Month: April 2025

Trump Blinks on Tariffs, Again, for Now The President pauses on some tariffs amid a bond rout and recession fears.

The WSJ Editorial Board

President Trump says trade wars are easy to win. Investors think otherwise, and on Wednesday Mr. Trump decided maybe investors are right. After a flight from U.S. assets and a rout in the bond market, Mr. Trump announced a pause for 90 days on the worst of his “liberation” tariffs on most countries, China excepted. (…)

The fire sale on Treasurys and the dollar sent a warning about a loss of confidence in Washington. Investors are demanding higher yields to hold even safe Treasurys, which is the opposite of what usually happens in financial panics.

The pause is a partial reprieve, but hardly an end to the tariff mayhem. For one thing the Administration can’t get its story straight. Mr. Trump’s pause came not long after Treasury Secretary Scott Bessent told bankers the economy is “in pretty good shape.” He dismissed the bond rout as normal trading. But then why the tariff pause?

Mr. Trump is also escalating his trade war with China, the world’s second largest economy. He started the latest row with a 34% tariff on top of tariffs already in place, and China responded Tuesday with the same. Mr. Trump then added 50% more, for a total U.S. tariff of 104% on Chinese goods. Beijing hit back again with 50% more, or 84% on all American exports to China, plus multiple regulatory barriers set to hit U.S. companies. Mr. Trump then lifted his China tariffs to 125%.

This is the closest the two economies have come to a full economic decoupling since China began to rejoin the global trading system in the 1980s. Chinese mercantilism poses unique trade challenges, but rapid decoupling isn’t possible without considerable economic harm. (…)

If decoupling from China is Mr. Trump’s goal, one way to mitigate the damage is by expanding trade with allies. But Mr. Trump’s tariffs slam friend and foe alike. Mr. Trump’s pause could give the Administration time to negotiate trade deals with many of his targets. But he’s not pausing his 10% base tariff on most countries.

Who knows what Mr. Trump really intends, and it isn’t clear he even knows. He’s still fixated on erasing the U.S. trade deficit with nearly every individual nation, which makes no sense given the differences in economies. His 90-day pause means the tariffs could come back with a vengeance if he doesn’t like the concessions countries offer.

For businesses, this means more uncertainty, which means continuing delays in capital investment crucial for growth. Consumers will still feel pain because companies price inventory on replacement cost, not average cost, so tariffs are already hitting prices. (…)

Mr. Trump’s reckless trade policies risk raising the cost of borrowing, inevitably triggering concerns about liquidity and the potential for nasty surprises in capital markets from companies caught by sharp moves in currencies or bonds. Other governments are worried enough that Tokyo is talking about a global effort to bolster financial stability. The U.S. would normally lead this effort, but this time the turmoil is caused by the U.S.

Never bet against America, it’s said, and normally global investors don’t want to. It’s a sign of the magnitude of Mr. Trump’s tariff mistake that he’s goading them into doing so. He needs a policy reversal, not a pause.

This is a world wide pause. Three months waiting for the next move, and the next, and the next.

The “art” of the deal?

Business people are on pause, consumers are on pause, investors are on pause.

Governments are not on pause, they will actively plan to protect their economies from an unruly, inconsistent, unpredictable and untrusty USA.

Meanwhile, the U.S. is at war with fearless China.

For investors: higher interest rates, lower P/Es.

BTW:

Led by Bessent and Lutnick, Trump’s economic advisers will plunge into a country-by-country negotiation process that’ll take months. They say all decisions will be teed up for Trump, who’ll make the final call on each deal.

“Instinctively, more than anything else,” Trump told reporters when asked how he’ll determine tariff exemptions. “You almost can’t take a pencil to paper. It’s really more of an instinct, I think, than anything else.” (Axios)

John Authers:

(…) Exports are a much smaller share of the US economy than for many of its adversaries in this conflict. But Americans now have to pay tariffs on all goods coming in, while other countries have to worry only about what they get from America. In the long run, logically, this means even more pain for the US. It has little to gain in trade terms from smaller countries that don’t currently charge it high tariffs.

Thus, if other countries stick together, game theorists suggest that the bully can be beaten. Rationally, this may well be their best strategy — but it comes at great cost and takes time. With universal 10% tariffs still in place, and a possible return to more punitive rates in three months, it’s best to assume that this conflict will grind on for a long time yet.

Karl Rove:

(…) Start with the fact more trade is better, especially for the U.S.

Our domestic market isn’t enough. Americans are a little more than 4% of the world’s population. Almost 96% of our potential customers live elsewhere. And though the International Monetary Fund pegs U.S. gross domestic product at a hefty 27% of the world’s total, that still means most of the global economy is outside our borders. To remain a prosperous country, the U.S. can’t shut out the rest of the world.

Americans working at companies that export goods and services see this, as do their domestic suppliers. So does everyone who works in or around agriculture. Every U.S. farmer and rancher knows sales into the world market are crucial to making a living. (…)

The per-capita GDP of the U.S. in current dollars grew from $36,330 in 2000 to $82,769 in 2023, the last year for which global numbers are available. That’s a $46,439 increase for every American.

