Retail Sales as Trade War Bellwether

Retail sales rose 0.1% in April. That was a bit better than expected, and it comes on the heels of a sharp upward revision to March sales numbers. One thing that did not go exactly according to script was that auto & parts dealers saw a decline in sales in April. Yet, this still reflects tariff worries boosting sales as the 0.1% pullback comes after a 5.5% surge in March.

Another area that might have seen a tariff-related demand surge last month is the store category that sells building materials & garden supplies. Those stores saw a 2.9% increase in March but just a 0.8% pick-up in April. The lack of ‘payback’ in sales suggests some tariff pull-forward could have remained in April.

Because it largely represents goods spending, which comprises less than a third of overall personal consumption in the United States, the retail sales report is not typically an A-lister among economic indicators…until now. For the next few months at least, the retail sales report is set to be center stage as we seek to measure the impact of tariffs.

While import duties can introduce pass-through effect to the service sector, it is goods that are apt to be the most impacted. We may eventually see these impacts manifested through product scarcity or higher prices, but the first action will simply be evident in the sales activity.

A key question after this week’s 90-day reprieve from a full-blown trade war with China is whether the sharp lowering in the tariff rate for one of America’s largest trading partners comes quickly enough to blunt the worst of the economic fallout. Our position has long been that the effective tariff rate ultimately would settle at 15%. The recent détente with China puts the effective tariff rate now at about 14%, if only temporarily.

Until such time as we have specifics regarding the contours of a bilateral U.S.-China trade deal, this step down is in line with our target. With every additional deal that is struck, the effective tariff rate could come down further. If tariffs indeed introduced the “stagflationary shock” we have warned about, then an unwinding of those tariffs surely has scope to boost growth and lower inflation, if not in an absolute sense, at least relative to expectations that priced in tariff-induced shocks. (…)

Source: U.S. Department of Commerce and Wells Fargo Economics

Control group sales, which exclude autos, gas, food services and building materials, fell 0.2% (versus an upwardly revised 0.5% gain in March). Consumers may have continued to front-run goods purchases after the April 2 tariff announcement, with electronics and furniture sales rising over the month. The 0.2% rise in non-store retailers may reflect an effort to get purchases in ahead of price-hikes as well, but elsewhere declines were large enough to drive the overall control group measure negative. (…)

Amid many recent anecdotal reports of a pullback in discretionary spending, one category not captured in the retail sales report is on accommodation and air travel. Many U.S. carriers have withdrawn full year financial guidance for 2025 citing uncertainty and consumer pullback.

While it is only a measure of price, earlier this week, the CPI report revealed that airline fares fell in April for the third month in a row, a classic tell of waning demand. Taken in context with the trend decline lower for consumer confidence, we find sufficient evidence that discretionary outlays are beginning to be curtailed. Along similar lines, today’s report showed sporting goods & hobby stores posted the largest 2.5% drop in April, that said it is the second-smallest category of sales.

While the April data were ultimately a bit of a mixed bag with some potential signs of a pull-forward in demand, payback from a strong March and consumer fatigue, it’s too early yet to call it on the consumer. Households feel worse off, but they remain in good financial shape at the macro level, which will mitigate the initial blow from uncertainty.

US Producer Prices Fell Unexpectedly in April as Margins Shrank

Prices paid to US producers unexpectedly declined in April by the most in five years, largely reflecting a slump in margins, suggesting companies are absorbing some of the hit from higher tariffs.

The 0.5% decrease in the producer price index followed no change in March, Bureau of Labor Statistics data showed Thursday. The median forecast in a Bloomberg survey of economists called for a 0.2% gain. Excluding food and energy, the PPI declined 0.4% — the most since 2015.

Stripping out food, energy and trade, a less-volatile measure favored by many economists, prices fell 0.1%, the first decline in five years. Compared with a year ago, the gauge rose 2.9%.

The figures suggest American manufacturers and service providers are so far refraining from passing along higher US duties on imports. (…)

The PPI report showed goods prices excluding food and energy increased 0.4% in April. The cost of business equipment, including computers and industrial material-handling machinery, accelerated. (…)

Final-demand services prices decreased 0.7%, the most in data going back to 2009. Over 40% of the decrease was attributed to declines in margins for machinery and vehicle wholesaling. (…)

Note that “there was a big upward revision to the March data from -0.4% to 0.0% MoM. The core measure also saw a huge upward revision. It either suggests a significant error in the calculation or they have had late data in that really swung things around in March.” (ING)

Note also that Final Demand PPI for core goods was up 0.4%, accelerating from +0.3% in each of February and March. Last 3 months annualized: +4.1% following +2.0% in the previous 8 months when monthly gains were limited to 0.1-0.2%.

