FEARFUL

April 28, 2025

We had just landed in Prague Friday morning when our taxi driver, realizing we were Canadians, freely expressed his incomprehension and fears about Trump’s policies, not only on trade but also on Ukraine, noting that “1 million Ukrainian refugees” have pushed inflation up in Czechia.

Official data puts the number of Ukrainian refugees at 364,000 but our driver, working 16 hours a day, feels it’s much higher given food inflation at 6%+, unsurprising after a nearly 4% jump in the country’s population and the war in Ukraine, Europe’s bread basket.

Overall inflation in Czechia has moderated from 3.3% last December to 2.7%, thanks in large part to declining energy costs as Brent oil prices slumped from $82 to $66 in three months.

The precipitous drop in world oil prices, mainly reflecting lower anticipated demand, is providing welcomed relief to consumers just before tariffs start biting.

Trump blinked several times last week, fearful that financial panic could jeopardize his “grand plans”. It really took Scott Bessent, “increasingly influential in Trump’s quasi-imperial court”, to explain that the worldwide stagflation underway would be blamed on him.

So he blinked on tariffs, he blinked on China and he blinked on Powell, the latter becoming the convenient necessary scapegoat for whatever bad happens from now on.

Of course, a cynic might say this is merely putting lipstick on a financial pig. Fair enough: no amount of “tricks” — or “puts” — will stop US yields from surging if America’s fiscal fundamentals keep deteriorating, inflation expectations soar and/or Trump remains capricious. All seem probable. But right now the key point is this: in Bessent, there is a dragon tamer, of sorts, in the White House, clinging on to the beast’s tail. Let us hope that Musk does not push him out. If he does, investors in New York and London alike will really start to panic. (FT’s Gillian Tett)

Mr. Bessent, himself fearful of markets wrath, is now telling us, straight faced, of a “strategic uncertainty” scheme behind all the chaos. He said the administration was looking to strike short-term “agreements in principle — rather than detailed trade deals” — to ease trade tensions.

In an interview on ABC’s “This Week,” Treasury Secretary Scott Bessent described President Trump’s approach to tariffs as “strategic uncertainty” to establish leverage over foreign nations.

He gave no specifics when host Martha Raddatz asked him about Trump’s recent claim that he’s already struck 200 trade deals, given none have been announced.

Raddatz also pressed Bessent on Trump’s claim that he had spoken to President Xi Jinping of China on the trade negotiations. The Chinese have denied that any negotiations have taken place. Presumably, the treasury secretary would be aware of such a conversation, but Bessent replied: “I don’t know if President Trump has spoken with President Xi. I know they have a very good relationship and a lot of respect for each other.”

Trump on Friday argued that markets are beginning to understand the “strategy”.

We also learned from the WSJ last Friday that the deep state is trying to take control of the trade show:

In an attempt to streamline talks over President Trump’s so-called reciprocal tariffs, officials plan to use a framework prepared by the U.S. Trade Representative’s office that lays out broad categories for negotiation: tariffs and quotas; non-tariff barriers to trade, such as regulations on U.S. goods; digital trade; rules of origin for products; and economic security and other commercial issues, according to people familiar with a draft document outlining the negotiating terms.

Within those categories, U.S. officials would spell out demands for individual nations, people familiar with the matter said, emphasizing that the document could change as the administration gets more input.

“USTR is working under an organized and rigorous framework and moving ahead quickly with willing trading partners,” said a USTR spokeswoman. “President Trump and USTR have made U.S. objectives clear and our trading partners have a very good sense of what they can each individually offer.”

Hallelujah!

The U.S. is looking to negotiate within the new framework with about 18 major U.S. trading partners on a rolling basis over the next two months, the people familiar with the matter said. The initial plan is for six nations to come in for talks in one week, six nations in a second week, and six nations for a third week of talks—an 18-nation cycle that would then repeat until the administration’s self-imposed July 8 deadline. At that point, reciprocal tariffs would hit nations that can’t reach a deal, unless Trump further extends his 90 day pause.

