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

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

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

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

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

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

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

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

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

Today:

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

Summers Warns US Likely Headed to Recession, 2 Million Jobless

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

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

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

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

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

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

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

Spain Pushing for EU Pivot to China to Counter Trump Tariffs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Incredibly, this is from the WSJ Editorial Board

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

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

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

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

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

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

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

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

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

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

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

Here and there:

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

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

IN THE REAL WORLD

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

Also by the WSJ Editorial Board

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

US Consumer Borrowing Unexpectedly Declines in Broad Pullback

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

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

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

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

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

Central Banks Ramp Up Warnings as Tariffs Kick In

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Did you miss Monday’s post: Fearless!

China Vows ‘Fight to the End’ on Tariffs as It Props Up Markets

China pledged to retaliate against Donald Trump’s latest tariff threat and mobilized state organs to send a message of resilience, raising the risk of a prolonged trade war between the world’s two largest economies.

“The US threat to escalate tariffs on China is a mistake on top of a mistake,” the Chinese Ministry of Commerce said in a Tuesday statement, hours after the US president vowed to impose additional import taxes. “If the US insists on its own way, China will fight to the end.”

The Chinese response came after Trump threatened a further 50% tariff on all Chinese goods unless Beijing withdraws its tit-for-tat retaliation against his earlier “reciprocal” levies. That takes the cumulative tariff rate announced this year to 104% — effectively doubling the import price of any goods shipped from China to the US. (…)

The yuan slid to the weakest level since September 2023 in onshore trading after the People’s Bank of China signaled more tolerance for depreciation with a fixing past the keenly-watched 7.20 per dollar level. (…)

While China hasn’t said how it would respond if Trump follows through on his threat, two influential state-linked Chinese bloggers posted an identical set of countermeasures that they said authorities are considering. They include raising tariffs on US farm products, a ban on Hollywood movies and investigating American firms’ intellectual property gains in the country.

China will hit back at new US tariffs with equivalent measures as any fresh US levies will add limited pain to the Asian nation, according to Ding Shuang, chief economist for Greater China & North Asia at Standard Chartered.

“The marginal effect of raising tariffs further from the existing level of about 65% will shrink,” he said of additional US tariffs. “Most Chinese exports to the US have already been affected. For goods that are not price sensitive, tariffs won’t work no matter how high they go.”

The escalation in tensions makes any imminent call between the two world leaders less likely. Trump hasn’t spoken with Chinese President Xi Jinping since returning to the White House, the longest a US president has gone without talking to his Chinese counterpart post-inauguration in 20 years.

The Communist Party’s official newspaper this week published an editorial declaring that Beijing is no longer “clinging to illusions” of striking a deal.

Instead, officials are focusing on shielding the economy. Xi has vowed to boost domestic consumption as tariffs are expected to hurt exports, a sector responsible for a third of China’s economic growth last year. (…)

Apple, for example, now assembles and ships roughly four-fifths of its iPhones from China even after the company began migrating its supply chain to other countries like India and Vietnam since the first Trump term. That’s probably due to the complexity and cost of building the industrial ecosystem elsewhere from scratch.

China’s robust supply chain is likely one of the factors giving Xi confidence as he goes head to head with Trump, and projects a defiant image to a domestic audience.

“For President Xi, there is only one politically viable response to Trump’s latest threat: Bring it on!” according to a note from Enodo Economics, a macroeconomic forecasting company.

• China Urges Shein to Halt Supply-Chain Shift After Tariffs

Fast-fashion giant Shein’s plans to shift some production out of China have met with opposition from the Chinese government, people familiar with the matter said, as Beijing seeks to stave off a manufacturing exodus in the face of Donald Trump’s escalating tariffs.

The Ministry of Commerce has communicated with Shein and other companies to discourage them from diversifying supply chains by sourcing from other countries, said one person familiar with the discussion. The person said the requests came in the days leading up to Trump’s announcement of “reciprocal tariffs,” which have spurred firms to look for ways to avoid the duties. It wasn’t immediately clear which other firms were contacted.

One way Shein has responded is by halting reconnaissance tours it arranged for its major Chinese suppliers of factories in Vietnam and other Southeast Asian nations, another person said. The sources requested anonymity to discuss private matters.