Walmart Becomes Biggest Retailer Yet to Pass Through Tariff Price Increases Company plans to raise prices this month and early this summer; other retailers likely will follow

Retail goliath Walmart on Thursday said it plans to raise prices this month and early this summer, when tariff-affected merchandise hits its store shelves. Some prices already have increased.

“The magnitude and speed at which these prices are coming to us is somewhat unprecedented in history,” Walmart Chief Financial Officer John David Rainey said in an interview.

Walmart, which counts 90% of Americans as customers, is the biggest company so far to signal that tariff-related price increases on everyday goods are coming. Other companies also have announced price increases. Ford Motor last week said it would raise prices on three of its popular vehicles. Birkin handbag maker Hermès said prices in the U.S. would rise. Next week, Target, Lowe’s and Home Depot are set to report earnings and discuss their financial forecasts.

(…) Walmart reported strong sales for the three months through April 30, as shoppers flocked to its deals and its low-price store brand.

But Walmart didn’t share a profit forecast for the current quarter, in part because the company may absorb some tariff costs to keep prices lower than competitors, Rainey said.

Shoppers could see prices rise by the end of May, “and then certainly much more in June,” Walmart CFO John David Rainey said today in a CNBC interview.

“We’re wired for everyday low prices, but the magnitude of these increases is more than any retailer can absorb,” Walmart CFO John David Rainey told CNBC today.

“Well, if you’ve got a 30% tariff on something, you’re likely going to see double digits [in price increases],” he later told Yahoo Finance.

Despite Plenty of Supplies on Hand, Production Stalls in April

Tariff-induced uncertainty has begun to bite the industrial sector. Industrial production was flat in April, but that likely still overstates the strength of the industrial sector today. For starters, April brought a 3.3% pop in utilities production, which likely more-so reflects a rebound rather than renewed demand as it comes after a near-record drop (-6.2%) in March. The largest industry group, manufacturing, also slipped 0.4%, or by the most in seven months. Mining output also fell 0.3% in April.

Today’s outturn does not come as a complete surprise. The production component of the ISM manufacturing index fell in each of the past three months hitting a low in April of 44.0, the lowest reading for this survey-based measure of production in five years and consistent with contraction. In fact, over the past 20 years, the only times the production index of the ISM has been lower was during either the financial crisis or the pandemic.

Together, the data suggest the recent tariff-induced pop in manufacturing activity has begun to reverse under the weight of uncertainty. Manufacturing production received a jolt in February largely from a near-record monthly pick up in auto production, and activity continued into March leading the overall manufacturing production index to its highest post-pandemic reading. But as we cautioned last month, this ‘pick-up’ in activity was likely to be short-lived amid tariff uncertainty. Regional Fed surveys out of New York and Philadelphia released thus far for May suggest continued weakness in activity. (…)

Source: Institute for Supply Management, Federal Reserve Board and Wells Fargo Economics

Yes, firms pulled forward industrial supplies at an unprecedented clip; the resulting drag from net exports was the largest on record in the first quarter. But aside from a ramping up in machinery productions, there is little evidence that firms are putting those hoarded supplies into immediate production. This corroborates a viewpoint we see in the respondent comments section of the ISM and in our client meetings: more clarity and less variability with respect to tariffs would be helpful in guiding plans for domestic production.

Xi Seeks New Economic Formula to Dodge Future US Trade Risks

(…) If anything, Xi seems to be making sure China is never so economically vulnerable to the US again.

In the aftermath of the first trade war, China started diversifying its exports away from the US, and now relies on the world’s biggest economy for just under 15% of total shipments, down from almost a fifth in 2018.

Xi is trying to lower that figure more. To do that, Beijing will have to work with other countries to open new markets for goods once intended for American consumers.

That means strengthening trade relationships with nations in the so-called Global South, meaning developing countries. China is also doing something similar with Southeast Asia and the European Union.

