Trump Strikes Deal With Ally Japan Setting Tariff Rate at 15%

President Donald Trump reached a trade deal with Japan that will impose 15% tariffs on imports including automobiles from the key American ally, while creating a $550 billion fund to make investments in the US. (…)

Under the deal, automobiles and parts would be subjected to the same 15% rate as Japan’s other exports (…)

In return, Japan will accept cars and trucks built to US motor vehicle safety standards, without subjecting them to additional requirements — a potentially major step to selling more American-built vehicles in the country. The auto sector tariff had been one of the main sticking points in the negotiations. (…)

A centerpiece of the pact with Japan is the $550 billion investment pledge. A senior US administration official, speaking on condition of anonymity to outline the agreement, said the pledge was akin to a sovereign wealth fund under which Trump himself could steer investments inside the US.

Final terms of the agreement still need to be enshrined in a formal proclamation. Legal particulars and other details surrounding the pledge are still being hammered out, according to the official.

The investment timeline is not certain, and it’s not clear whether Trump would be able to allocate the full sum during his term. (…)

The source of the Japanese funding was also not immediately available. Ishiba said the investment sum would reach as much as $550 billion and would partly come in the form of loan guarantees. (…)

Japan agreed to provide $550 billion to invest in projects in America through vehicles returning 90% of the profits to the US. (…)

The official pointed to one hypothetical scenario of how the investments might work. The president could, for instance, select a semiconductor manufacturing project that could be built with Japanese funds, leased to operating companies and the resulting leasing profit divided 90-10 between the US and Japan.

Japan has also agreed to buy 100 Boeing Co. aircraft, boost rice purchases by 75% and buy $8 billion in agricultural and other products while hiking defense spending with American firms to $17 billion annually, from $14 billion, the senior official said.

Japan will also participate in an LNG pipeline project in Alaska, the official said, an apparent reference to a long-stalled $44 billion venture designed to export the state’s gas around the globe. Trump told lawmakers at the White House Tuesday evening that Japan is “forming a joint venture” on a proposed Alaskan LNG project. “They’re all set to make that deal now,” Trump said.

Akazawa didn’t mention those details when he outlined the deal in Washington. He said defense spending wasn’t part of the deal, an indication that some of the specifics may still be under discussion or getting characterized in different ways.

Trump also pledged to give Japan a safety clause on forthcoming sectoral tariffs, including levies expected on semiconductors and pharmaceuticals — effectively agreeing to not treat the country worse than any other nation when it comes to those goods, the official said.

In effect, that means Japan will be guaranteed whatever the lowest global rate is on those tariffs. (…)

So, Japan would guarantee loans up to $550B and get 10% of the returns on the loans for its guarantees.

ING:

Japanese Prime Minister Ishiba offered more details about the deal. He confirmed that Japan will face 15% tariffs, including on autos, and won’t be disadvantaged from any tariffs on chips. However, the 50% tariff on steel and aluminum will remain for the time being. Ishiba denied that Japan agreed to lowering import tariffs, which he claimed weren’t included in the agreement. The agreed-upon $550 billion US investment will be backed by loans from government-related organisations.

Although the specifics remain unclear, both parties called the pact deal a success. Trump appears to view it as a massive deal, while Ishiba characterised it in less grandiose terms.

Ishiba pointed out that among countries with a trade surplus with the United States, Japan negotiated the lowest tariff rate. Furthermore, for automobile exports, Japan secured a 15% tariff without any volume restrictions, in contrast to the UK’s arrangement. Regarding the politically sensitive matter of agricultural products, Ishiba stated that, while Japan will increase US rice imports within the existing quota, it won’t compromise the domestic agricultural market.

It’s expected that Japan will increase direct investment in the US, such as LNG projects in Alaska, and boost imports of US goods, including agricultural products. But, the implementation of a 15% tax on cars without a limit is a surprise. Ongoing uncertainty regarding Japanese politics — including reports Ishiba will stepping down soon — and the exclusion of defence spending from the agreement may introduce complexities to the negotiation process.

We think that the US aims to finalise the deal before August and encourage other trading partners to participate in negotiations. Including defence spending in the discussions could potentially extend the timeline for reaching an agreement. The US-Japan deal will put more pressure on other major Asia exporters to secure better deal.  We’ve already seen trade deals with the Philippines and Indonesia. Before 1 August, there should be more deal struck with Asian exporters. (…)

Meanwhile, the deputy Bank of Japan governor, Shinichi Uchida, indicated that the BoJ isn’t in a hurry to resume raising interest rates. He reaffirmed the BoJ’s stance that if the economic outlook is realized, the BoJ will continue to adjust the policy rate accordingly.  He noted downside risks to the economy and prices, but also that upward wage growth is likely to continue given businesses’ changing price-setting behaviour.

We believe that the BoJ will need more time to understand the details of the trade deal and how it affects the economy. It’s a close call, but an October rate hike remains likely in our view as US trade uncertainty eases and inflationary pressures grow. But it’s possible the BoJ to push back its rate hike towards the end of the year.

A dovish BoJ and the large investments in the US will probably weigh on the JPY. We still believe that once the Fed begins to cut its rates and the BoJ hikes, conditions will turn to favourable for the USDJPY. In the short term, though, JPY should experience depreciation pressures.

GM vs TARIFFS

By Wolf Richter for WOLF STREET.

GM, which reported earnings today, imports vehicles from Mexico, South Korea, China, and Canada, and those that it produces in the US have many imported components. So GM is more exposed to tariffs than most other major automakers.

The top foreign brands all have huge factories in the US. Most Honda/Acura models in the US are right behind Tesla models in the lineup of vehicles with the most US content – most of them of 65% and higher. These automakers are least impacted by tariffs. There are also models from Volkswagen, Kia, Jeep, and Toyota in that top group.

The US-assembled Chevy Colorado is further down, and that’s the top GM entry. So GM has to compete with automakers that are getting barely dented by the tariffs.

Today, in its quarterly earnings report and conference call, it shed some additional light on the tariff situation.

GM ate $1.1 billion in tariff-related costs in Q2, and CFO Paul Jacobson added in the conference call that Q3 “net tariff costs” will likely be higher.

The company stuck to its projection, announced on May 1, that for the whole year, net tariff costs would total $4-5 billion, of which about $2 billion is related to imports from South Korea. Or it might be a little less if tariff rates are reduced, CEO Mary Barra said.

“Over time, we remain confident that our total tariff expense will come down as bilateral trade deals emerge, and our sourcing and production adjustments are implemented,” Jacobson said.

GM’s tariff “mitigation efforts” are largely focused on upgrading existing US factories to bring more production of vehicles, batteries, and components to the US.