By comparison, global per-capita GDP in current dollars rose $7,675 over that same period. China only grew $11,655. If our country is being ripped off by the rest of the world because U.S. companies depend on “cheap labor,” as the vice president claims, you wouldn’t expect America’s per-capita GDP increase to be six times that of the world as a whole. (…)

China is a special case. But cheap toys and inexpensive clothing aren’t the real economic threat China poses to the U.S. China’s theft of intellectual property is. So are its efforts to draw developing countries into the Chinese economic orbit to deny America access to their markets and resources. Little has been done on either problem for eight years. High tariffs and bellicose U.S. rhetoric will only push those countries into China’s arms while doing nothing to stop IP theft. (…)

Trump’s approval hits new low after “Liberation Day” tariffs

(…) Trump’s economic approval now tied for worst-ever rating. In the write-up of their new poll, Navigator Research shows that Trump’s economic approval has declined precipitously since taking office again. While he was at +1 on net in January, he is now at -13. That is even worse than his overall approval rating, and tied for the lowest ever in Navigator polling.

Navigator also finds that the share of Americans who say the economy is “getting worse” is now higher than it was before Trump won the election in November 2024, and that 58 percent of Americans disapprove of his tariffs, while only 30% approve.

The new YouGov/Economist poll finds Trump’s approval among young voters has fallen from +5 at the start of his term to -29 now, putting Trump on-par with Joe Biden’s low ratings with the group at the end of his term.

From this analyst’s point of view, Trump’s tariffs have become a clear political liability for the president, pushing his rating even lower and into the territory he occupied for most of his first term.

Trump has now lost a key advantage on economic policy that the Republican Party spent about a decade building. While the impact of the tariffs has been felt immediately in the market, the consequences of this particular blunder will be broader and felt over the long term.

As U.S. Buyers Cancel Orders, Chinese Factories Say No More Discounts U.S. customers will have to absorb higher costs as disruptions from trade war spread

(…) “It is a deal breaker,” Chen said, referring to the Trump tariff increases. “No room for doing business anymore, for both sides.”

Chen has been working with that customer for more than a decade, he said.

“We’re both very sad, but just can’t do anything about it,” he said, adding that the customer said “sorry” to him in Chinese.

Chen expected more cancellations from U.S. customers, a major market for his business, in the next few days. If that happens on a large scale, it raises the possibility that the trade of goods between the world’s two largest economies could slow dramatically.

Capital Economics estimated on Wednesday that shipments from China to the U.S. could drop by more than half in the coming years if the duties remain in place. (…)

Chen Qirun, a producer and exporter of PVC pipes in Guangdong, has received multiple emails from U.S. clients since Trump’s “Liberation Day,” asking for lower prices. That is after he already agreed to cut prices by 8% following Trump’s earlier tariff rounds.

In an email sent Friday and seen by The Wall Street Journal, an Ohio-based client wrote three paragraphs to express gratitude to the Chinese supplier and described the difficulties and uncertainty the world was facing under Trump’s tariffs, before asking for price cuts: “We’d really appreciate any help you could offer in reducing pricing around 25-30% where possible.”

“I’ve never received an email in such a humble tone,” Chen said. “I can imagine how much pressure he has felt, but so have I.”

Since late last year, the pipe maker has traveled frequently to the Middle East and elsewhere to look for new clients, anticipating that trade with the U.S. could decline as geopolitical tensions escalate. He says he used to receive 60% of his orders from American clients, but that figure had declined to around 30% as of March. (…)

In an interview Tuesday, Zhang said his company has cut prices by about 5% to 10% for customers this year, but can’t go any further. Some of his friends have had U.S. customers suspend shipments due to the recent tariff increases, he added. He anticipates that his own clients may soon pause orders.

“It’s too high for anyone to bear,” Zhang said of the tariffs on Chinese goods. (…)

• “There’s no longer a commercial decision that can fix it,” said Zheng Tao, a Shanghai-based exporter of car parts. “We’ll just have to see how the politicians handle this.” His worries reflect how skyrocketing tariffs have thrown businesses on both sides of the Pacific Ocean into disarray. (Bloomberg)
• “Now, you know every country, especially those production hubs, could be a US target for rising tariffs, we feel helpless,” said Frank Deng, a sales manager of a Shanghai-based home appliance exporter which sells to the US online. “We’re not sure what we can do next.” (BB)
• “Suppliers here look at this and say, we do not believe these tariffs will be here in the five-to-10-year window that we need to actually build out in the US,” he said. “And in the meantime, we don’t believe that our customer is gonna be paying those prices.” (BB)
• US bike prices will rise ‘up to 50%’ as China trade war escalates

China Has Readied a Trade-War Arsenal That Takes Aim at U.S. Companies Beijing’s strategy to hit back at Trump goes well beyond tariffs, targeting companies who bank on their China ties

In the years since President Trump’s first trade war with China, Beijing has built an arsenal of tools to hit the U.S. where it hurts. Now, it is getting ready to deploy them in full. (…)

“China has systematically put together a new arsenal of tools that’s intended to minimize the cost to China and maximize the pain on the U.S.,” said Evan Medeiros, a former senior national-security official in the Obama administration and now a professor at Georgetown University. “They’re prepared in a way that gives them an asymmetric advantage in the trade war.”

China’s government and state media have taken a defiant tone, with the Commerce Ministry saying, “If the U.S. insists on its own way, China will fight to the end.” (…)

China exports far more to the U.S. than it imports. Still, China is the third-largest buyer of U.S. goods. Soybeans, aircraft and petroleum are among the top U.S. exports to China.