By targeting countries as diverse as Brazil and Ethiopia this week, Xi has given an indication how he’ll accomplish this: increased investment, greater imports, massive credit lines and expanding membership in his Belt and Road Initiative.

This week Colombia agreed to join the BRI, which among other things can help countries build modern infrastructure.

During a meeting with leaders of Latin American and Caribbean nations, Xi pledged to import more products from them and provide a $9.2 billion credit line to support development in the region. Those moves should help boost commerce.

Beijing is also doubling down on Brazil. That’s important because the South American nation is an increasingly significant supplier of agricultural products like soybeans, and in recent years China has been getting fewer of those commodities from North America, Europe and Australasia.

During a visit to Beijing, Brazilian President Luiz Inacio Lula da Silva and Xi signed more than 30 agreements for Chinese investment in Brazil, including in mining, transport infrastructure and ports. Pacts on AI and climate action were also sealed.

China hopes to sell more of its home appliances and electronics to Brazilian consumers, attracted by cheap prices and more features. Brazil hopes the tighter ties help transform its economy, moving it up the value chain. (…)

Xi’s latest charm offensive follows efforts to woo neighbors in Asia and also Europe, though in both cases that’ll be a challenge. Asian nations have to balance closer economic ties with worries about China’s increasing military assertiveness. Brussels remains very annoyed with Beijing over its support of Moscow since the full invasion of Ukraine. (…)

Xi’s challenge remains domestic spending amid a slowly curing real estate market. Pent-up demand is huge but Chinese consumers are hoarding money with the household savings rate currently running at 31.8% of disposable income.

Chris Wood has these significant stats:

A total of 143 or 71% of countries traded more with China than with the US in 2024, while 107 or 53% of countries traded more than twice the amount with China that they trade with the US, based on IMF’s data on international trade in goods by partner countries.

This compares with 22% and 11% respectively back in 2001 when China joined WTO.

And while Trump hates the green stuff and loves black rocks, Chris informs us that

battery storage plus solar will become cheaper than spot coal power in China by the end of this year, thanks to the continuing drop in battery prices.

This is of huge potential interest, as China is the testing ground for increasing penetration (or dominance) of renewables in what has been a coal-dominated energy system. Energy storage is so important because storage prices will determine the success of renewables.

Battery energy storage systems (BESS) now account for one-quarter of global battery shipments, up from 5% in 2019, with CATL the dominant player.

In this respect, China is the key country to monitor since it is likely to be the first example of a coal-dominated large producer hitting a large solar-powered free energy system.

On this point, China has already, from this year, made storage attachment mandatory for any new solar installation.

Indeed, in the very long run, battery storage has the potential to make coal obsolete even potentially without any sun or solar.

In this respect, while China has a bad reputation with the green crowd for its still increasing coal production, the reality is that it has also been expanding renewables more aggressively than anyone for the practical reason that it is likely to end up cheaper if storage technology can deliver as already discussed.

This is a reminder, if it was needed, that the renewable story does not need the likes of ESG or net-zero commitments to deliver if it is cost-competitive.

Meanwhile, the Trump-triggered stampede out of ESG and net-zero commitments continues.

Nvidia plans Shanghai research centre in new commitment to China US chipmaker considers expanding its presence in the country even as sales are hit by Washington’s export controls

Nvidia is seeking to build a research and development centre in Shanghai that would help the world’s leading maker of artificial intelligence processors stay competitive in China, where its sales have slumped due to tightening US export controls. (…)

According to people with knowledge of the plans, the R&D centre would research the specific demands of Chinese customers and the complex technical requirements needed to satisfy Washington’s curbs. The actual core design and production will remain overseas however, due to legal sensitivity around transferring intellectual property to China.

Nvidia said: “We are not sending any GPU designs to China to be modified to comply with export controls.”

The Shanghai team would also work on global R&D projects including verification of chip designs, optimisation of existing products and sector focus research such as autonomous driving, people with knowledge of the matter said.

Huang also wants to ensure access to top artificial intelligence talent based in China. (…)

“We want to build the world’s AI [where] American standards are being adopted around the world,” Huang said last week at a Milken Institute event. “If we leave a market altogether, there’s no question somebody else would step in. Huawei, for example, is very formidable . . . they’ll step in.” (…)

Tech giants are understood to be hesitant to put in orders because the processors cannot compete with rival Chinese products on performance.