Adjusted automotive free cash flow plunged by nearly in half, by $2.5 billion year-over-year, to $2.8 billion, “primarily driven by tariff payments as well as headwinds from working capital and lower dealer inventory levels,” Jacobson explained during the conference call (transcript via Seeking Alpha).

For GM North America (GMNA), earnings before interest and taxes (EBIT) plunged by 45% year-over-year in Q2, or by $2.0 billion, to $2.41 billion. And compared to Q2 2023, North America EBIT plunged by 24%.

Tariff a tax on gross profits: GMNA’s EBIT margin was 6.1%, but “excluding the impact of tariffs, our margin would have been approximately 9%,” CFO Paul Jacobson explained during the conference call. (…)

CEO Barra outlined one of the projects for bringing production to already existing plants in the US as part of the tariff mitigation efforts:

“For example, the $4 billion of new investment in our U.S. assembly plants will add 300,000 units of U.S. capacity for high-margin light-duty pickups, full-size SUVs, and crossovers to help us greatly reduce our tariff exposure, satisfy unmet customer demand, and capture upside opportunities as we launch new models.

“The capacity begins coming online in just 18 months after which we project building more than 2 million vehicles in the U.S. each year as we scale.” (…)

The company is “still tracking to offset at least 30% of the $4-5 billion full year 2025 tariff impact through strategic actions such as manufacturing adjustments, targeted cost initiatives, and consistent pricing,” he said.

“As far as the other aspects of the tariffs, we talked about the $4 billion, which will bring us, when all that is implemented, to producing over 2 million vehicles here in the U.S. That will take care of a large part of the other remaining tariffs that are out there,” he said.

For refence, GM sold 2.7 million vehicles in the US in 2024:

“We’re still working through supply chain and other indirect tariffs, but we’re not speculating on what it will be. But I expect that it is likely lower than the current run rate of what you would see just as things shake out. Remember, we’re only 90 days into this,” he said. (…)

On the news that GM and suppliers are eating the tariffs, rather than consumers, and that GM is investing in the US to cut the costs of those tariffs – all good news for the US economy and for the precarious US fiscal situation, but not for shareholders – GM’s shares tanked 8.1% to close at $48.89.

Goldman Sachs Sees Trump’s Baseline Tariff Rate Rising to 15%

Economists at Goldman Sachs Group Inc. expect the US baseline “reciprocal” tariff rate will rise from 10% to 15%, with a 50% levy on copper and critical minerals — an outcome that threatens to fuel inflation and weigh on economic growth.

The investment bank also revised forecasts for US inflation and gross domestic product growth to reflect the new tariff assumption and to factor in “early lessons” about the impact of the import levies, Chief US Economist David Mericle wrote in a weekly update.

“The main lesson about tariffs so far is that passthrough to consumer prices is tracking somewhat lower than in 2019,” Mericle wrote. “While it is still very early to estimate passthrough, surveys that ask businesses how much they intend to raise prices eventually also indicate lower passthrough than last time.”

As a result, Goldman now forecasts core inflation of 3.3% in 2025 from a year ago, compared to a previous estimate of 3.4%. The rate will slow to 2.7% next year and then 2.4% in 2027 — both higher than previous estimates of 2.6% and 2.0%. Cumulatively, tariffs are seen boosting core prices by 1.7% over 2-3 years, Mericle said.

Tariffs will weigh on GDP growth by 1 percentage point this year, 0.4 point in 2026 and 0.3 point in 2027, he added. As a result, Goldman now forecasts 1% GDP growth in 2025.

Goldman expects sectoral tariffs on heavy trucks and aircraft in 2026 as well as a delayed increase in tariffs on pharmaceuticals after the 2026 midterm elections.

On a weighted-average basis, the US effective tariff rate is now assumed to rise by 16 percentage points this year, Mericle said.

“This implies that the tariff risks to inflation are tilted slightly to the upside and the risks to growth are tilted slightly to the downside,” he wrote in the note to clients.

U.S. Mid-Atlantic Factory Activity Contracts at Fastest Rate This Year The Fifth District Survey of Manufacturing Activity’s index for July sank sharply to minus 20 from minus 8 in June

The Fifth District Survey of Manufacturing Activity’s index for July sank sharply to minus 20 from minus 8 in June, the Federal Reserve Bank of Richmond said Tuesday. A consensus of economists polled by The Wall Street Journal expected it instead to inch up to minus 6.5. (…)

All three component indexes for the survey—shipments, new orders and employment—declined compared with June, the Richmond Fed said. The index for new orders faced the most pronounced downturn.

However, future indexes for shipments and new orders ticked higher, though for future employment it decreased.

Average growth rates of prices paid and received also fell a little in July, pointing to lighter inflationary pressures this month.

Services are also weak with employment at a standstill:

Goldman Sachs’ Jan Hatzius agrees with my reading of the economy:

One reason why President Trump might raise tariffs further is that the costs of the trade war have been smaller than anticipated so far. At least as far as inflation is concerned, however, we think this mostly reflects lags related to large-scale inventory building before the tariffs hit.

For the earliest Trump tariffs, these lags have now run their course. Our estimates for June imply that 60% of the tariffs implemented in February have passed through, raising the core PCE price index by a cumulative 0.2%. With an estimated 1.2% price level increase yet to come, we expect the year-on-year core PCE inflation rate to rise back above 3% in H2, even assuming continued benign trends in rents, healthcare, and other services. We still think this is a one-time price level shift akin to a VAT hike.

Even a one-time price increase will eat into real income, at a time when consumer spending trends already look shaky. Although nominal core retail sales rebounded in June, we estimate that real personal consumption has now stagnated on net for six months, which rarely happens outside of recession.

Housing activity has also slowed sharply, with overall construction spending falling faster over the past year than at any time since the post-2008 housing bust. The weakness in consumption and housing has pushed down our tracking estimate for H1 real GDP growth to 1.1%, about a percentage point below potential. We expect a similar pace in H2, as the growing real income drag from tariff-related price increases offsets the boost from easier financial conditions.

The pace of hiring is likewise slowing. Private payrolls grew only 74k in June according to the Labor Department and contracted outright according to ADP. On a similar note, the payroll diffusion index has fallen to levels indicating that there are now just as many industries cutting as adding jobs.

So far, the consequences of slowing employment growth have been limited for most workers, as layoffs remain muted and the drop in net immigration has kept the unemployment rate at 4.1%. But if GDP growth remains sluggish, the labor market might soon hit “stall speed”—a pace of job creation weak enough to trigger a self-reinforcing rise in unemployment. Our 12-month recession risk estimate remains at 30%, double the unconditional historical average.

The slowdown has strengthened the case for earlier monetary policy easing, as noted by Fed Governor Waller in a speech last week. Both Waller and Vice Chair for Supervision Bowman are likely to dissent in favor of lower rates at the July 29-30 FOMC meeting, but other committee members will want to wait for confirmation that the tariff impact really is a one-time price level shock and/or evidence of more labor market softening.