There are some options Beijing will for now be less likely to resort to as the costs to China itself could be high. That includes sharply devaluing the yuan or aggressively selling down its holdings of U.S. Treasurys. Both moves could destabilize China’s own financial market and hurt its strategic goal of bolstering trade relations with other countries. (…)

In response to Trump’s recent tariff actions, China last week launched an antitrust probe into the China operations of DuPont, which relied on the mainland and Hong Kong for 19% of its revenue last year, without giving much explanation.

China’s antitrust regulator also is reviewing a deal that would shift control of two ports in Panama from CK Hutchison, controlled by the family of Hong Kong billionaire Li Ka-shing, to an investor group led by BlackRock. Even though none of the companies or assets involved are in mainland China, Beijing’s probe threatened to delay the deal, which has become a flashpoint between the U.S. and China. The deal now faces a serious hurdle after Panama’s top auditor said CK Hutchison owes unpaid fees and failed to get necessary clearances for the Panama ports.

Another powerful trade weapon Beijing has developed is the so-called unreliable-entity list, its equivalent to a list the U.S. maintains that restricts foreign companies and individuals deemed harmful to national security from doing business with American companies.

China created the blacklist in 2019, after the U.S. placed Chinese telecommunications giant Huawei Technologies on its list. Companies China identifies as unreliable entities are banned from investing in the country or engaging in trade with Chinese companies and face, among other restrictions, entry bans for their key employees. (…)

Most recently, in response to Trump’s tariff assault, Beijing has broadened its blacklisting of U.S. companies from defense-related businesses to companies such as PVH, the U.S. parent company of Calvin Klein and Tommy Hilfiger, and U.S. biotechnology firm Illumina. PVH provoked ire from Beijing after it said it was removing Xinjiang cotton from its production to comply with U.S. law, while Chinese officials believe Illumina has lobbied to exclude its Chinese competitors from parts of the U.S. market.

Until early this week, according to Medeiros and Polk, China has blacklisted 38 U.S. entities and will likely target more American companies as part of its broader competition with the U.S.

China Leaders to Meet on Stimulus After Trump’s Tariff Shock

The ad-hoc meeting is set to focus on support measures for housing, consumer spending and technological innovation, said the people, asking not to be identified discussing a private matter. Other government bodies, including financial regulators, are also convening to discuss steps to boost the economy and stabilize the markets, the people said. The schedule could still change, they added. (…)

Goldman Sachs Group Inc. cut its forecast for China’s gross domestic product growth to 4% in 2025 and 3.5% in 2026, down from 4.5% and 4%, respectively. Citigroup Inc. cut its forecast this year to 4.2% from 4.7% earlier this week, citing little scope for a deal between the US and China after recent escalations.

Bloomberg Economics said US tariffs would deal a devastating blow to Chinese exports and risk hurting as much as 3% of its GDP. (…)

Over the weekend, Chinese policymakers discussed whether to accelerate plans to unleash stimulus to bolster consumption, as well as move forward measures that were planned even before Trump’s tariffs, Bloomberg News reported earlier. (…)

Fed Leans Against Inflation and Away From Preemptive Rate Cuts

Federal Reserve officials are prepared to hold their policy rate steady to minimize the risk that President Donald Trump’s tariffs trigger a persistent rise in inflation, even if the labor market softens further.

In public comments and interviews, a number of officials have sent a clear signal they are ruling out interest-rate cuts that would act as an insurance policy against any tariff-induced economic slowdown. (…)

“Given the paramount importance of keeping long-run inflation expectations anchored and the likely boost to near-term inflation from tariffs, the bar for cutting rates even in the face of a weakening economy and potentially increased unemployment is higher,” Minneapolis Fed President Neel Kashkari wrote in an essay released Wednesday morning. “The hurdle to change the federal funds rate one way or the other has increased due to tariffs.” (…)

St. Louis Fed President Alberto Musalem and Fed Governor Adriana Kugler have stressed the need to focus on inflation. At the same time, officials have said they’ll continue to monitor the labor market, which they see as on solid ground. (…)

On April 4, Powell jumped off the “transitory ship”, acknowledging that while tariffs are “highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent”. He explicitly stated that the economic ramifications of the tariffs are “substantially larger than anticipated” and forecasted a “high probability” of inflation increases.

CONSUMER WATCH

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.

(…) 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. (…)

Faced with the prospect of higher prices, are consumers ‘buying ahead’ to beat tariff impacts?

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.

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.

 

However, within durables we find little evidence that consumers have increased their share of card spending on larger big-ticket items (where the most savings from avoiding tariffs may be) to get ahead of potential price increases. Although it’s possible that consumers are simply spending more on smaller and larger ticket durables.

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.

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. (…)

 

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.

JUST SAYING:

The schedule of events per several media accounts is disturbing:

• Trump told reporters Wednesday he had been thinking about pausing tariffs “over the last few days,” adding “it probably came together early this morning, fairly early this morning.”
• Trump used his social-media platform to make encouraging comments about the stock market Wednesday morning. “BE COOL! Everything is going to work out well,” he posted at 9:33 a.m. Eastern time Wednesday “THIS IS A GREAT TIME TO BUY!!! DJT,” Trump posted at 9:37 a.m. Wednesday. An administration official said no decision had been made at that point.
• Trump posted again at 1:18 p.m.: “I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately.”
• Shortly after Trump published his post, as markets rose, Bessent stood outside the entrance to the West Wing and explained that the move to pause some of the tariffs was discussed Sunday when the two men met. “He and I had a long talk,” Bessent said before a crowd of reporters. “This was his strategy all along.”