The threat of job losses associated with production moving overseas has made it a substantial concern for Chinese officials. (…)

With tariff exemptions for small parcels set to expire in less than a month, the cost of products sold by Shein and rival Temu will jump dramatically, likely pushing up prices for US shoppers who favored them over Amazon.com Inc.

It also reflects a deepening fault line between China and its exporters in the fight against Trump’s barrage, as the state effort to protect the domestic manufacturing sector clashes with companies seeking to dodge ever-rising costs.

While many Chinese firms sidestepped tariffs slapped on China during Trump’s first term by shifting production overseas — more than half of Cambodia’s factories are now Chinese-owned, for example — the commerce ministry’s move suggests that Beijing won’t look kindly on similar strategies being deployed this time. (…)

So long free enterprises, on both sides of the “Pacific” ocean.

Here and there:

• “Not only does the shifting trade policy threaten to spark a global recession, but it also materially changes the way many companies do business.”
• The US president said he would not consider a blanket pause on higher tariffs expected to take effect Wednesday, nor did he answer when asked if he would consider reducing rates below the minimum 10%.
• When asked Monday whether the tariffs are permanent or up for negotiation, Trump said: “They can both be true.”
• Israeli Prime Minister Benjamin Netanyahu promised in an Oval Office meeting with the president to eliminate his nation’s trade surplus with the US and slash tariff and non-tariff barriers. A reporter asked if that would be enough to reduce the tariffs. “Maybe not,” Trump replied. “Don’t forget, we help Israel a lot.”
• Slapdash and often conflicting remarks from the president and his advisers underscored the chaotic approach that has befuddled markets, and the difficulty facing even the US’s staunchest partners as they look to negotiate with Trump.
• “There can be permanent tariffs and there can also be negotiations, because there are things that we need beyond tariffs,” Trump said.
• “It’s the only chance our country will have to reset the table, because no other president would be willing to do what I’m doing or to even go through it,” Trump said. “Now I don’t mind going through it because I see a beautiful picture at the end, but we are making tremendous progress with a lot of countries. And the countries that really took advantage of us are now saying, ‘please negotiate.’”
• Trump hasn’t ruled out extensions or deferrals before Wednesday, but it’s too soon to say if there’ll be any, a White House official said. Trump is looking for more than just tariff reductions and wants other concessions, and he’s willing to listen, but negotiations depend on how substantive an offer is, the official said.
• White House adviser Peter Navarro reiterated Monday the tariffs are “not a negotiation,” while Bessent indicated on Fox Business part of the tariffs’ purpose is gaining leverage on trading partners.
• Bessent later told Bloomberg Television he does not expect any deals with countries before tariffs kick in Wednesday.
• Europeans are struggling to prevent the dispute spinning out of control, with the US singling out the EU and China as two of the main targets of his trade policy.
• The EU “was formed to really do damage to the US on trade, that’s the reason it was formed,” Trump said.
• BlackRock Inc. Chief Executive Officer Larry Fink said Monday that most CEOs he talks to think the US is already in a recession, warning that stock markets could decline further as Trump destabilizes the global economy.

Trump Team Mulls Exporter Tax Credit as Tariff Counterweight

The rebate, which would be geared toward boosting US manufacturers, would be issued at the end of the year to offset the effects of retaliatory tariffs as American companies seek to sell their goods in foreign markets, according to people familiar with the deliberations.

The credit, which would require congressional approval, could also apply to companies that export services abroad, said the people, who requested anonymity to discuss private talks.

The credit would serve as a subsidy to US companies that sell overseas to help offset difficulties as retaliatory duties go into effect, the people said. However, it’s US importers that face the most immediate impact from Trump’s new levies, because they will have to shoulder the burden of higher costs for goods they buy from trading partners.

Trump’s economic advisers are also considering whether to design the credit to benefit importers as well, which would be more difficult to craft, the people said.

Neither President Donald Trump nor Treasury Secretary Scott Bessent have been formally briefed on the plan, and the idea has divided the administration’s economic team, they said. (…)

The exporter credit idea, which gained steam on Friday, signals that some of the president’s economic advisers are unconvinced about the soundness of his trade policies.