So, a rational, organized and structured method, … until Trump fights back:

“I am this giant store,” he tells TIME. “It’s a giant, beautiful store, and everybody wants to go shopping there. And on behalf of the American people, I own the store, and I set prices, and I’ll say, If you want to shop here, this is what you have to pay.”

Actually, He sets prices that the American people will pay, consumers and businesses alike, reducing purchasing power and raising the costs of doing business all at once across the economy. Such centralization never ends well.

The FT last week listed 6 companies having quantified the costs of Trump’s policies on their businesses: GE Vernova: $400M, Baker Hughes: $200M, Boston Scientific: $200M, J&J: $400M, RTX: $850M, GE Aerospace: $500M. That’s $2.6B on only 6 companies. “A little disturbance” that one could too simply extrapolate to $216 billions for all S&P 500 companies.

That compares with the recently alleged $150B in gross savings (down from $2T, then $1T) that the DOGE team of more than 100 now claims to achieve.

There are other beautiful stores in the world that Americans want access to, some quite a bit larger than America. These store owners also seem intent to set their own prices.

The European Union’s economy commissioner told The Wall Street Journal this week that the 27-nation bloc of 450 million people is still awaiting specific demands from the Trump administration. The USTR spokeswoman disputed that, saying the agency has repeatedly made its framework known to the Europeans.

To the FT,

the Commission president warned she was ready to dramatically expand the transatlantic trade war to services if those talks failed, potentially including a tax on digital advertising revenues that would hit tech groups such as Amazon, Google and Facebook. “We are developing retaliatory measures,” von der Leyen said, explaining these could include the first use of the bloc’s anti-coercion instrument with the power to hit services exports. “There’s a wide range of countermeasures . . . in case the negotiations are not satisfactory.”

She ruled out revisiting the EU’s “untouchable” regulations on digital content and market power, which Trump officials see as an effective tax on US Big Tech firms. Nor will the EU negotiate over VAT, which she said was equivalent to US sales tax: “These are not in the packages of negotiation because these are our sovereign decisions.”

“Companies that offer services make a good business in this [EU] market. And the vast majority of the services, 80 per cent of the services are coming from the US. So again, we want a negotiated solution that is the best for us, all of us,” she said. As well as potentially targeting services trade, von der Leyen said Brussels was also considering moves such as a possible levy on scrap metal exports to the US, where EU supplies are in high demand from US steel mills.

“[There is] the interest of so many countries around the world to work closer with us, together, to balance the system and to have free trade really competing on quality and not around tariffs,” von der Leyen said.

About the other megastore, Trump last week said that his administration has been in touch with China “every day,” although Chinese officials have denied any substantial contact on trade.

“They had a meeting this morning,” Trump said Thursday during a meeting with Norway’s prime minister when a reporter asked about the Chinese statement.

Pressed on which administration officials were involved in discussions, the US president said, “it doesn’t matter who ‘they’ is. We may reveal it later, but they had meetings this morning, and we’ve been meeting with China.”

About those “theys”, a Chinese official said: “I want to emphasize that there are currently no economic and trade negotiations between China and the United States,” adding that “any reports on development in talks are groundless and have no factual basis.”

Speaking of facts, on Friday, Trump told reporters that

(…) he would not call President Xi Jinping if his Chinese counterpart does not call him first. Then Trump said such a call had occurred, without giving details.

“He’s called. And I don’t think that’s a sign of weakness on his behalf,” Trump said.

The US president declined to answer when asked by reporters Friday when he spoke with Xi, saying, “I’ll let you know at the appropriate time. Let’s see if we can make a deal.”

China’s reply: “It takes the person who tied the bell to untie it.”

Seven years ago, Trump tweeted that “trade wars are good, and easy to win”.

Not so much.

The goal (or is it a strategy?) now is apparently to reach “agreements in principle — rather than detailed trade deals”.

Who’s reassured by that?

The FT also told us last week that “in response to Donald Trump’s trade war, Apple aims to shift assembly of all US iPhones as soon as next year from China to India.” 

MAGA?

Seems that Tim Cook does not like losing pricing control on his products. But how can he be confident that India will not get China’s tariffs next year?