Starting in September, however, we expect three consecutive 25bp cuts that take the funds rate down to 3½-3¾% at yearend 2025, followed by two more 25bp cuts in the first half of 2026. Our forecast remains modestly below market pricing. (…)

Market participants seem to agree that the risk to Fed independence is rising, as 5-year 5-year forward inflation swaps have recently decoupled higher from their prior close relationship with the 2-year note yield. A further increase could make Fed officials more reluctant to cut. (…)

The Impact of Immigration Restrictions and Deportations

If 3,000 people are deported every day, the labor supply will decline by about 1 million in total in 2025.

Combined with additional immigration restrictions, job growth is slowing down.

If legal immigration continues at current levels and illegal immigration declines to zero, the new level of monthly nonfarm payrolls will be 72,000.

Deportations and immigration restrictions are likely to increase wage growth in agriculture, construction, and leisure & hospitality.

Deportations and immigration restrictions lower demand for housing.

The bottom line is that immigration policy has implications for labor supply, nonfarm payrolls, wages, and housing demand. To better understand these effects, we have compiled a chart book, which is available here.

Meanwhile, job openings keep declining (Indeed Job Postings through July 17)

• “US net immigration decreased slightly from an annualized pace of 0.6mn in April to 0.5mn in June. This aligns with our forecast that immigration will stabilize at around 0.5mn annually, a rate moderately below the pre-pandemic trend of 1.0mn per year. (…) Looking ahead, we expect the gradual slowdown in immigration to bring the breakeven rate—the rate of payroll job growth needed to keep the unemployment rate stable—down to 70k per month by the end of 2025 from our 90k estimate of the current pace.” (GS)

How is China being impacted by tariffs so far? (ING)

(…) It remains too early to fully understand the longer-term implications, especially with another round of new tariff developments expected in August. But with a few months of post-tariff data now in the books, we can begin to assess how China has actually been impacted by tariffs so far. (…)

Despite tariff-driven headwinds through the first half of the year, China’s exports have held up well. They grew at 5.9% year-over-year, year to date, at the same pace we saw in 2024. China’s trade surplus reached $586 bn in 1H25, a new record high for any semi-annual period. Net exports contributed 1.7pp to GDP growth in the first half of the year, accelerating from the 1.5pp contribution seen in 2024.

As a result, we’ve seen that manufacturing activity continues to grow at a respectable pace. Industrial production grew by 6.4% YoY ytd, with manufacturing advancing 7.0% YoY in the first half of the year.

The main reason China’s growth beat forecasts in 1H25: surprisingly resilient external demand supporting industrial activity, which is also why China is on track to reach its “around 5%” growth target this year despite tariffs. (…)

In the first half of the year, exports to the US were down -10.7% YoY, or $25.9bn. However, China’s retaliation against the US resulted in a -9.2% YoY, or $7.5bn, slump in imports over the same period. As such, China’s net exports to the US of $141.7bn in 1H25 have fallen $18.4bn compared with 1H24, denting GDP by approximately 0.2%.

As a proportion of China’s total exports, the US has fallen from 14.6% in 2024 to 11.9% in 1H25. This is quite a sharp drop. Yet the trend itself has been in place since the first trade war in 2018, when the US’s share of China’s exports began falling after peaking at 19% in 2017.

Fortunately for Chinese exporters, external demand from other economies has helped offset much of the drag from the US. In 1H25, China’s exports saw the fastest growth in the EU, Africa, Vietnam, Hong Kong, Thailand, and India. Although exports to the United States declined by $25.7 billion, this was fully offset by increased exports to other countries. This resulted in a net year-over-year increase of $101.5 bn, or growth of 5.9%.

Comparing China’s 1H25 export growth to 2024 export growth:

• Exports to ASEAN accelerated to 13.0% YoY from 12.0% YoY.
  • The two main bright points were in Thailand and Vietnam, which grew by 22.1% YoY and 19.4% YoY, respectively.
• Exports to Asia ex-ASEAN accelerated to 7.6% YoY from 4.2% YoY.
  • Within the region, the acceleration was tied to an uptick in export growth to India (14.0%) and Japan (4.9%), though exports to Korea (-2.5%) continued to slump.
• Exports to the EU rose to 6.9% YoY from 3.0% YoY, despite the tariff hikes against Chinese EVs.
  • Strong exports to Germany (11.9%) and France (8.6%) helped offset slower growth to the Netherlands (3.2%) and Italy (4.5%).
• Exports to Africa rose to 21.4% YoY from 3.5% YoY.
  • Upticks of exports to Nigeria (34.5%) and Egypt (13.9%) helped offset continuingly sluggish exports to South Africa (2.0%).
• Exports to Latin America slowed to 7.3% YoY, down from 13.0% YoY but nonetheless continuing to outpace headline growth.
  • A slowdown of exports to Brazil (-2.1%) and Mexico (-2.1%) were the main culprits dragging Latin American exports.

Exports to other regions have helped offset the drop to the US

The importance of re-exports to China’s relative export resilience is worth exploring. Re-exports have played a role in helping businesses circumvent tariffs since 2018. Increasingly, these will be under more pressure as the Trump administration hikes tariffs on other regions and includes special clauses specifically targeting re-exports via transshipments.

There’s limited research on the scale of China’s re-exports. Other than notable port economies such as Hong Kong and Singapore, few countries publish such data. Generally speaking, higher margin categories may be more suitable for re-exports, as products with very thin margins may be unable to absorb the extra costs incurred.

However, looking at specific country data and drawing upon some assumptions, we can make some key inferences. We will primarily focus on Vietnam and Mexico as our case studies for this report.

Vietnam has been in focus as one of China’s main re-export channels and a notable destination for Chinese outward direct investment in manufacturing.

Between 2017 and 2024, China’s exports to Vietnam rose from $72.4bn to $162.3bn. In this timeframe, Vietnam’s share of China’s total exports rose from 3.2% to 4.5%.

Reports on Vietnam’s trade deal framework with the US drew attention in China, particularly the special clause adding a higher 40% tariff rate on transshipments. Given the grey area in identifying transshipments and no official data on this front, we can instead look at changes in China’s exports to Vietnam and Vietnam’s exports to the US between 2017 (prior to the first trade war) and 2024.

Digging through industry-level data, the most striking change was in machinery equipment and electrical products.

• In 2017, China’s exports of machinery and electrical equipment to Vietnam were $26.9bn and accounted for approximately 16.6% of China’s total exports to Vietnam. By 2024, this had almost tripled to $77.2bn and represented 47.6% of China’s total exports to Vietnam.
• In 2017, Vietnam’s exports of machinery and electrical equipment to the US were $5.9bn and accounted for approximately 5.3% of total exports to the US. By 2024, this had surged to $45.3bn, representing 40.9% of Vietnam’s total exports to the US.

