of net oil imports during the late Bush presidency turned into net exports of more than 2 million barrels a day by the time Joe Biden left the White House.

The oil export boom reduced the overall trade deficit, created thousands of blue-collar jobs in Texas, North Dakota and other typically deprived areas of America and supported manufacturers. It helped that the OPEC cartel cut production to keep prices high, in effect subsidizing shale.
Now, the US oil patch is getting a taste of what a free market looks like. It’s difficult to feel a lot of sympathy for it. The sector got what it voted for: Trump won in Midland, the Texas town that’s the capital of the shale revolution, with 79.6% of the vote. Former Vice President Kamala Harris got about 19%. It was similar in other oil-rich counties. Careful what you wish for comes to mind.
Here’s the problem: shale isn’t cheap. On average, producers say they can’t drill profitably below $65 per barrel versus a threshold of $49 in 2020, according to the Federal Reserve Bank of Dallas. Importantly, with shale, small price changes matter a lot: the difference between booming production and falling output is measured in a handful of dollars. At $50, many are staring at financial calamity; $55 is a trough but can be survived; $60 isn’t great, but money still flows; at $65 everyone is back drilling more.

Assume that the worst comes, and oil prices fall to $50, the unofficial target of the White House. Under that scenario, total petroleum production in America will probably decline by 1 million barrels a day by the end of 2025 or early 2026. To complete the exercise, assume that domestic oil demand also falls a bit as the economy cools. Still, back of the envelope math suggests the US would probably need to import an additional 750,000 barrels a day to cover the shortfall between domestic demand and local production. Even at $50 a barrel, that adds nearly $14 billion to the trade account. It’s about the size of the American trade deficit with France, with all its wines, champagne, and foie gras. Reduce oil output further; increase imports more, and soon the numbers are quite material.

Trump is wishing for an oil crash. In the process, he will destroy what has been the most efficient tool to reduce the US trade deficit over the last 20 years. That seems ill-conceived. But then, almost all White House trade policy is.