Musk’s Doge fired self-drive car safety experts at agency that regulates Tesla Cull of watchdog’s workers disproportionately affected staff overseeing tech on which billionaire has staked his company’s future

104% Is Doubling Down on Dumb We’re along for the ride, as both the US and China suggest they have the means to fight.

104% it is. At the time of writing (midnight in New York), the China-US trade dispute has reached the point where Washington is doubling the price that Americans must pay to buy Chinese. If this sticks, the world’s two biggest economies have effectively fenced themselves off from each other. (…)

The different weapons available to the two powers suggest they could both fight. First, there’s the currency. China’s retaliation to the additional 34% levy unleashed on Liberation Day came with other elements. On Tuesday, the offshore yuan was allowed to drop to its weakest since 2007, and the official rate followed Wednesday. That was significant because the yuan had seemed to have an effective ceiling, which is now broken. (…)

For China, the best response is to boost domestic consumption, as it has been trying to do for years. That will likely mean a fiscal expansion before long — which the trade war only makes more urgent. (…)

Now, consider the imposition of a 104% tariff on Chinese imports to the US. As is known, Americans buy a lot of stuff from there. A tariff this extreme can only have an immediate impact on inflation. Omair Sharif of Inflation Insights LLC offers this back-of-the-envelope calculation:

The old 54% tariff rate on China boosted total CPI by 0.35 percentage points. The new 104% rate would lead to a rise in total CPI of 0.67 percentage points.

(…) The latest reading of headline CPI is 2.8% (the next is due Thursday). All else equal, the tariffs on China should raise this to just under 3.5%. It hasn’t been that high in 12 months.

There seems rare unanimity among pollsters that Trump owed his victory to inflation, more than any other single issue. Inflation by its nature hurts the poorest the most. The people buying cheaper Chinese imports will disproportionately be his supporters. Can this threat possibly be credible?

Trump last night at a National Republican Congressional Committee dinner, re tariffs: “I know what the hell I’m doing. … These countries are calling us up, kissing my ass [laughter]. They are dying to make a deal. … ‘I’ll do anything, sir.'”

Today:

• Stocks Tumble As China Retaliates With 84% Tariff on US Goods
• Canada to impose tariffs of 25% on vehicles imported from U.S. starting Wednesday

Summers Warns US Likely Headed to Recession, 2 Million Jobless

(…) “It’s more likely than not that we’re going to have a recession — and in the context of a recession, we’ll see an extra 2 million people be unemployed,” Summers said on Bloomberg Television’s Wall Street Week with David Westin. “We’ll see losses in household income” of $5,000 per family or more, he said. (…)

It would be wise to be “backing off the policies that have been announced,” he said. (…)

“We’re very likely, in the context of a recession, to see markets reach levels significantly below their current level,” Summers said. “I’d be surprised if the bottom is yet in with respect to this phase and markets,” he also said. (…)

“I’m less worried about the internal integrity of markets than I am by the external message that markets are sending — which I think is one of alarm,” Summers said. In the absence of some corporate executives and academic leaders speaking up about their concerns with policy actions, markets are “such an important signal of where things are going,” he said.

For the first time, the US is facing a recession caused by its own policy actions, he indicated. “There is nothing in the outside world that is causing this challenge. It is induced by the words and deeds of President Trump and his administration,” he said. “I don’t know that there really is a historical precedent for what’s being done now.” (…)

“There’s nothing complicated about this,” Summers also said. It is “introductory economics” that the imposition of a huge tax hike on the middle class, clouded with uncertainty, damages businesses and forces the economy downwards, Summers said. “Any ‘B’ student will know that the answer to that is that it’s a supply shock that raises prices and raises unemployment.”

It will be “enormously costly for the United States and for the world economy” if Washington jacks up tariff rates back to pre-World War II levels, Summers said. “The losses to markets, if all of this were sure to be implemented, would be many trillion dollars. And the stock market only measures a very small fraction of the losses to the economy from policies of this kind.”

Spain Pushing for EU Pivot to China to Counter Trump Tariffs

(…) In a briefing to reporters before landing in Hanoi, Sanchez said that the European Union needs to change its stance toward China, and China toward Europe, saying that Spain can play a role as a builder of more balanced alliances between the two. The situation with the US under Trump calls for everyone to adapt and see how trade relations are balanced, he added. (…)

Part of Sanchez’s strategy is about pushing Europe to craft a relationship with China that is independent of its US ties, according to a second person who also requested anonymity to speak freely. That means not simply bowing to Washington’s demands to wall off China. (…)

A similar point is made by Chinese officials, who explain away any European criticism as being directed by the US. In an op-ed in the state-backed Global Times published March 31, Zhao Junjie, a senior research fellow at the Institute of European Studies at the Chinese Academy of Social Sciences, painted Sanchez’s visit as part of an EU change of “mindset” that is to be encouraged away from the Trump administration and toward China.

“The growing rifts with the US, the escalation of trade conflicts and the decline in political mutual trust have all caused considerable anxiety among EU decision makers,” wrote Zhao. “As a result, maintaining close economic ties with China has inevitably become a strategic option for the EU and its member states when the transatlantic relationship is fracturing.”

The extent to which the 53-year-old Spaniard will be able to shape EU policy is unclear. Views toward China have hardened in most capitals since the pandemic, with Xi’s refusal to condemn Russian leader Vladimir Putin over Moscow’s war on Ukraine causing deeper damage still.

Italy pulled out of Xi’s flagship Belt and Road Initiative in late 2023 as the hoped-for economic gains failed to materialize. And while Sanchez wants more business with Beijing, Germany’s incoming chancellor, Friedrich Merz, has warned domestic companies against making bigger investments in China.