In essence, China’s machinery and electrical equipment exports to Vietnam rose around $50bn while Vietnam’s similar exports to the US rose just under $40bn. While certainly some of this change could be attributed to Vietnam’s own domestic production and demand, it’s likely that the rapid surge reflects significant transshipment activity.

Machinery and electrical equipment have likely been a major re-export category through Vietnam

Between 2017 and 2024, China’s exports to Mexico rose from $35.9bn to $90.2bn. In the same timeframe, Mexico’s share of China’s total exports rose from 1.6% to 2.5%.

• Looking at the similar machinery and electrical equipment categories that we tracked for Vietnam, Mexico doesn’t feature the same trends. While exports from this category to Mexico rose 145% from 2017 to 2024, this was in line with broader trends, staying around 44-45% of total exports.
• We did, however, see a bit of a shift in autos and auto parts, which more than tripled from 2017 to reach $12.3bn by 2024, and rising from 7.7% of total exports to 13.6%.
  • With growth continuing at 9.3% YoY ytd in 1H25, this may be more tied to Mexico’s own domestic demand or auto parts used in Mexico’s supply chain rather than direct re-exports. In any case, China’s auto exports to Mexico are relatively minor compared to Mexico’s total auto exports ($194bn in 2024).
• Much has been made of China purportedly selling fentanyl precursor chemicals to Mexico, where fentanyl is then manufactured and smuggled across the border to the US. While further granular data is unavailable, China exported $1.7bn of chemicals to Mexico in 2024, or around 2% of its total exports to Mexico.

Unlike Vietnam, which has continued to be a source of rapid export growth for China, shipments to Mexico have slowed to -2.1% YoY year to date. It’s possible that some re-exports may have slowed after Mexico was hit with high tariffs. Mexico’s overall import growth was up around 4% YoY through the first five months of 2025, though sector-level trade data doesn’t let us draw any strong conclusions.

Fewer obvious signs of re-export concentration in Mexico

Unsurprisingly, China’s recent dominance of the electric vehicle market continued to translate in the related categories, with rapid growth in lithium-ion battery (25.1%) and electric vehicle (21.9%) exports for 1H25. Machine parts (17.7%) and semiconductors (18.0%) have also fared well, given the difficulty of sourcing replacement products.

On the flip side, we see some generally lower value-added sectors under heavier pressure so far this year. Footwear (-7.6%), furniture (-7.3%), and toys (-2.8%) are among the categories in negative YoY growth, likely due to the drag from the US. We saw export growth to the US of these respective categories at -18.9%, -13.8%, and -2.8%.

The tariff environment also has varying levels of influence on each category. While in certain cases it’s a major determinant, in other categories the impact is relatively negligible. We take a look at two case studies — furniture and autos — to illustrate this in greater depth.

Fast growing export products are relatively insulated from US tariffs

Furniture exports have been one of the underperformers year-to-date, with a year-on-year decline of -5.0% in 1H25. This can be attributed to a steep -13.8% YoY drop of exports to the US. The US is China’s largest export destination for furniture, representing around 25% of total mainland furniture exports in 2024.

While furniture products can vary significantly in terms of value added, China’s furniture exports tend to compete on the cheaper and lower-value-added side, and have proven to be vulnerable to tariff impacts.

We saw a similar -17.1% drop of China’s furniture exports to the US in 2019, when China’s furniture exports were hit with a 10-25% tariff. Yet China’s overall furniture exports still managed 3.8% YoY growth on the year. 

The key differences between the first trade war and the current environment lie in a falloff of demand to the EU and ASEAN, which could partially be explained by reduced re-exports and supply chain shift.

• During 2019, despite the sharp decline in direct exports to the US, China’s furniture exports to East Asia (Japan (3.7%), Korea (15.3%), ASEAN (42.2%), and the EU (9.0%) accelerated and offset the drag.
• Vietnam likely served as a major re-export hub for Chinese furniture companies in the first trade war. China’s furniture exports to Vietnam surged 51.4% YoY growth in 2019, coinciding with Vietnam’s own furniture exports to the US surging 41.3% YoY. In 2018, Vietnam accounted for only 7.6% of total US furniture imports. This figure rose to 19.8% by 2024. As far, as Chinese furnituremakers are concerned, the story in Vietnam could be shifting from re-exports to reshoring, as Vietnam’s domestic furniture manufacturing has grown in double digits in recent years.

However, this pattern did not repeat in 1H 2025. China’s furniture exports to non-US destinations have also been soft year-to-date, including notable contractions in ASEAN (-1.1%) and EU (-1.4%). With EU’s final anti-dumping ruling in July against multilayered wood flooring originating from China, the contraction in furniture exports could worsen in the coming months.

China’s automobile exports grew by 8.1% YoY in 1H25. This outperformed headline growth, but it’s nonetheless notably slower compared to the past few years, when growth was in double or even triple digits.

First, it should be noted that the scale of auto exports has increased over sevenfold from $15.7bn in 2020 to $117.4bn in 2024. As such, it now takes a lot more to maintain a rapid growth rate.

Second, at this stage, the most significant auto tariffs are from the US and the EU, which impose 100% and 27.4-48.1%, respectively, on China EVs.

While a -32.3% YoY drop of auto exports to the US in 1H25 certainly suggests a shock, the US is not a major destination for China’s car exports, representing just 2.1% of total auto exports in 2024. For EVs in particular, a combination of exorbitant tariffs and security-related restrictions represents a de facto embargo on EV imports. We didn’t see a single BYD on the road in our trip across the country in June.

The EU, on the other hand, is a more sizeable market, with the EU 27 representing around 14.6% of China’s total auto exports in 2024. Auto exports to the EU 27 fell by -5.2% YoY in 1H25, led by a slowdown from major importers such as Belgium (-27.4%) and Germany (-19.5%) after tariffs on Chinese EVs rose last October. However, this was not an EU-wide trend. We did see auto exports to Italy (55.1%) and Spain (20.0%) accelerate in 1H25.

While the drop in exports to the EU certainly contributes to the slowdown, the bigger culprit is likely the sharp decline in auto exports to the Russian market. They fell a staggering -65.9% YoY, amounting to around $6bn.

This is likely tied to a broader slowdown in the Russian auto market, with the volume of sales down -23.2% YoY in 1H25. It’s likely that this is tied to a policy change from October 2024, when Russia raised its vehicle scrappage fee by 70%–85%. It’s a de facto tax on both imported and domestic vehicles collected to fund future disposal and recycling. As a result, Russian importers frontloaded imports before the policy took effect, leading to a reduction in imports this year.

Compared to 2024, the share of the Russian market in China’s motor vehicle exports has shrunk significantly—from 18.2% to just 5.2% in 1H25.