“We are in an awkward situation where we either choose a worse Nvidia chip that runs on [its software system] Cuda, which means lower operational cost, or switch to Chinese chips altogether and live through the pain of switching systems,” said one executive at a leading Chinese tech firm.

Clients led by ByteDance, Alibaba and Tencent are monitoring geopolitical developments to evaluate whether Nvidia could offer a redesigned high-end chip to meet their needs. While Nvidia was exploring various options, there were no finalised plans because of legal uncertainty, the people said.

Japan to hold out for better trade deal with US Prime Minister Shigeru Ishiba’s unpopular government fears concessions could prompt electoral backlash

(…) “Although Japan was very keen to be the first nation to open negotiations with Washington on tariffs, that sense of urgency has now shifted and the emphasis is on ensuring that Japan gets a good deal,” said an official in Tokyo with direct knowledge of the negotiations.

Officials said a deal was now unlikely to be reached before elections for Japan’s upper house of parliament that are due by late July and are already expected to be difficult for Ishiba’s highly unpopular administration.  Japan’s negotiators, led by economy minister Ryosei Akazawa, have held two meetings with Trump administration officials.

A third is planned for next week. Tokyo’s finance minister Katsunobu Kato is also hoping to resume talks with the US Treasury Secretary Scott Bessent on the sidelines of a G7 meeting in Canada next week. (…)

The impact on the operating profits of US tariffs on Japan’s big automotive companies is expected to be about ¥2tn ($13.7bn) in the current financial year ending next March, according to company and analyst estimates, although the impact could be offset by measures such as price increases. Japan’s economy shrank for the first time in a year in the first quarter.

“Auto and auto parts is the biggest exporting sector from Japan to the US,” said a second Japanese official with knowledge of the talks. “It means this US-Japan negotiation must deal with this auto tariff issue. If we cannot make progress in this sector, then I think we cannot reach any consensus.”

Tokyo’s strongest offers for Washington could be larger purchases of US agricultural products, greater market access for US cars and investment in a liquefied natural gas pipeline project in Alaska, said the officials. But with the July upper house elections looming, Ishiba has told parliament he will not sacrifice the domestic agriculture industry, also a big employer, to win tariff reductions for automobiles. (…)

Autos accounted for 81 per cent of Japan’s trade surplus with the US in 2024. (…)

The Long-Term Effects of Higher Tariffs (Goldman Sachs)

We expect the US’s effective tariff rate to increase by about 13pp this year to its highest level since the 1930s. While the ultimate level and composition of tariffs remains uncertain, they will probably remain elevated for the foreseeable future.

Applying estimates from a range of economic studies suggests that a 13pp increase in domestic and foreign tariffs will lower US real income by around 1% in the long run.

Our results suggest that country-specific tariffs are unlikely to result in much reshoring because production costs for alternative suppliers of US imports are well below the US’s for most products. We also estimate that domestic production of more differentiated goods like medical equipment and semiconductors is relatively less responsive to cost shocks, suggesting a higher hurdle for tariffs to boost production in these sectors.

In addition to the standard efficiency losses from reduced trade, higher tariffs could weigh on output in three ways.

• First, higher tariffs will likely raise equipment costs and discourage investment, lowering the capital stock and GDP in the long run. We estimate that this channel could exert a ¾% drag on output over time.
• Second, higher tariffs could also weigh on innovation by reducing the most innovative firms’ access to export markets and raising input costs.
• Third, economic studies suggest that higher tariffs could lead to increased rent-seeking by businesses attempting to secure protection from foreign competition.

Taken together, we expect higher tariffs to weigh on US real income by 1½-2% in the long run if the tariff policies we expect this year become permanent.

Our estimates are highly uncertain, however, in part because they depend on the extent of foreign retaliation, how the dollar responds, and how international capital flows change as a result of the tariffs. Still, the empirical evidence on the economic performance of the UK after Brexit and countries that liberalized trade in the late 1990s and early 2000s is broadly consistent with our results.

A Trillion Here, a Trillion There (John Mauldin)

President Trump’s 2026 budget proposal requests $1.0 trillion for defense spending. This chart places that number in historical context, showing the Pentagon’s annual budget, adjusted for inflation.