IN THE REAL WORLD

Credit Markets Paralyzed by Trade War, Putting Debt Deals on Ice

Company debt sales have ground to a halt in the US as markets across the globe show increasing fear of President Donald Trump’s escalating trade war triggering a global recession.

A $1.1 billion leveraged loan sale that was meant to help finance HIG Capital LLC’s purchase of Canadian firm Converge Technology Solutions Corp., was put on pause, according to people with knowledge of the matter. In the commercial mortgage bond market, Brookfield delayed a $2.4 billion refinancing package for a Hawaiian mall and office complex, citing volatility as the market saw its biggest two-day price decline since March 2020 on Friday.

No new US investment-grade bonds have been issued since Wednesday morning, before Trump announced his sweeping tariffs. There are eight issuers that held investor calls and have still yet been able to sell debt. Transactions on riskier debt are being pulled or postponed, while measures of perceived risk for high-grade and high-yield US corporate bonds are flashing a warning sign. Across Europe, investors are dumping risky assets, especially those tied to the auto industry.

“Credit volatility is back,” Deutsche Bank strategists led by Steve Caprio wrote in a note Monday. “Crippling policy uncertainty, haphazard tariff rate calculations, a partial loss of confidence in US institutional norms and rising inflation are all notably increasing US risks.”

Should a rout spread and a broad-based freeze in lending to corporations persist it risks further slowing down economic growth, deepening any contraction. At Saba Capital Management, founder Boaz Weinstein, warned the corporate bond selloff is only going to get worse and could accelerate bankruptcies. (…)

UBS Group AG strategists expect Trump’s tariffs to push corporate-bond spreads to levels last seen during the early part of the pandemic. (…)

CEOs Break Silence on Trump Trade War Business leaders have avoided voicing concerns about tariffs for weeks but some of them are getting more vocal

(…) “Tariff is not a beautiful word. I disagree with that—we are in a global economy,” said Bahram Akradi, CEO of the high-end fitness chain Life Time Group Holdings, in an interview Monday.

“This cannot stay,” he added. “You cannot apply this type of gridlock and this much friction to the world’s trade.”

The CEO of Ethan Allen, which manufactures 75% of its furniture across North America, also suggested the president retreat from the tariff offensive he unveiled in the White House Rose Garden last week.

“There’s nothing wrong in coming down—it’s not a failure,” said Farooq Kathwari, CEO of the Danbury, Conn.-based furniture maker. A mountain climber, Kathwari compared the rollout of the tariff policies to an ascent up a steep cliff. “If you go too fast, you can get water in your lungs.” (…)

Walmart executives face shareholders at an investor day Wednesday, while Delta Air Lines reports earnings the same day. Wells Fargo presents its results Friday, followed by other big banks next week.

Some of the first leaders to speak out have been vocal Trump supporters. Ackman, the billionaire hedge-fund manager behind Pershing Square, called for a 90-day pause in the tariffs to negotiate with other countries, warning that the alternative was “a self-induced, economic nuclear winter.”

“We are in the process of destroying confidence in our country as a trading partner, as a place to do business, and as a market to invest capital,” Ackman wrote in a social-media post on X over the weekend.

Ryan Cohen, the Trump-supporting CEO of the videogame retailer GameStop, posted on X last week that the tariffs “are turning me into a dem.”

A day later, he quipped: “I can’t wait for my $10,000 made in the USA iPhone.” GameStop has already taken a hit: Nintendo said it would indefinitely halt U.S. preorders of the Nintendo Switch 2 because of new planned tariffs.

Even Elon Musk, one of Trump’s most influential advisers, took a swipe at the White House’s trade agenda. On Monday, the billionaire posted a well-known video of economist Milton Friedman touting free trade by explaining how the component parts of a pencil require complex supply chains.

From Hotel News:

Every day, when MegAnne Offredi, general manager of the Holiday Inn & Suites-Bellingham Airport, sits down at her desk, she braces for fresh news about growing hostility between the United States and Canada that’s driving down revenue and bookings at her hotel.

In the first three months of this year, her hotel in Bellingham, Washington — just 20 miles southeast of the U.S.-Canada border — saw a 22% year-over-year drop in room revenue, plus 29% and 34% declines in restaurant and bar sales, respectively. All in all, the hotel, which sold around 2,500 fewer rooms in the first quarter compared to the same time last year, has suffered a 28% drop in total revenue, Offredi said.