Conclusion: Tariff drag may intensify, but China’s export competitiveness should limit the downside

We’re already starting to see a clear impact of tariffs across various pockets of trade, as well as noticeable effects on new investment and sentiment. Numerous corporates and investors are taking a a “wait-and-see” stance this year amid continued uncertainty.

That said, the overall impact so far has fallen well short of doom-and-gloom forecasts that prevailed at the start of the year. Through the first half, the direct drag from US trade has been something in the area of -0.2pp on GDP. This has been more than offset by trade with other economies, with total net exports contributing 1.7pp to GDP growth in 1H25. As a result, we’ve seen the market generally revise China GDP forecasts higher in recent months.

The main question is whether or not China’s export resilience can last?

Barring further de-escalation, China’s exports will continue to be affected by tariffs. The drag from the US could worsen in 2H25, particularly as we’re not seeing another round of frontloading which helped boost exports in 1Q25. The current levels of 50-55% are already quite restrictive and have greatly hindered the price competitiveness of many exports.

We expect China’s total export growth to slow further in the second half, but full year export growth should remain in low-to-mid single-digit growth range barring additional shocks.

However, we do see some reasons not to fall into the trap of excessive pessimism.

• China’s fastest-growing exports are not reliant on the US.
  • China’s biggest export outperformers over the past year have been ships, semiconductors, and autos. Customs data shows that the exports of these products to the US represented only around 1-2% of China’s total in 2024.
  • Amid China’s Great Transition, China’s move up the value added ladder has resulted in many Chinese champions producing very competitive products, and even in the case of US tariffs or restrictions, these products will continue to do well in other economies.
• Exports to the US have proven to be stickier than expected. Despite the rapid escalation of tariffs to 145% in April, we saw a significant slowdown of exports but far from the “de facto embargo” that the tariffs purportedly represented.
  • The biggest monthly YoY decline of China’s exports to the US was in May, when growth cratered to -34.5% YoY, but this rebounded to -16.1% YoY in June.
  • By subcategory, copper products (135.8%), toys (-2.8%), and the optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments category (-1.6%) have all fared relatively well in 1H25 despite the major tariff shock.

A wildcard will no doubt be on how the August tariff developments play out. Obviously, the biggest and most direct catalyst will be what happens once the 12 August tariff ceasefire between China and the US is set to end.

Given the unpredictability we’ve seen so far this year, estimating tariff hikes is a bit of a dart throw. Our base case is that we won’t see tariffs reverting back to the April peaks. Following the test of endurance earlier this year, it was clear that such high tariffs are a lose-lose proposition for both parties.

That said, we also cannot rule out tariffs moving higher either, with a further 10% hike well within expectations. With tariffs already at 50-55%, the marginal impact of a further small-scale tariff hike could be relatively manageable. However, as the April episode proved, politics tends to trump economics. A more aggressive than expected re-escalation could lead to a bigger hit to the trade outlook.

Direct tariffs aside, another downside risk in recent months has been other countries signing explicit or implied “anti-China” clauses targeting China’s re-exports and foreign entities in their trade deals with the US. The impact will depend on how many economies agree to these clauses, and how strictly they are enforced. This trend certainly represents another downside risk moving forward.

At the same time, the direction of tariffs globally will play a big role in gauging the impact moving forward. The setup of the financial services industry often leads to economists looking at the tariff issue from the perspective of their country alone, with the rest of the world seen as a static variable.

In our view, this can lead to some overestimation of the tariff impact, as seen in the numerous estimates on China’s GDP at the start of the year. Arguably, the biggest element when considering the tariff impact is the risk of losing out on exports to competitors via substitution products. If tariffs rise significantly across the board, but not enough to make US-manufactured products viable, this could help mitigate part of the impact compared to if only China and a few other economies are hit. Given the currently speculated tariff rates of 15-20% on most of the key global economies, we could well be seeing this sort of scenario unfold.

An outsized external demand shock was seen as one of the main risk factors for China this year. The resilience of external demand so far is one of the key reasons for China’s outperformance in 1H25. We expect exports will likely moderate in the second half of the year, but nonetheless continue to be a growth contributor. This should help China stay on track to reach its growth target of “around 5%” this year.

WEALTH EFFECT PLOTTED

There’s a growing sentiment gap between rich and poor Americans

While overall unemployment still seems low, lower-earning adults are increasingly reporting a loss of pay or income in Morning Consult data, says chief economist John Leer.

Data: Morning Consult; Chart: Axios Visuals

Donald Trump pushes for 15%-20% minimum tariff on all EU goods US president also rejects reducing 25% sectoral duties on cars from the bloc, say diplomats

(…) In a sign of the mounting pessimism in Europe over the shape of a deal, Germany’s Chancellor Friedrich Merz on Friday warned Washington remained sceptical about offers to reduce the sectoral tariffs. Merz added: “Whether we can still create sectoral rules, whether we can treat individual sectors differently from others, is an open question.

The European side supports this. The American side views it more critically.” If Trump insists on permanent reciprocal duties of 15 per cent to 20 per cent they would be as high as they were when trade talks began in April, and could push Brussels towards retaliation, said the senior EU diplomat.

The US has also imposed sectoral tariffs of 50 per cent on EU steel and aluminium. “We don’t want a trade war, but we don’t know if the US will leave us a choice,” they said.

A second EU diplomat added “the mood has clearly changed” in favour of retaliation. “We are not going to settle at 15 per cent,” they said. (…)

China Defends Growth Model, Plans Consumption as Greater Driver

(…) “Most of China’s production is intended to meet domestic demand,” Vice Finance Minister Liao Min said in an interview Friday near Durban, South Africa, where he was attending a gathering of Group of 20 policymakers. “When there’s demand from abroad, China exports accordingly. This does not mean, however, that China is trying to dominate every market.” (…)

“China’s certainty and stability are the greatest contributions it makes to the world today, because what the global economy needs most right now is stability and certainty,” Liao said. “We are steadily advancing toward an economic model driven by consumption, while at the same time maintaining a relatively balanced foreign trade.” (…)

Liao highlighted that, over the past four years, consumption has driven an average of 56.2% of China’s GDP gains. That’s 8.6 percentage points higher than during 2016-2020 period, he said. Domestic demand as a whole accounted for 86.4% of China’s growth, the vice minister said.

He also said China’s current-account surplus — the broadest measure of trade, as it includes services and some financial transactions — was about 2.2% last year, a level “recognized globally as reasonable” and indicating the share of its shipments worldwide is “not excessively high.”

China’s critics have used other metrics. A top US Treasury official last year cited figures showing China’s manufacturing-goods trade surplus approaching 2% of world GDP, roughly twice the share of Japan’s in the early 1990s. Current Treasury Secretary Scott Bessent has repeatedly called China “the most imbalanced economy in the history of the world.”