Incredibly in the land of the free enterprise, from the WSJ:

(…) As they outlined cost-cutting measures on earnings conference calls in recent days, many CEOs used language that boils down to a corporate version of the Serenity Prayer. 

“Control the controllables and try to help mitigate some of the things we can’t control,” Norfolk Southern Chief Executive Officer Mark George told investors and analysts as he cited plans to wring savings out of fuel and labor costs, among other areas. (…)

International Business Machines CEO Arvind Krishna said the technology company was “focused on areas we can control,” including productivity initiatives throughout the company. PepsiCo CEO Ramon Laguarta said the company is “controlling what we can” by, in part, making its supply chain more efficient. (…)

By cutting costs and streamlining operations internally, companies can take action now, even if they have little ability to predict what happens next, according to executives and corporate advisers. (…)

Many companies are trying to be mindful not to make drastic cuts that could hamstring businesses should trade tensions ease or the economy fare better than expected later this year. (…)

“A lot of companies are not looking at layoffs per se, because they lived through Covid and lost a lot of talent” that proved difficult to rehire when the economy rebounded, Williams said. “Without pulling dramatic levers, they are looking at those expenditures, saying, ‘Defer until we get more clarity.’” (…)

Some companies are cutting jobs. The staffing firm Robert Half said it eliminated an unspecified number of administrative and corporate staff positions to reduce its overhead costs. The savings: $80 million.

“We came out of the election, there was a surge in business confidence. Our discussions and the tenor of our discussions with our clients was improving, and so we were quite optimistic,” CEO M. Keith Waddell told investors. “And that changed.”

On the other front that was supposed to be settled before inauguration:

The US is talking to Russia, but continues to sideline Ukraine. Now, Washington is threatening to walk away from negotiations unless Ukraine accepts a deal on Putin’s terms. Trump’s most recent ultimatum — that Kyiv must accept US recognition of the Russian occupation of Crimea — has made a mockery of the peace process, wrote FT’s editorial board.

Earlier this week, FT reporters revealed that Vladimir Putin had offered to halt the invasion along the current front line. It is the first formal indication that Russia might be willing to step back from its maximalist goals. But European officials told our journalists that Russia’s apparent concession may just lure Trump into accepting fresh demands from Moscow.

• Mr. Trump said Russia’s recent bombardments of Ukraine made him wonder whether President Vladimir V. Putin wanted to end the war. “It makes me think that maybe he doesn’t want to stop the war, he’s just tapping me along.” It makes him think…

The FT’s Tim Harford:

The US has clearly lost credibility — as an ally, as a place to invest, as a trading partner and as a country where the rule of law is paramount. If the world suffers no more than a recession as a result, we will have escaped lightly. Yet a sunnier scenario is not hard to imagine: it is conceivable that Trump has finally gone too far, been so transparently incompetent and done so much damage to the people who supported him that the rest of the US political system will start constraining his urges.

Within the USA, from Axios:

A passel of polls dropped this weekend ahead of President Trump hitting his 100-day milestone on Tuesday. The Smart Brevity:

• “Chaotic,” “scary”: “The turbulent early months of Mr. Trump’s administration are seen as ‘chaotic’ and ‘scary’ by majorities of voters — even many who approve of the job he is doing. Voters do not view him as understanding the problems in their daily lives and have soured on his leadership.” — N.Y. Times (gift link)
• Lowest 100-day approval in 72 years: “Trump’s approval rating stands at 41%, down 4 points since March and 7 points since late February, a new CNN poll conducted by SSRS finds. That’s lower than any newly elected president dating back at least to Dwight Eisenhower.” — CNN
• Short honeymoon: “39 percent of adult Americans approve of the way Trump is handling his job, compared with 55 percent who disapprove … In February, those numbers were 45 percent positive and 53 percent negative. Among registered voters, the deterioration has been even larger. … Most presidents enjoy a honeymoon during their first months in office, only to see their ratings decline later in the first year. Trump may be an exception.” — WashPost (gift link)

From the U. Of Michigan:

US consumer sentiment fell to one of the lowest readings on record and long-term inflation expectations climbed to the highest since 1991 on worries over the domestic consequences from his tariffs.