A $1 trillion+ defense budget, if approved, will be comparable to the amounts spent
during World War II or the Iraq and Afghanistan conflicts.

This also matters economically. More than half the defense budget goes to private contractors, mainly US companies. This flows into the economy as both profits and payroll. Higher defense spending may or may not enhance national defense but will
certainly have a stimulative effect on the economy. It will also raise the national debt unless offset by other spending cuts.

Trump to Apple: Don’t expand iPhone production in India

President Trump on Thursday said he told Apple not to expand iPhone production in India, while also indicating the possibility of a sweeping new trade deal with the country.

Apple was reportedly planning to massively expand phone manufacturing for the U.S. market in India, as a workaround for the ongoing trade war with China.

“I had a little problem with Tim Cook yesterday, I said to him ‘Tim you’re my friend, I’ve treated you very good,'” Trump told a news conference in Qatar. “I don’t want you building in India,” Trump said he told Cook.
“I said to Tim, I said, ‘Tim we’ve treated you really good, we put up with all the plants that you built in China for years … we’re not interested in you building in India, India can take care of themselves,” Trump said.

AI CORNER

Google dominates AI patent applications

Google has overtaken IBM to become the leader in generative AI-related patents and also leads in the emerging area of agentic AI, according to data from IFI Claims shared first with Axios.

Patent filings, though they’re not a direct proxy for innovation, indicate areas of keen research interest — and generative AI patent applications in the U.S. have risen by more than 50% in recent months.

“The surge in applications for AI related patents is a sign companies are actively seeking protection for their AI technologies, leading to an increase in grants as well,” IFI Claims spokesperson Lily Iacurci said in a statement to Axios.

• In the patents-for-agents U.S. rankings, Google and Nvidia top the list, followed by IBM, Intel and Microsoft, according to an analysis released Thursday.

Globally, Google and Nvidia also led the agentic patents list, but three Chinese universities also make the top 10, highlighting China’s place as the chief U.S. rival in the field.

• In global rankings for generative AI, Google was also the leader — but six of the top 10 global spots were held by Chinese companies or universities. Microsoft was No. 3, with Nvidia and IBM also in the top 10. IFI Claims identified only a single patent tied to China’s DeepSeek, one for a method of constructing training data. (…)
• Many of the same names cropped up in the list of overall AI-related U.S. patent applications, with Google in the top spot, followed by Microsoft, IBM, Samsung and Capital One.
• Globally, Google topped the list, followed by Huawei and Samsung.

Neither Meta nor OpenAI ranked in the top 10, though OpenAI has stepped up its patent efforts over the past year, IFI’s analysis found. Meta has concentrated efforts on open source development, and OpenAI says it intends to use its patents only “defensively.” (…)

Eric Schmidt’s AI marathon (Axios)

Eric Schmidt, the former chairman and CEO of Google, is out with a TED talk interview today — titled “The AI Revolution Is Underhyped” — predicting that “the eventual state of this is the computers running all business processes.”

“I want to be clear that the arrival of this intelligence — both at the AI level, the AGI, which is general intelligence, and then superintelligence — is the most important thing that’s going to happen in about 500 years, maybe 1,000 years, in human society,” Schmidt says.

Comparing AI to a marathon, Schmidt continues: “As this stuff happens quicker, you will forget what was true two years ago or three years ago. That’s the key thing. So my advice to you all is: Ride the wave, but ride it every day.”

• Watch the TED talk.

Note: I am travelling until mid-May. Postings will be irregular.

The Great Trump Tariff Rollback The President started a trade war with Adam Smith. He lost.

The WSJ Editorial Board:

Rarely has an economic policy been repudiated as soundly, and as quickly, as President Trump’s Liberation Day tariffs—and by Mr. Trump’s own hand. Witness the agreement Monday morning to scale back his punitive tariffs on China—his second major retreat in less than a week. This is a win for economic reality, and for American prosperity.

Make that a partial win for reality. The Administration agreed to scrap most of the 145% tariff Mr. Trump imposed on Chinese goods on April 2 and later. What remains is his new 10% global base-line tariff, plus the separate 20% levy putatively tied to China’s role in the fentanyl trade, for a total rate of 30%. In exchange, Beijing will reduce its retaliatory tariff to 10% from 125%. The deal is good for 90 days to start, as negotiations continue.