Border crossings between Canada and Washington state have declined by half, according to data from the British Columbia Ministry of Transportation and Washington state’s Department of Transportation. Crossings have dropped from 216,000 in March 2024 to 121,000 vehicles last month, the Vancouver Sun reported. Flight bookings and short-term rentals also have dropped, according to CoStar reporting.

According to CoStar hospitality data for the 28-day period ending March 22, markets along the Canadian border saw declines in room demand as steep as 10.3% in Niagara Falls, New York, and 8.9% in the Bellingham/Northwest Washington region.

(…) groups have canceled conferences at her hotel both in the short term and for later this year (…)

For now, Offredi has not yet made major personnel changes, but she has had to start making other cuts where she can.

“Really, all we can do is buckle down on our expenses,” she said. “I have the staff coming to me asking, ‘are our jobs in jeopardy?’ And at this point they’re not, but the hours are. You can only support the labor for the business that we have. We thought we’d be busier this time of year, so we have more hours technically scheduled that we’ve had to reduce.”

Manic Monday Looks Like the End of the Beginning There was a breather in the Lehman crisis, too, but the low was months away.

John Authers:

(…) Volatility like this is not normal. By my calculations, the major US indexes haven’t traded in such a wide percentage range in one day since 2015. Nothing as extreme as this happened during the Covid selloff. (…)

Oct. 10 came a month after Lehman Brothers declared bankruptcy. Market losses were limited for three weeks. Capitulation came in the week of Oct. 6-10, culminating in an extraordinarily volatile Friday that ended with indexes flat. (…)

After such a fall, it generally takes markets a while to find a level, and the low was a full five months later. But the period of precipitous falls was over; that bizarre day was the end of the beginning. Trading volume also suggests that the initial post-Liberation Day has come to a climax. More shares in the biggest exchange-traded fund tracking the S&P 500 changed hands than on any day since Covid five years ago:

Source: Bloomberg

If there is reason for concern, it stemmed from the bond market, which suffered an epic selloff. As the dollar gained a little, it’s unlikely that it was foreigners who were selling Treasuries. And as the stock market was directionless amid the drama, it’s hard to believe that asset allocators exited bonds to put money there. (…)

This was the biggest daily Treasury selloff since Covid. The 30-year yield has only risen this much in a day six times since 2010 — and all of this when risk is perceived to be extreme. What on earth happened?

A logical but alarming explanation is that someone somewhere had to make forced sales to raise cash. If there is one alarming scenario that recurs, it’s of a contemporary LTCM meltdown — a repetition of the extreme market pain that resulted when the Long-Term Capital Management hedge fund ran into trouble in the wake of the 1998 Russian debt default. That incident only ended with a rescue coordinated by the Fed and then an emergency rate cut.

Ever since LTCM, every market selloff has brought with it fears that some big institution will hit trouble and cause cascading sales. It’s logical to worry about that now. Particular concern attaches to the multi-strategy hedge fund groups that operate several different investment teams — “pod shops” in the Wall Street lingo. As the dust settles on an extraordinary day, traders will be most concerned for the health of the pod shops in their midst. (…)

But this president has made it a lifelong principle never to apologize or admit error. How, then, can the administration correct its course? (…)

A month ago, it was assumed that a run on the stock market or a collapse of consumer sentiment would ensure that tariffs were moderated. That was wrong. A serious pickup in inflation might have more of an impact, but we have to wait a while before that shows up in the figures.

So how is the course correction to happen? There are two broad options. The first is that Republicans in Congress decide to act. They hold majorities in both chambers, and there is a long tradition of the Senate being the arbiter of the crucial decisions on the US role in the world. (…)

In the last few months, senators have been cowed by threats that the president’s backers will sponsor primary challenges against them. He is perceived to have a strong mandate. But there is movement. Rand Paul and Ted Cruz, both prominent senators on the right of the party, have spoken out against tariffs. A bipartisan bill that would curb presidential tariff power doesn’t have the necessary support from the Republican Senate leader, but shows public flickers of intraparty opposition.