Speaking at a congressional hearing last month, Bessent charged Beijing with “trying to export their way out” of the nation’s domestic real estate slump.

Liao’s comments come ahead of an expected fresh round of trade talks with the US in the coming weeks. He didn’t offer any specific comment on Bessent’s criticism in the interview Friday. The vice finance chief has been a key member of the country’s team of negotiators that reached a trade-war truce with their American counterparts in Geneva, and again in London, earlier this year. (…)

For the longer term, the authorities will seek to expand service industries and promote the green and digital sectors, with a goal of propelling economic transformation — beefing up consumer spending power as jobs and incomes rise, Liao said.

Meanwhile, the government will continue strengthening social safety nets, including pensions to ensure stable growth in consumer spending over the long run, he said. (…)

• China’s Inaction Deepens Peril for Struggling Property Stocks

(…) A four-year slump in China’s property sector is showing few signs of easing after a decline in home prices accelerated in June, and major developers reported lackluster earnings for the first half of the year. That has left investors pinning their hopes on government support to spark a turnaround, with speculation about an aid package fueling the biggest one-day jump in developer shares in five months earlier in July. (…)

Chinese President Xi Jinping refrained from announcing aggressive stimulus at the Central Urban Work Conference, and instead advocated a more measured approach to urban planning and upgrades. (…)

• China land sales in smaller cities hit lowest level in a decade Slump in transactions highlights difficulty of reviving national property market

(…) Data from financial information provider Wind shows the total value of all land transactions in third-tier mainland Chinese cities, as ranked by population and economic development, fell 4 per cent to Rmb362bn ($50bn) in the first half of this year on the same period last year, despite a slight rise in sales for residential use. (…)

The data showed that across 337 cities in China, sales rose 8 per cent to Rmb1.2tn in the first half, fuelled by increased activity in first- and second-tier urban areas. (…)

First green shoots in China resid market. Land sales have stopped falling and have actually increased in Tier-1-2 cities where it should normally begin.

Japan Election Throws a Wrench in Trade Talks Bad night for ruling coalition could cost prime minister his job and make it harder to strike a deal with Washington before August tariff deadline

Japan’s ruling coalition suffered a significant loss in a parliamentary election Sunday, a setback that risks derailing delicate trade negotiations with the U.S. just weeks before punishing tariffs are set to take effect.

Prime Minister Shigeru Ishiba had gambled that his tough stance on trade with President Trump would help cement his shaky grip on power after less than a year in the job and an electoral snub last fall. 

Instead, he lost his ruling coalition’s majority in an election for the Japanese parliament’s upper house, having already lost its lower-house majority in a vote in October. Polling showed Japanese voters were far more focused on inflation and immigration than they were on U.S. tariffs, a combination that has proved toxic to incumbent parties around the world and propelled the rise of populist alternatives.

A maverick lawmaker who secured the premiership on his fifth attempt in September, Ishiba could now face calls to resign, though he insisted Sunday that he would stay on as talks with the U.S. are at a critical moment. His ouster would risk igniting political turmoil just weeks before an Aug. 1 deadline to strike a deal on trade with Washington or accept tariffs of 25% on U.S. imports from Japan. Such a steep increase in duties in Japan’s largest foreign market risks tipping its export-heavy economy into recession, economists say.

“We are currently engaged in truly down-to-the-wire tariff negotiations with the U.S.,” Ishiba said Sunday in a television interview as the results were coming in. (…)

Ishiba’s weakened position means his government may struggle to persuade enough lawmakers to back any agreement it does manage to make with Washington, especially if it involves concessions on sensitive sectors such as agriculture or autos. (…)

Talks with the U.S. have become bogged down over auto tariffs in particular. The auto sector is a mainstay of Japan’s economy. Tokyo has been seeking relief on a 25% levy Trump imposed on imported cars, which is squeezing profits at automakers including Toyota and Honda. (…)

EARNINGS WATCH

From LSEG IBES:

59 companies in the S&P 500 Index have reported earnings for Q2 2025. Of these companies, 81.4% reported earnings above analyst expectations and 13.6% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 76% of companies beat the estimates and 18% missed estimates.

In aggregate, companies are reporting earnings that are 7.2% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.3% and the average surprise factor over the prior four quarters of 6.3%.

Of these companies, 79.7% reported revenue above analyst expectations and 20.3% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 62% of companies beat the estimates and 38% missed estimates.
In aggregate, companies are reporting revenues that are 1.9% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.2%.

The estimated earnings growth rate for the S&P 500 for 25Q2 is 6.7%. If the energy sector is excluded, the growth rate improves to 8.6%.

The estimated revenue growth rate for the S&P 500 for 25Q2 is 4.0%. If the energy sector is excluded, the growth rate improves to 5.3%.

The estimated earnings growth rate for the S&P 500 for 25Q3 is 8.4%. If the energy sector is excluded, the growth rate improves to 9.1%.

Trailing EPS are now $254.26. Full year 2025e: $263.73. Forward EPS: $280.83e. 2026e: $300.72.

Revisions are up for most sectors:

Tech companies are seen keeping their pace but analysts now expect Industrials and Materials earnings to contribute “materially”:

This when the effective tariff rate rises to 19% by early 2027 per Goldman Sachs:

It seems that tariffs have become irrelevant:

US equities have largely ignored the most recent tariff announcements. The S&P 500 notched a new record high this week, and the GS Tariff Risk basket is just 4% off its high. Our client conversations indicate that many investors believe tariff rates will eventually settle lower than what the recent announcements have indicated.

In addition, recent economic data releases have indicated a smaller impact from tariffs on consumer spending, inflation, and the labor market than many investors feared earlier this year. This week, June core CPI rose 0.23% month-over-month, below consensus expectations, while retail sales (+0.6%) and jobless claims (221k) both came in better than consensus expectations.

Equity investors appear to be looking through potential near-term economic and earnings weakness and focusing instead on the prospect for robust growth in 2026. Despite some recent weakening in the hard economic data, the equity market continues to price an outlook for healthy economic growth.

The performance of the GS Cyclicals vs. Defensives basket pair appears to be pricing a real US GDP growth outlook above our economists’ forecast of 0.8% in 2H 2025 but close to their 2H 2026 forecast of 2%.

Similarly, despite consensus expectations for just 4% year/year EPS growth in 2Q, earnings revision breadth shows a widespread recent improvement in analysts’ forecasts for 2026 EPS.

Our forecast for further near-term upside to the S&P 500 is predicated in part on investors’ continued willingness to focus on the solid longer-term trajectory of earnings growth. We forecast the S&P 500 will rise by 5% during the next 6 months to 6600 and by 10% during the next 12 months to 6900.