Investors are cheering at this border-tax reprieve, since this is a step back from mutual assured trade destruction. (…)

The 30% tariff is still exceptionally high for a major trading partner, but the 90-day rollback spares both sides from what looked like an impending economic crackup. U.S. consumers were facing widespread shortages, while China feared growing unemployment.

As with last week’s modest British agreement, the China deal is more surrender than Trump victory. Apart from the tariff rollback, neither side announced any broader concessions on the substantive trade issues that weigh on the U.S.-China relationship. Those include China’s barriers to American firms, especially in services such as digital and financial, and its chronic intellectual-property theft.

Many of these bad Chinese practices have become worse under President Xi Jinping’s strong-arm economic management. One tragedy of Mr. Trump’s shoot-America-in-the-foot-first approach is that he’s hurt his chances of rallying a united front of countries against Beijing’s mercantilism. By targeting allies with tariffs, Mr. Trump has eroded trust in America’s economic and political reliability.

Beijing now also has the benefit of concrete experience to reassure the Communist Party that Washington would struggle to impose economic sanctions in a crisis such as a Chinese blockade or invasion of Taiwan. If there’s a silver lining to the tariff fiasco, it’s the timely reminder to Congress to get serious about true military deterrence again.

Taking a step back, where are we now after nearly four months of Mr. Trump’s protectionism? The President’s concessions since his initial tariff announcements include: exemptions for goods from Canada and Mexico produced under the terms of the USMCA; a 90-day pause on his reciprocal tariffs against everyone except China; exemptions on China tariffs for iPhones and electronics; the mini-deal with the United Kingdom; and now the 90-day rollback on China tariffs.

The landing spot coming into view is a 10% global tariff, and higher (but not 145%) for China. The negotiations allegedly underway with dozens of countries while the reciprocal tariffs are paused may make some marginal headway opening markets for American firms. But so far there’s scant sign of the substantial trade deals that Mr. Trump promises.

So after weeks of market turmoil, the economy is left with higher trade costs and greater uncertainty for business, but at least a step back from Smoot-Hawley 2.0. Investors, businesses and households probably would welcome this outcome, which is considerably better than Mr. Trump’s initial plan.

But a 10% across-the-board tariff is still four times the average U.S. tariff rate before Mr. Trump took office. It keeps the door open to the economically and politically destructive special pleading for tariff breaks for well-connected industries and companies at the expense of everyone else. U.S. companies protected by high tariffs will gradually lose their competitiveness against the rest of the world.

If there’s a silver lining to this turmoil, it is that markets have forced Mr. Trump to back down from his fever dream that high tariff walls will usher in a new “golden age.” The age didn’t last two months, and it was more leaden than golden. White House aide Peter Navarro, the main architect with Mr. Trump of the Liberation Day fiasco, has been repudiated.

Mr. Trump will not want to admit it, but he started a trade war with Adam Smith and lost. He’s not the first President to learn that lesson.

• China Tariff Rollback Unlikely to Boost Imports, Port of L.A. Chief Says

(…) The port’s executive director, Gene Seroka, said he expects imports at the port to end May down 25% year-over-year. He said a move to temporarily lower the base tariff rate on Chinese imports to 30% from 145%, announced Monday, is unlikely to lead to a sudden surge in cargo volume.

“Even at a 30% tariff with a 90-day reprieve, it’s not going to dramatically change what we’re seeing right now,” Seroka said in an interview Monday with The Wall Street Journal.

Seroka said companies that supply critical goods like healthcare products and sellers of holiday merchandise like toys might use this moment to restock. “But your refrigerator, outdoor patio set, regular stuff is not just going to come and flood the marketplace because we’ve gone from 145% to 30%,” he said.

The National Retail Federation said some retailers might find short-term relief in the lowered levies as they stock up for the peak back-to-school and holiday seasons. Some shippers might now rush inventory sitting in China that they had waited to ship to the U.S. under the 30% duty rate, Seroka said.

However, “I don’t see all of the normal cargo coming back to the levels that we had witnessed in recent weeks and months,” he said. “Reason being, you’re not going to be frontloading at 30%.”

Shipping rates have stayed relatively flat amid the trade turmoil. The average daily spot rate to ship a 40-foot container from Asia to the U.S. West Coast was $2,321 for the week ended May 7, roughly in line with the previous week, according to the Freightos Baltic Index.