Key presidential backer Elon Musk has been criticizing tariffs in an increasingly acrimonious spat with trade adviser Peter Navarro. Bill Ackman, the prominent hedge fund manager who publicly switched his support to Trump last year, has argued for a tariff delay. None of this on its own will move the White House, but does at least suggest that Congress could reassert its power.

Rather than wait for Congressional Republicans, the key for a market recovery could be a move by a competitor that makes clear that tariffs are indeed negotiable, giving the administration a reason or pretext to back down — or at least delay. Jordan Rochester of Mizuho Securities puts it as follows:

The true moment for risk to find a base will be when concessions are made by one or two countries to allow for Trump to announce a delay on reciprocal tariffs. It would be a sign that analysts’ expectations of watered down tariffs could be proven true. But we need the first domino to fall, as simply delaying the broader reciprocal plan without it would be a serious challenge to Trump’s credibility in negotiations.

This selloff is driven almost exclusively by the policy change, and the implications the new tariffs have for company profits and economic growth. This means that only a change in the tariffs, though probably only a modest one, will move the market. (…)

Realistically, no big concessions are coming from China, which has allowed the yuan to weaken almost to its lowest point since 2007 in an unmistakable declaration of intent. The problem for other countries is that they don’t have much to offer. Contrary to the rhetoric, the EU doesn’t have big trade barriers against the US. Even Vietnam, which has a huge trade surplus, only levies tariffs of about 5% on American imports. Removing those barriers, as it’s offered to do, will make minimal difference to US businesses, and Navarro has already said that it would not be enough.

A further problem is that the ferocity of the US rhetoric makes it politically hard to concede. Voters don’t like it when their leaders give in to a bully. (…)

If someone gives the administration a needed excuse to step back, that could draw a line under the selloff.

How about the Fed helping out?

The Fed Must Resist Repeating Past Mistakes Markets have been trained to expect lower rates at the first sign of volatility. Powell mustn’t give in to temptation.

By Mohamed A. El-Erian

It’s easy to think that the Jerome Powell-led Federal Reserve has been one of the unluckiest on record. From the 2020 pandemic and its messy aftermath to the current tariff-induced economic and financial volatility, it has faced one big external shock after the other. Powell has had repeated run-ins with President Donald Trump, lost key officials over insider trading allegations, seen the institution’s credibility eroded by the misguided 2021 transitory inflation judgement, and more.

Yet what has made this bad luck worse and more consequential for overall economic wellbeing is that it has interacted with self-created weaknesses. Unlike other Feds, those have extended to analysis, forecasts, communication, and policy responses, repeated missteps that were aggravated by a distinct lack of humility and learning. The result is a Fed whose political independence and market credibility are as shaky as they have been since the late 1970s and early 1980s. And that is bad news for a central bank that, in the next few months, will face difficult policy judgements. It’s also bad news for the world’s largest economy that has lost other anchors and is suffering its own period of instability at the center of the global economic and financial order. (…)

The policy dilemma for the Fed’s pursuit of its dual mandate was made vivid by JPMorgan Chase & Co.’s upward revisions in unemployment to 5.3% and inflation all the way up to 4.4%, an adverse move of 1.4 percentage points. (…)

Managing the challenges got off to a troubling start when, in his March press conference, Powell eagerly dismissed the information content of the weakening soft data and reintroduced the concept of “transitory” when opining on the inflationary effects of the tariffs. Fortunately, he walked back both statements last week rather than wait for many months as he did in 2021.

Now the Fed needs to judge whether it should respond to the prospects of higher unemployment by cutting interest rates aggressively, or to hotter inflation by staying put or even opening the door to considering the possibility of a rate hike. For their part, market participants have rushed to price in more than four reductions this year, with some even calling for an emergency inter-meeting cut. (…)

Having failed to bring inflation back down to its often-repeated target three years after annual consumer price rises topped 9%, the Fed faces the risk of protracted inflation that would quickly undermine its efforts to counter the potential rise in unemployment. Moreover, lessons from central banking history suggest that when faced with both parts of the dual mandate going against it, the Fed should give priority to putting the inflation genie back in the bottle. (…)

What the Fed needs more than ever is a good dose of humility, something that it has lacked in recent years to its and the economy’s detriment. Such humility would help reduce the risk of another bout of slippages in analysis, forecasts, communication and policy design. It would also help counter the threat of a prolonged and damaging period of stagflation.