Recent US dollar weakness is a tailwind to S&P 500 EPS, but a smaller factor than many investors assume. The S&P 500 in aggregate generates 28% of its revenues overseas, roughly unchanged relative to last year. In our macro model, a 10% weakening of the US dollar is associated with a boost of roughly 2-3% to S&P 500 EPS, all else equal. In addition, more companies tend to beat consensus sales estimates when the USD weakens, although investors typically do not reward FX-driven sales beats the way they reward constant-currency beats.

The trade-weighted US dollar has depreciated by 7% YTD. Our FX strategists expect a further 4% weakening through year-end and a 6% total decline by year-end 2028.

The largest US tech stocks have the highest international revenue exposure, meaning they receive an above-average tailwind from USD weakness but also face above-average risk from trade conflict. The Russell 2000 small-cap index generates 20% of its sales domestically while the Nasdaq-100 derives nearly 50% of its revenues outside the US. On a sector basis, Information Technology is the only S&P 500 sector with over half of its revenues from outside of the US.

A basket of S&P 500 stocks with the highest international sales exposure (GSXUINTL) has outperformed a basket of stocks with the highest domestic sales exposure (GSXUAMER) by 4 pp YTD alongside the weakening US dollar. The recent pattern of relative outperformance of international facing stocks is broadly consistent with previous episodes of dollar weakness.

However, while our economists expect continued USD weakness, they also expect US economic growth to outpace most other major economies in both 2025 and 2026, which should provide a relative tailwind to domestic-facing firms. In addition, further trade conflict escalation would create the largest risk for companies with elevated international sales exposure.

Goldman’s data show that stocks of companies with above average international exposure are up 4% YtD while those primarily US sensitive are down 4%. But at the same time, companies most exposed to government spending are up 13% YtD.

GS data also reveals that companies favored by hedge funds are up 8% YtD while mutual fund overweights are down 8%. Momentum wins over value.

While the S&P 500 is up 8% and its equal-weight brethren 6%,  the market breath is pathetically low…

…largely concentrated in 10 stocks, now 40% of the index:

Callum Thomas illustrates the historical concentration differently:

The Tech “Super Sector” (which corrects for the GICS reclassification that removed a bunch of tech stocks from the tech sector and put them in things like communication services and consumer discretionary) has surpassed the dot-com bubble heights, and at the other end of the spectrum, the defensive sectors (consumer staples, utilities, healthcare) have reached a record low weighting —and even traditional cyclicals (financials, industrials, energy, materials) have been crowded out.

Passive index investors take note: the average index investor has been drifted into a portfolio that is tech heavy and light on defensives + diversification.

We can see that there is some justification for rising tech market cap and valuations given the rising weight of S&P500 earnings generated by the tech and tech related sectors… but 2 historical causes for concern arise.

First, cyclicals’ earnings weight is rolling over — that’s often been a bearish sign in the past, but mostly because of weakness in cyclicals. I’d say though that this time it’s more about cyclicals being crowded out by tech (which raises its own question around sustainability).

Second, defensives’ earnings weight has reached the low end of the range — a contrarian signal, something you see toward the peak of the market cycle (for good reason: defensives plod along, get crowded out by the growthier hotter parts of the market… and then claw their way back by just plodding when everyone else suffers in recession or downturn).

And then moving on, you also notice that aside from the typical index investor holding a tech-heavy portfolio, it’s also an increasingly expensive portfolio. The combined PE ratio for US tech stocks has risen to new post-dot-com heights.

Source:  Chart of the Week – Speculation Heights

Ed Yardeni:

We would rather see the market move higher on earnings than on higher valuation, which would increase the risk of a meltup followed by a correction, as we saw at the beginning of this year.

Our Blue Angels analysis indicates that the S&P 500 continues to follow the lead of its forward earnings to fresh record highs despite the recent volatility in its forward P/E (chart).

Bloomberg:

Priced in?

The second-quarter earnings season is off to a ripping start, with consumer strength powering resilient corporate profits. In the stock market, however, the reaction has been fairly quiet, an ominous sign that much of the good news is priced in — and investors are punishing disappointments.

Take financials, which reported blockbuster numbers last week that failed to juice their shares.

Similarly, streaming platform Netflix exceeded outlooks in every major metric, and United Airlines was upbeat about travel demand gaining steam. Yet, investors largely reacted to these numbers with a collective shrug. Netflix sank 5.2% Friday despite its strong performance.

John Mauldin notes that

Year-to-date through last week, the biggest Mag-7 gains were in Nvidia, Meta and Microsoft, all of whom have been boosted by strong positions in the artificial intelligence boom. Amazon was next with a much smaller gain.

Google, Apple and Tesla are all in the red this year, each for its own reasons. Google has been hurt by loss of advertising revenue. Apple has hurt by tariffs and also widely criticized for its failed “Apple Intelligence” AI strategy. Tesla’s CEO has had his hands full with other projects.

The good news here is that company-level risk still matters. Simply being big isn’t enough to keep a stock price moving higher. Management still needs to have the right vision and execute it well.

Trump’s policies initially spooked investors but large earnings beats spooked the spooked. FOMO came back and risk aversion declined to levels seldom seen (and sustained).

Actually, investors seem to completely dismiss skyrocketing tariffs (TACO or irrelevant, offset by strong demand and/or productivity?)

Beats like we saw in the last few quarters (and so far this quarter) are rather unusual:

Mohamed El-Erian in Foreign Affairs presents the good and bad scenarios:

(…) In trying to predict what will happen, economic forecasters have generally been pulled in one of two extreme directions. The first is optimistic about where the current bumpy journey will lead.

According to this vision, the Trump administration would succeed in shrinking the bureaucracy, eliminating unnecessary regulations, and curtailing spending—thus creating a more efficient government that is less encumbered by debt as growth picks up. The economy would emerge from the present turmoil with an unleashed private sector that can better seize exciting productivity-enhancing innovations in areas in which the United States already leads, such as artificial intelligence, the life sciences, robotics, and (down the road) quantum computing.

Washington may still have higher tariffs than it did before Trump came into office. But those tariffs would have produced a fairer trading system, in which other countries have dismantled their higher tariffs and onerous nontariff barriers while also assuming more of the cost for providing global public goods. This scenario is not just reminiscent of the early 1980s reforms pursued by Reagan and Thatcher. It goes beyond. It would entail a reset of not only the domestic economic order but the global one, as well.

To achieve this outcome, of course, many things would have to go right.

Most important, higher growth would need to materialize quickly to alleviate the forming debt overhang. Financial markets would need to show patience, absorbing uncertainties about the dollar and U.S. government bonds. Internationally, countries would need to trust that Washington would stick to whatever it agreed to on trade and tariffs. They would need to become more comfortable with their still sizable holdings of dollars and treasuries. And they would need to navigate what are likely to be persistent tensions between China and the United States, the world’s two economic superpowers.