Sanchez is in any case something of an outlier in Europe. One of just a handful of center-left leaders in the EU — a dwindling band that will become smaller once Olaf Scholz steps down in Germany — Sanchez is out of step with most of the bloc in more than just his political colors.

He’s adamantly pro-migration at a time when his counterparts are tightening up the borders. He’s a defense spending laggard, since military strength isn’t seen as a vote winner in Spain, leaving him with the smallest defense budget in NAT0 relative to economic size. (…)

Madrid also sees building ties to China as a way to increase influence in Africa and Latin America, regions where Beijing has gained traction in recent years. Africa in particular is coming more into focus for Spain as a result of shifting migration patterns, with increased numbers of people making for the Canary Islands adding to flows along the direct route across the Mediterranean. (…)

The hopeless search for Trump’s cunning plan Attempts to read grand strategy into the US president’s doings have run their course

This FT piece makes fun of the search for “the plan” before concluding:

(…) In the end, there are just too many contradictions in the Trump worldview to warrant any talk of a grand plan. (…) If strategy means anything, it is having a sense of the connectedness of things. There is none of that here. (…)

In ever scarier times, it is soothing to believe that a secret plan is at work, even if it is a distasteful plan.

But there is more going on here than fear. Ultimately, liberal societies struggle to understand — or even to credit the existence of — irrational actors. When confronted with them, our reflex is to find a logic behind their behaviour, even to the point of forcibly attributing one to them. (…)

I myself have squandered perfectly good hours and neurons on the search for a great Trump design for the world. How much of one is there? Well, he has a sincere belief that running a current account deficit constitutes “losing”. He also has a willingness to negotiate, and even to settle on bad terms for himself, for the momentary glory of a “deal”. But much more than that? A vision for a new financial and security architecture to rival Harry Truman’s, which will materialise any day now, just wait and see? The idea is laughable, and I suspect, behind his hands, Trump is doing much of the laughing.

But that assumes that He, Himself, understands what’s going on.

Meanwhile, the house is living its own chaos as the kids start fighting among themselves:

Why Musk vs. Navarro Matters The fight reflects the competing factions in Trump’s coalition.

Incredibly, this is from the WSJ Editorial Board

Elon Musk opined on the internet Tuesday that White House trade adviser Peter Navarro is “truly a moron” and “dumber than a sack of bricks.” Mr. Navarro had told a TV show that Mr. Musk, CEO of Tesla, isn’t a real car manufacturer but a mere “assembler” of foreign parts. In another interview, Mr. Navarro denied a rift between them. But then Mr. Musk called him “Peter Retarrdo.”

(…) this feud illustrates the competing factions advising President Trump and that make up big chunks of his political coalition. Which side prevails more often is likely to determine whether Mr. Trump’s economic policy succeeds.

Mr. Musk is an erratic political messenger, but he’s right about at least two big things, and he also appears willing to speak truths that Mr. Trump is better off hearing. Mr. Musk believes in trade, and he recently said he hopes that the U.S. and Europe move “to a zero-tariff situation.” He has also pointed out, correctly, that most federal spending is for entitlement programs, though Mr. Trump has promised not to touch such benefits.

Broadly speaking, Mr. Musk represents a segment of Mr. Trump’s 2024 coalition—call it Silicon Valley MAGA—that is libertarianish and believes in freeing the U.S. economy to grow and dominate the future, benefiting all Americans. It favors pro-growth tax and regulatory policy and robust legal immigration to attract the world’s brightest minds.

Mr. Navarro is part of the Steve Bannon wing of MAGA, which wants to put U.S. industries behind the high tariff walls that Mr. Trump is now imposing. This faction distrusts corporations, especially Big Tech and pharma, and it doesn’t mind higher taxes and using government power to punish political enemies.

Mr. Navarro has the additional talent of saying whatever he thinks the boss wants to hear, including in 2020 when he wrote a report, titled “The Immaculate Deception,” suggesting Joe Biden stole the election. His willingness to toe the line probably helps to explain how Mr. Navarro has lasted in the White House so long, and these days he appears to be at the height of his influence with the President if the hyper-tariffs are a guide.

One way to interpret Mr. Musk’s bluntness lately is that he’s on the outs with Mr. Trump, or else he’ll soon be. We hope that isn’t the case. Mr. Musk has made some missteps, and he is far too forgiving of China’s Communist Party in our view.

But he isn’t a flunky whom Mr. Trump can consign to oblivion by firing, and he’s saying things the President ought to hear. He represents the aspirational wing of MAGA-land that is the best part of Trumponomics.

• “It falls now to Congress plus the courts to call a halt if a coherent Trump plan doesn’t emerge fairly soon from the chaos. Unfortunately, on Tuesday the chaos worsened, with Elon Musk calling Mr. Trump’s trade adviser a “moron” and White House leaks painting Commerce Secretary Howard Lutnick as an emotional loose cannon.” (Holman W. Jenkins)

Another Home Alone sequel. There’s no adult in this house. Who can reasonably expect that “a coherent Trump plan” could emerge, let alone a coherent Trump.

No worries: “Boys will be boys, and we will let their public sparring continue,” Press Secretary Karoline Leavitt said at the podium. “We have the most transparent administration in history.”