Judah Levine, head of research at Freightos, said rates will likely rise but not skyrocket under the 30% base tariff. “The volume rebound will probably signal the start of an early peak season that will keep rates elevated,” he said.

Seroka said he expects spot rates might tick up as carriers shift capacity back to China-to-U.S. shipping lanes.

Bloomberg:

(…) Because the process of bringing goods to the US starts months in advance of their appearance on store shelves, a whole host of disruptions has already been baked into the rest of 2025, even if the average person can’t see them yet. In particular, it could be slim pickings for many seasonal goods commonly imported from China—prom and wedding dresses, fireworks for the Fourth of July, new TVs for football season, laptops for kids going off to college, and toys and gadgets and beauty product gift sets for Christmas—just as Americans head to stores looking for them.

An extended period of shortages and financial strain on regular people might lead us into a very tariffed holiday season. (…)

Even if the tariffs disappeared tomorrow—a best-case scenario—“you probably have another six months to wrestle through it before you can get somewhat back to normalcy,” says Rob Holston, the global and Americas consumer products sector leader at EY. “The spike has been put into the system, and it’s not like you can just pull it back.” In an interview on Bloomberg Surveillance, Gene Seroka, the executive director at the Port of Los Angeles—the country’s busiest container port and the one that handles the bulk of Chinese imports—estimated that most US retailers have only about a five- to seven-week stockpile of pre-tariffed goods left on hand. (…)

It’s not just a lack of finished goods that could become a barrier to stocking gifts on shelves. China churns out almost a third of the world’s plastic and is the world’s largest supplier of paper packaging products, which means that a major component of many everyday goods has suddenly become more expensive, and demand for those components from countries with smaller export operations has spiked. Too many buyers for too little packaging can create short-term shortages just as effectively as a lack of the product itself. (…)

The FT:

• China-based exporters greeted the announcement on Monday of the tariff rollback with relief. Shipments to the US are expected to “significantly increase” in the coming few weeks, according to Wang Xin, head of the Shenzhen Cross-Border E-Commerce Association, which represents more than 2,000 Chinese merchants.
• Exporters also noted that the reduced tariffs were significantly higher than before Trump took office in January.
• A Shenzhen-based freight agent who asked not to be named said that she expected many clients would stock up in advance of Thanksgiving and Christmas. “Currently, shipping companies have not raised prices, but the trend should be upward,” she added.  Ken Huo, a supervisor at the Foshan Foreign Trade Association, said some exporters were shipping goods as fast as possible to ensure they arrived within the 90-day timeframe.
• But “tariffs are still a big challenge”, he added. “There is a little bit [of relief]. But the situation is still very severe.”

State of U.S. Tariffs: May 12, 2025 

(my emphasis)

1. The Budget Lab (TBL) estimated the effects all US tariffs and foreign retaliation implemented in 2025 through May 12, including the effects of the lower rates with China, the deal with the UK, and the recent announced auto tariff rebate. TBL analyzed the May 12 tariff rates as if they stayed in effect in perpetuity.

2. Judged by effects on the price level and GDP, the May 12 changes to the China rate alone reduce the negative economic impact of all 2025 tariffs to date by 40%; the US-UK trade deal and auto tariff rebate have only minor impacts.

3. Current Tariff Rate: Consumers face an overall average effective tariff rate of 17.8%, the highest since 1934. The reduction since the April 15 report is almost entirely due to the lower rates on Chinese imports—the US-UK trade deal has minimal effects on average tariff rates. Even after consumption shifts, the average tariff rate will be 16.4%, the highest since 1937.

4. Overall Price Level & Distributional Effects: The price level from all 2025 tariffs rises by 1.7% in the short-run, the equivalent of an average per household consumer loss of $2,800 in 2024$. Annual pre-substitution losses for households at the bottom of the income distribution are $1,300. The post-substitution price increase settles at 1.4%, a $2,300 loss per household.

5. Commodity Prices: The 2025 tariffs disproportionately affect clothing and textiles, with consumers facing 15% higher shoe prices and 14% higher apparel prices in the short-run. Shoes and apparel prices stay 19% and 16% higher in the long-run respectively.