Then there is the Federal Reserve. In a world of higher productivity, lower inflation, and less threatening deficits and debt, the central bank should feel more willing and be more able to significantly cut rates. But to get there, Trump and Powell would have to resolve their differences, with either Powell stepping down or Trump showing greater patience until May, when Powell’s term is scheduled to end.

Trump might also get a rate cut in a more pessimistic scenario—but not in the way he wants.

In this world, Washington does not get a handle on its swelling deficits. Trust in institutions continues to erode, as worries increase about the rule of law and executive overreach. The United States displays ever less interest in both setting and abiding by global standards and regulations. Other countries reconsider their role in the global order. At a minimum, they are forced into greater self-insurance, seeking more domestic resilience in the face of a changing world. They could even end up forming multicountry alliances that would worry the United States not just economically but also with respect to national security.

This scenario would effectively repeat much of what the world experienced in the 1970s, when the global economy also grappled with supply shocks, rising commodity prices, and policy missteps. It would be grim for everyone involved. Companies would have to juggle rising costs with weakening demand. Investors would struggle to eke out returns in an environment where both bonds and equities were vulnerable. And households would have less purchasing power and job security.

The whole world might then tip into a recession, scarring a generation that already has less financial and human resilience. Future generations, already due to inherit a world of high debt, inequality, and climate crises, would suffer as well.

Right now, both the good and the bad scenarios are plausible, as are many points on the range bookended by them.

In fact, at the beginning of 2025, various market price indicators suggested that there was a roughly 80 percent chance of change for the better and a 20 percent chance of change for the worse. The outlook for the good scenario fell to below 50 percent in early April, as Trump announced much higher tariffs than markets had anticipated. It became more favorable by the end of the month, as traders and investors grew more confident that his subsequent 90-day delay would result in manageable tariffs and no major shock to the global trading system.

But this mix is inherently fluid and is likely to keep shifting, at least for the near future.

As much as they would like to, there are very few, if any, public or private actors that can fully protect themselves from the ongoing economic volatility. But there are strategies they can take to steer themselves through.

One approach is to simply stay the course and bet that, when all is said and done, the world will not look tremendously different than it did in January. The markets, after all, have already recovered from Trump’s sweeping trade pronouncements, with the major stock indices establishing new record highs. As the president talks and negotiates with different countries, de-escalation might prevail.

And no matter what happens, the United States will end up retaining its private-sector dynamism, innovation, and entrepreneurial spirit. It will lead the world in tech and biological development. Some economists go as far as to argue that an unsteady and volatile U.S. Treasury market need not contaminate a strong corporate sector. To them, one can be a good house in a volatile neighborhood.

Other countries, meanwhile, might fix their own economic troubles, forced to do so by the withdrawal of the U.S. security blanket. Europe could spur more growth by rationalizing its complex regulatory system, encouraging innovation and diffusion, and thus promoting productivity. This would be supported by better regionwide efforts to complete the EU’s architecture, which relies too heavily on its monetary union and desperately needs progress on its fiscal and banking unions.

Meanwhile, in Asia, Beijing might limit its exports so that countries do not fret about Chinese products being dumped into their markets—much as Japan did a few decades ago with its voluntary export restraints. China could also fundamentally revamp its growth model, replacing the traditional engines of exports and state investment with the unleashing of private domestic consumption and private investment.

El-Erian does not address who will actually pay for the $100B+ import tariffs: exporters through reduced prices (margins), importers through reduced profits (margins) or American consumers through higher prices. Most likely a combination of all 3 but in unknown proportions. Will it be a one-off effect on profits and/or inflation?

Nobody really knows, and nobody currently really cares.

Well, some do care:

• Ryanair Says Tariff Cost Are On Boeing, Could Pause Deliveries

Ryanair Holdings Plc said that any tariff cost would be on Boeing Co. to bear, as the Irish budget airline demanded a return to a no-duties regime that that has governed the industry for close to half a century.

The discount specialist could go as far as not taking its remaining jets until things have settled down, Chief Financial Officer Neil Sorahan said on Monday in an interview after reporting earnings. Ryanair expects Boeing to deliver the B737-8200 planes, of which 29 are still outstanding, at an agreed fixed price, he added.

“If there are tariffs, it’ll be on Boeing account not Ryanair’s,” Sorahan said in a Bloomberg TV interview. “We remain hopeful that sense will prevail.”

Some airlines have warned that they won’t be prepared to absorb the cost of tariffs as part of US President Donald Trump’s trade war. Delta Air Lines Inc. has even been stripping new Pratt & Whitney engines off Airbus SE aircraft and shipped them back to the US to avoid import fees and to overcome a shortage of aircraft. Airbus, for its part, has also said it won’t carry the cost of any levies into the US. (…)

• “The biggest uncertainty is Donald Trump’s tariff war. Daimler Truck reported a 20 per cent decline in second-quarter sales in North America as logistics companies held off purchases due to the evolving nature of the US tariffs.” (FT)

A new era?

“The thing that immediately stands out is that sectors can get really big and stay big for some time, especially during technological innovation and industrialization cycles (e.g. the rise of transports, energy, and the modern day rise of tech).” (Callum Thomas)

Source:  Weekly S&P500 ChartStorm – 17 Mar 2024 [@Marlin_Capital]

IN GOD (AND ONLY GOD) WE TRUST:

Institutions are not trusted. The public is increasingly skeptical of institutions, with new Gallup data this week confirming that the half-century trend of eroding trust persists.

People don’t trust mass media, but we trust the podcasters we listen to and Substackers we read. Digitally-proficient politicians who break the fourth wall & engage citizens directly — Trump, AOC, Mamdani — are seen as more authentic, building devoted followers who trust them. For businesses or political leaders the answer is the same: you need to show up and tell your own story, personally, authentically & viscerally. All trust is local. (Bruce Mehlman)

The military???

Also via John Mauldin:

The two maps below show GDP per capita in South America in 1980 and 2023. The color scheme highlights how each country’s economy grew in this period – or in one case, how it didn’t.

Guyana had the most striking progress with per capita GDP going from $2,400 to $61,000. Chile, Colombia and Argentina also had major economic gains. Venezuela, on the other hand, went nowhere in this period. Any guesses why?

China has been very active in South America in the last 10 years…

EPA eliminates its scientific research arm The Office of Research and Development conducted research into hazardous chemicals, with studies that often underpinned stricter regulations.

The Environmental Protection Agency said on Friday it was dismantling its scientific research branch, expanding the Trump administration’s efforts to shrink the agency.

The move to eliminate the Office of Research and Development, which will prompt the exodus of hundreds of chemists and scientists assigned to conduct independent research on a range of environmental hazards, is part of a push to cut 23 percent of the agency’s staff. Its work, which often underpinned stricter federal regulations, was criticized by chemical manufacturers and other industries. (…)