Speaking of the need for a good dose of humility, it has been a while since the last such quotes:

• “I’m not changing. I went to the best schools, I’m, like, a very smart person.” (April 26, 2016)
• “Actually, throughout my life, my two greatest assets have been mental stability and being, like, really smart…. I went from VERY successful businessman, to top T.V. Star… to President of the United States (on my first try). I think that would qualify as not smart, but genius….and a very stable genius at that!” (January 6, 2018)
• “I’m an extremely stable genius” (May 2019)
• “I’m so great looking and smart, a true Stable Genius.” (July 11, 2019)

Maybe another genie to put back in the bottle.

A Win-Win Exit Strategy for Trump on Tariffs Offer nations truly reciprocal free trade: zero-barriers, zero-subsidies.

By Arthur Laffer and Stephen Moore

(…) It’s time to bring on the promised long-term gain from his trade policies. Here’s how to do just that. In 2018 at the Group of Seven meeting in Charlevoix, Quebec, Mr. Trump made a remarkable free trade proposition to the world’s leaders: The U.S. would lower its tariffs to zero if their nations would do the same.

His exact words were: “No tariffs, no barriers. That’s the way it should be. And no subsidies. I even said, ‘no tariffs.’ . . . Ultimately, that’s what you want. You want tariff-free, no barriers and you want no subsidies.” (…)

This suggests an opportunity for Mr. Trump to avoid the economic damage from tariffs that we saw under Herbert Hoover and Richard Nixon. Our proposal will also immediately reverse the dangerous stock market sell-off.

Mr. Trump should give a globally televised address announcing to the world that the U.S. is ready to drop its tariffs and industry subsidies to zero tomorrow on any nation that does the same. This would be the ultimate reciprocal tariff policy. President Trump and the U.S. would regain the moral high ground in trade disputes. It would be enlightening to see which supposedly “free trade” nations accept Mr. Trump’s challenge.

Who better to pull off what could become the greatest Art of the Deal negotiation in world history? It would restore a free, fair and unfettered global trading system. Everyone, everywhere would get richer. The American economy would be great again. And Donald Trump would win the 2025 Nobel Peace Prize.

Bloomberg today reports that

(…) von der Leyen noted the EU has previously offered to zero out tariffs on industrial products, including autos, if the US does the same, but that Washington hasn’t engaged. (…)

The EU “was formed to really do damage to the US on trade, that’s the reason it was formed,” Trump said, who repeated his complaints that the US has been paying for Europe’s defense since other NATO allies haven’t been spending enough on defense.

Even so, Trump hasn’t been specific about what kind of concessions he’s looking for, and EU officials have struggled to engage with their US counterparts. Von der Leyen has yet to meet with Trump since he took office.

Elsewhere on Bloomberg:

Vietnam’s Party Chief To Lam offered to remove all tariffs on US imports, according to an April 5 letter seen by Bloomberg. Lam requested that Trump not apply any additional levies or fees on Vietnamese goods and asked him to postpone the implementation of the 46% tariff by at least 45 days after April 9.

Peter Navarro, a trade adviser to Trump, suggested Sunday that Vietnam’s initiative didn’t go far enough.

“If you simply lowered our tariffs and they lowered our tariffs to zero, we’d still run about $120 billion trade deficit with Vietnam,” he said on Fox News’ Sunday Morning Futures. “And the problem is all of the non-tariff cheating that they do.”

Earnings Outlook Is Next Possible Pain Point for Investors Analysts have already started cutting their 2025 estimates

(…) Earnings season kicks off Friday with announcements from big banks including JPMorgan Chase, Morgan Stanley and Wells Fargo.

Tariffs could hit consumers so hard that there’s a risk that S&P 500 companies will see zero earnings growth this year according to Bhanu Baweja, UBS Investment Bank’s chief strategist.

When companies start reporting they “won’t have anything they can actually say other than that everything is so uncertain,” said Joe Gilbert, portfolio manager at Integrity Asset Management. “We’ve gone from the fog of a trade war to the fog of the earnings outlook.”