6. Real GDP Effects: US real GDP growth is -0.7pp lower from all 2025 tariffs. In the long-run, the US economy is persistently -0.4% smaller respectively, the equivalent of $110 billion annually in 2024$.

7. Labor Market Effects: The unemployment rate rises 0.4 percentage point by the end of 2025, and payroll employment is 456,000 lower.

8. Long-Run Sectoral GDP & Employment Effects: In the long-run, tariffs present a trade-off. US manufacturing output expands by 1.5% but more than crowds out other sectors: construction output contracts by 3.1% and agriculture declines by 1.1%.

9. Fiscal Effects: All tariffs to date in 2025 raise $2.7 trillion over 2026-35, with $394 billion in negative dynamic revenue effects. This is $300 billion more than under the higher 145% China tariffs, showing how far from revenue-optimal levels those rates were.

10. Without the lower China tariffs—but with the US-UK trade deal and auto rebates—the average effective tariff rate would have been 27.6% pre-substitution, the highest since 1903, GDP growth would have been 1.1pp lower over 2025, and PCE prices would have been 2.9% higher in the short-run, the equivalent of a $4,800 per household consumer loss in 2024$.

The distinction between pre-substitution metrics (before consumers and businesses shift purchases in response to the tariffs) and post-substitution (after they shift) is a crucial one. One metric where the difference is meaningful is the average effective tariff rate.

Measured pre-substitution—assuming there are no shifts in the import shares of different countries—the 2025 tariffs to date are the equivalent of a 15.4 percentage point increase in the US average effective tariff rate. That calculation assumes that, for example, the share of imports from China remains at 14%, where it was in 2024. This is the right way to think about the tariffs from the perspective of consumer welfare, since it reflects the full cost faced by consumers before they start making difficult spending choices. This increase would bring the overall US average effective tariff rate to 17.8%, the highest since 1934.

Post-substitution—after imports shift in response to the tariffs—the 2025 tariffs are a 14.0 percentage point increase in the US average effective tariff rate, due to the substantial fall in China’s share of US imports as American consumers and businesses find alternatives for Chinese imports. China’s import share goes from 14% to 6% as a result of the tariffs, which, compositionally, means that fewer Americans are paying the China tariffs and means therefore it has less “weight” in the post-substitution average effective tariff rate calculation. The 14.0pp increase brings the overall US effective tariff rate to 16.4%, the highest since 1937.

The timing of the transition from “pre” to “post” substitution is highly uncertain. Some shifts are likely to happen quickly—within days or weeks—while others may take longer.

Goldman Sachs:

In light of yesterday’s US-China trade agreement, our economists now expect a 13pp increase in the US effective tariff rate for 2025 on the whole, versus +15pp previously.

Incorporating that change, as well as the easing in financial conditions over the past month, they have raised their 2025 growth forecast by 0.5pp to 1.0% (on a Q4/Q4 basis), lowered their odds of a recession in the next 12 months by 10pp to 35%, and pushed back their call for Fed cuts, now looking for cuts in December/March/June, to an unchanged terminal rate of 3.5% – 3.75%.

John Authers:

It’s a good sign when inflation data no longer seem to matter that much. The latest readout of the US consumer price index, with a headline rise of 2.3%, was indeed comfortingly dull. In April, when import tariffs briefly hit their highest rates in more than a century, steady disinflation continued as though nothing had happened. This was the third month in succession that inflation declined and came in below expectations.

It’s possible that companies did a good enough job of boosting their inventories before the tariffs to save them from dilemmas over whether to pass on price rises to customers; it could still be too early to see a tariff inflation. Meanwhile, services continue to be the greatest obstacle to lowering overall inflation to the Federal Reserve’s targets, even though it’s coming down only very slowly. Falling fuel prices improved the picture. (…)

The “supercore” measure of services excluding shelter prices, emphasized by Fed Chair Jerome Powell, is down to 2.7%, its lowest since 2021, while prices that tend to be sticky (meaning they’re hard to reduce) are falling. The same is true of the trimmed mean, which excludes the greatest outliers in either direction, and takes the average of the rest:

(…) All of this would normally boost hopes for Fed rate cuts, as lower inflation allows the central bank to offer easier money. The problem is that the CPI data is balanced by growing optimism that a recession can be avoided, which means less urgency to ease. (…)

FYI: Sony Sees $700 Million Tariff Hit on Underwhelming Outlook