Here and there:

• [Last week, bank] Executives in the room took turns saying when they last spoke to President Trump. The general response: not recently. Many of them said they hadn’t had a substantive discussion with Trump since the pandemic hammered markets in 2020, according to people familiar with the meeting. The nation’s most powerful bankers have a unique lens into markets and the economy, often making them valued advisers and sounding boards for top government officials. Top executives sense their opinions don’t carry much weight with the president. (…) In a statement, the White House said it maintains regular contact with business leaders and industry groups.
• Other attempts to get through to the White House on tariffs haven’t been productive. A meeting last week between bank CEOs and Commerce Secretary Howard Lutnick left several attendees frustrated after he told them to get on board with tariffs, The Wall Street Journal reported.
• “We are always open for negotiations, but when we, like our Canadian and Mexican friends, ask our American friends, what’s the endgame, the White House can’t tell you what they want,” said one European official.
• “We are going to be announcing very shortly a major tariff on pharmaceuticals”. Once we do that, they’re going to come rushing back into our country, because we’re the big market,” Trump said. “The advantage we have over everybody is that we’re the big market.”
• Only months ago, Ackman celebrated Trump’s victory, predicting “the most pro-growth, pro-business, pro-American” administration he’d seen in his adult life. Now, on a Sunday night — after nearly $6 trillion had been wiped out in an epic two-day market rout, with more pain to come — Ackman was launching into mea culpa mode. “I don’t think this was foreseeable,” the hedge-fund mogul posted on X. “I assumed economic rationality would be paramount.”
• “There were people who were behind Trump for selfish reasons,” said Jason Mudrick, who runs credit hedge fund Mudrick Capital Management. “Now it’s hit their stock portfolios, and they are saying ‘holy sh-t’ — they didn’t expect he would do it.”
• “America First is fine, as long as it doesn’t end up being America alone,” Dimon said.
• One German car executive said that many companies were still trying to figure out how exactly tariffs would be applied, as well as what constituted a car part. “Is a part an engine, or is it each screw in the engine?” the person said.
• Companies looking to protect their supply chains may turn to domestic acquisitions instead of starting a new build, she said. “It might be faster to buy a company than to build a new plant.”

• The White House is seeking to lean on coal-fired power to feed rising energy demand driven by artificial intelligence. “We’re ending Joe Biden’s war on beautiful, clean coal,” Trump said, flanked by coal miners in hard hats in the East Room. While the orders focus on trying to ramp up U.S. coal mining, virtually no coal plants are being proposed. About 96% of upcoming generation projects are wind, solar and battery.
• At the barber shop I went to on Sunday, everyone was complaining about how much money they lost recently in the stock market, including the barber. The guy who turned on my sprinkler system this afternoon was following the market on his cell phone and getting upset that the morning’s rally fizzled. (Ed Yardeni)
• ETFs that invest in high-yield corporate bonds and in senior bank loans are starting to plunge.
• The Stock and Bond Vigilantes are signaling that the Trump administration may be playing with liquid nitro. Something may be about to blow up in the capital markets as a result of the stress created by the administration’s trade war. If so, then the S&P 500 will fall into a bear market for sure. (ed Yardeni)
• In a webinar, a strategist for JPMorgan’s asset-management arm brought on a pair of fake penguins he said were trade representatives from the remote Heard Island and McDonald Islands. The territory is home to little besides Antarctic wildlife but was still hit with Trump’s tariffs.

IN THE REAL WORLD

How Tariff Damage Spreads, Auto Edition A case study in how the harm will ripple across the U.S. economy.

Also by the WSJ Editorial Board

(…) The car makers could become collateral damage in an escalating trade war with China, and they will be hit with higher costs on everything from plastic for cup-holders to seat upholstery. Such costs will be layered on top of the President’s 25% steel and aluminum tariffs and 25% duties on auto parts and non-U.S. content of vehicle imports.

The Anderson Economic Group (AEG) estimated last week that the auto tariffs alone could increase the cost for smaller cars like the Honda Civic and VW Jetta by $2,500 to $4,500. Costs for larger vehicles that are more heavily affected by the tariffs like the Chevrolet Suburban, GMC Yukon and Cadillac Escalade could rise by $10,000 to $12,000.

Used car prices will also climb, AEG predicts, as demand increases among consumers who don’t want to pay higher prices for new cars. If tariffs also cause car makers to reduce their U.S. inventory, car prices will rise even more. Volkswagen said last week it would stop rail shipments to the U.S. from Mexico.

The auto tariffs will cause Americans to pay $30 billion more for cars in the first year while “investors and employees of manufacturers, suppliers, and dealers in the automotive industry will absorb at least another $30 billion in tariff costs,” AEG predicts. Over time, manufacturers will pass more of their tariff costs onto consumers, including the higher costs of reworking supply chains to produce more cars and parts in the U.S. So much for the claim that foreigners will pick up all tariff costs.

Mr. Trump’s first-term 25% steel and 10% aluminum tariffs are illustrative. Steel prices in the U.S. rose 20% in 2018 as domestic manufacturers took advantage of the tariffs to raise prices. Former Ford CEO James Hackett estimated that the tariffs reduced its annual profit by $1 billion. Ultimately, consumers and auto dealers ate the costs.

A University of Kentucky study last year examined how auto makers responded to the steel and aluminum tariffs. While they increased car invoice prices charged to dealers, their affiliated lending arms also raised interest rates on loans, which especially hurt lower-income consumers who tend to finance a large share of their purchase cost.

Dealers absorbed some of the tariff costs as they didn’t pass along all of the higher invoice prices to buyers. Tariffs can “spill over to bundled and complementary goods,” the study notes. “This provides firms with the option to spread tariff costs across multiple price dimensions.”

In other words, companies will try to mitigate their higher costs by various means, including by raising prices on products and services not subject to tariffs. The impact of Mr. Trump’s tariffs will ripple through the economy, especially if they cause consumers to pull back their spending.

This may be why shares in U.S. steel and aluminum makers have also plunged. Even the purported beneficiaries of tariffs inevitably become victims as an ebbing tide maroons all ships.

Surging Costs Complicate Plans for New U.S. Factories New tariffs mean higher material and equipment costs for manufacturers seeking to expand

Roofing-products manufacturer IKO North America has been on a factory-building spree in the U.S., with one plant completed and four more under construction. After President Trump launched a barrage of tariffs on U.S. trading partners, the math abruptly changed.

Chief Executive David Koschitzky said IKO’s just-finished factory in Texas now faces higher prices on the steel it uses to fabricate metal shingles, while the plants that are still being built need machinery that isn’t made in the U.S. The company will continue with the projects, he said, but tariffs will make them much more expensive.

“If we’re to be successful, that’s a cost that’s going to be passed on to the consumer,” Koschitzky said. (…)

Companies are double-checking the numbers on planned factories, or halting them altogether.

Tariff-swollen building costs helped to kill a $300 million plastics recycling plant in Erie, Pa., that had been in the works for four years. International Recycling Group, helmed by CEO Mitch Hecht, said Thursday it was canceling the factory partly because new duties on material and imported machinery had created “expectations of substantially higher project development costs than anticipated.” (…)

The administration envisions tariffs motivating companies to source more domestically produced goods, supporting an expanded U.S. manufacturing sector. But higher costs for imported materials and components could push up prices at home, industry professionals said.

Earth Breeze, which makes detergent sheets for washing machines, is investing nearly $6 million in a Kentucky factory that will replace its Chinese contract manufacturer and create more than 200 U.S. jobs. Chief Operating Officer Ben Smith said the project will continue even though it now faces escalating costs, including a bill for imported machinery that tariffs could drive up by $250,000.

“We feel like we’re actually contributing to the economy by on-shoring manufacturing, and there’s now additional barriers to entry here,” he said.

After Trump announced tariffs on steel and aluminum in February, construction firm Skanska SKA.B -4.35%decrease; red down pointing triangle<?XML:NAMESPACE PREFIX = “[default] http://www.w3.org/2000/svg” NS = “http://www.w3.org/2000/svg” /> estimated that the cost of metal panels, metal studs and structural steel would rise around 20% to 30% over the next year. Plumbing equipment prices could rise as much as 10% and drywall as much as 20%, alongside higher costs for electrical gear such as generators, HVAC equipment, roofing products and insulation. The new tariffs could add to the increases.

Tom Park, who runs Skanska’s supply-chain strategy, said that while some products compliant with the U.S.-Mexico-Canada Agreement will be exempt from the latest tariffs, even equipment manufactured in the U.S. often relies on imported parts.

An industrial chiller produced in a U.S. factory might contain wire from China, steel from Canada, pipes from India, harnesses and fan coils from Mexico, motors from Germany, copper from Peru and electronics from Korea—which could be subject to an array of tariffs, according to Skanska. (…)

[Kevin Evernham, regional vice president for architecture firm Ware Malcomb] said that the higher costs could price some projects out of existence. For factories looking at a building cost of $100 to $200 a square foot, increasing roofing costs by $5 a square foot can be substantial, he said.

Trump Tariffs Threaten Spread of Big Batteries on the Power Grid Analysts say the trade war will pile costs onto the fast-growing US energy storage industry — and slow it down.

Energy storage devices large enough to feed the electric grid have been spreading across the US, with deployments surging 33% last year. Officials in California and Texas credit them with helping prevent blackouts during heat waves, when electricity demand soars, and integrating variable solar and wind power onto the grid. But despite efforts by former President Joe Biden to build a domestic supply chain, the US still relies heavily on imported lithium-ion batteries — with 69% of the imports made in China, according to the BloombergNEF research provider.

Now, Trump’s tariffs are piling costs onto new battery projects. BNEF analysts warn the increased costs will likely lead to cancellations and delays, cutting the industry’s torrid growth. (…)

BNEF had forecast battery prices to fall about 13% this year, continuing the steep, long-term decline that has fueled the industry’s growth. Instead, Trump’s tariffs announced last week would make large-scale batteries installed in the US 17% more expensive than last year, according to the firm, with an average price of $266 per kilowatt hour. And that estimate doesn’t include additional, retaliatory tariffs that Trump threatened against China this week.

Nor do the tariffs just target Chinese batteries. Trump plans a 24% tariff against Japan, which supplies 8% of US lithium-ion battery imports, and a 25% tariff for South Korea, which makes 5% of imports. (…)

North America is expected to make up 13% of global lithium-ion production capacity by 2033, according to the Wood Mackenzie consulting firm. (…)

The US has no domestic manufacturing capacity for lithium iron phosphate, or LFP, batteries — the preferred chemistry for grid-scale storage. A number of suppliers are “in various stages” of building LFP factories in the US, said Jeff Waters, CEO of Oregon-based energy storage company Powin. But those will take time to get off the ground. (…)

Even as US manufacturers ramp up production, they’ll still be impacted by tariffs. Domestic batteries rely on imported components, with US plants needing to import an estimated 83% of the cathodes and 67% of anodes they’ll use this year, according to BNEF. Suppliers are scaling up, but with the Inflation Reduction Act’s future now in question under Trump, some manufacturers may put their US plans on hold.

“Sudden changes in policy can be incredibly disruptive, chilling investments and slowing job creation — especially for manufacturers,” said Abigail Ross Hopper, president and chief executive officer of the Solar Energy Industries Association trade group, in an email. “In the global competition for capital, manufacturers need long-term policy certainty to be confident about making multi-billion-dollar investments.”

One of America’s Biggest Ports Fears a Cargo Slump Is Next

The Port of Long Beach could see cargo volumes plummet by as much as 20% in the second half of 2025 if current trade uncertainties worsen, CEO Mario Cordero warned in an interview with Bloomberg Television. (…)

He cited the last major trade war under Trump’s first term, during which the port saw a 20.5% decline in cargo from China. That loss was partially offset by a 10% increase in shipments from other nations, especially Vietnam.

“Now what’s different is that every country is being hit with these tariffs,” Cordero said. (…)

Delta Pulls Guidance With Trump’s Trade War Squeezing Air Travel

(…) The outlook will be updated later in the year as visibility improves, Delta said Wednesday as it reported first-quarter results.

“With the level of uncertainty we’re seeing and the amount of changes happening on a daily basis in global trade, it’s very difficult to predict what policies may look like over the course of the year,” Chief Executive Officer Ed Bastian said in an interview.

As confidence dims among consumers and businesses alike, the company is seeing growth stalling. Revenue, he said, has “flat-lined.” (…)

It’s more uncertainty,” he said. “As a result of that, growth has stalled.”

US Consumer Borrowing Unexpectedly Declines in Broad Pullback

US consumer borrowing unexpectedly declined in February for the first time in three months, reflecting a sharp pullback in credit-card balances and a decrease in motor vehicle and other non-revolving loans.

Total credit fell nearly $810 million after a revised $8.9 billion gain in January, according to Federal Reserve data out Monday. The median projection in a Bloomberg survey of economists called for a $15 billion rise.

Outstanding credit-card and other revolving debt edged up $128 million. Non-revolving debt, such as loans for vehicle purchases and school tuition, declined $938 million, the first drop in nearly a year. (…)

Stress among lower-income households was already starting to build. In January, the share of subprime auto loans at least 60 days past due climbed to 6.56% in January, the most in data back to 1994, according to Fitch Ratings. High car prices and elevated borrowing costs are straining budgets.

In the fourth quarter of last year, the share of consumer debt in some stage of delinquency climbed to an almost five-year high, according to the New York Fed. (…)

Central Banks Ramp Up Warnings as Tariffs Kick In

Bank of England Warns of Tariffs Threat to Stability of Global Financial System

The Bank of England Wednesday warned that rising tariffs threaten to undermine the stability of the global financial system, and said further sharp falls in asset prices are likely.

The prices of a wide range of assets have fallen sharply since U.S. President Trump announced a new round of tariff increases on April 2, with Treasury bonds the most recent to have big declines.

In a statement following meetings on Friday and Tuesday, before the big drop in bond prices, the BOE’s Financial Policy Committee said global economic growth is likely to slow as the higher tariffs are implemented, a development that would “harm financial stability.”

“The probability of adverse events, and the potential severity of their impact, has risen,” the FPC said. (…)

Dalio Sees Once-a-Lifetime Collapse in Economic, Political Order

Ray Dalio warned that investors are too narrowly fixated on tariffs and not paying enough attention to the bigger “once-in-a-lifetime” breakdown occurring in major monetary, political and geopolitical orders. (…)

Among the drivers of Trump’s tariff policies are too much existing debt and the rapid rate at which new borrowing is added, Dalio wrote. He said the US is hooked on using debt to finance excessive spending, while creditor countries like China are addicted to selling goods to borrower countries like the US.

“There are big pressures for these imbalances to be corrected one way or another and doing so will change the monetary order in major ways,” Dalio added.

“It is obviously incongruous to have both large trade imbalances and large capital imbalances in a deglobalizing world in which the major players can’t trust that the other major players won’t cut them off from the items they need (which is an American worry) or pay them the money they are owed (which is a Chinese worry),” he wrote.

Gaps in people’s education, opportunity, productivity levels as well as income, wealth and values are manifesting in a breakdown of the democratic system and the rise of autocratic leaders, according to Dalio.

In the geopolitical arena, the multilateral, cooperative world order led by the US, the sole dominant power, is being replaced by a unilateral, “America first” approach, he added.

It falls to Congress to unravel Trump’s reckless tariffs If Republicans are serious, they should join with Democrats to pass a resolution to fix this crisis

By Elizabeth Warren, US senator for Massachusetts and the top Democrat on the Senate committee on banking

(…) Last week, a handful of Republicans demonstrated their uneasiness with Trump’s tariff policies when they joined every Senate Democrat to begin the process of reversing his “emergency” declaration justifying a trade war with Canada. But a handful isn’t enough. We need more Republicans to stiffen their spines and pass our resolution to fix this. If both Trump and congressional Republicans refuse to rein in the current policy, every family and every corner of our economy will be hit as people lose jobs, consumer spending declines, lenders face defaults and confidence in our financial system erodes. (…)

Trump may be an arrogant man who dines by candlelight with his wealthy donors while his shortsighted policies burn down our economy. But he is not a king and Congress is not powerless. We can act to stop him, and we should.