Finally, here’s Hubert Marleau again:

Trump supporters essentially refuse to admit that under a classical liberal economic order, where cooperation exists, all countries win. Yet, this truism has deep theoretical roots that are supported by valid theories and empirical evidence.

Under Ricardo’s law of “comparative advantage” and Adam Smith’s existence of the “invisible hand”, the allocation of resources is more efficient, thereby tending to reduce inflation and promote economic growth. Given that the demand for internationally traded goods and services, perhaps with the exception of energy products and Google search services, is price elastic, a fall in spending will be far greater than associated tariff-caused price increase, resulting in a drop in total revenues.

Instead, they contend that trade is a zero-sum game in which every transaction involves winners and losers. This spurious notion is completely opposite to the economic premise that trading money for goods is mutually beneficial to both buyer and seller.

Maybe Trump drank too much Kool-Aid. Yuval Harari has cleverly figured out what his vision is:

“In a Trump world, international agreements, organisations and laws cannot be anything but a plot to weaken some countries and strengthen others. Trump’s ideal world is a mosaic of fortresses, where countries are separated by high financial, military, cultural and physical walls, foregoing the potential of mutually beneficial cooperation but offering countries more stability and peace.

There is, of course, a key component missing from this vision. Thousands of years of history teach us that each fortress would probably want a bit more security, prosperity and territory for itself, at the expense of its neighbours.

In the absence of universal values, global institutions and international laws, how would rival fortresses resolve their disputes? Trump’s solution is simple: the way to prevent conflicts is for the weak to do whatever the strong demand. According to this view, conflict occurs only when the weak refuse to accept reality. War is therefore always the fault of the weak.

Thus consideration of justice, morality and international law are irrelevant, and the only thing that matters in international trade relations is power. So the weaker economies must surrender to stronger ones to assure peace.”

It is mind-boggling that the Trump team, who say that they are in the know, fail to see the trade deficit for what it is, targeting the symptom rather than the root cause, which is persistent budget deficits stemming from fiscal profligacy.

(…) the Federal Government is spending $2.0 trillion more than it collects from taxation revenue, of which $1.0 trillion is funded with domestic savings and the other $1.0 trillion with foreign capital. (…)

Put another way, closing the current account deficit would require more savings on the part of Americans, like higher corporate profits and personal savings, but the real key is to reduce government spending. America’s trade and budget deficit problems are its own.

Maybe the Administration is itself drinking too much Kool-Aid by failing to see that the US may be the one who will be the big loser, if it continues on this path of terrorising its trading partners with wild tariff rates.

Denying that prosperity has everything to do with knowledge and the liberty to use it productively is what may do the US in. In this connection, winning this adversarial approach to trade policy may prove to be more difficult than what Trump and company are banking on.

My first post of the year was FEAR, arguing that the year would be dominated by Trump’s mantra: “Real power is, I don’t even want to use the word, fear.”

On April 7, I wrote FEARLESS, highlighting China’s “Stand Up!” moment as mighty and fearless China lead the rebellion.

FEARFUL brings fear right back to the bully after Mr. Market spoke loudly and clearly. The Trump administration is now fearful of showing its backtracking, its improvised strategy, its surrender to the unanticipated fearlessness.

What comes next? Certainly not business as usual from this shallow cabinet.

I fear I cannot be fearless at current valuations amid such uncertainty.

But Prague is really beautiful!

(I will be travelling until May 15 with irregular postings)

Output growth hits 16-month low as confidence slumps and selling prices rise at increased rate

The headline S&P Global US PMI Composite Output Index fell from 53.5 in March to 51.2 in April, according to the preliminary ‘flash’ reading (based on approximately 85% of usual survey responses). The fall in the index signals a deceleration of activity growth to a 16-month low from the three-month high seen in March.

Growth of service sector business activity slowed sharply to only a modest pace, registering the second-weakest expansion recorded over the past year, in response to slower order book growth.

New business inflows in the services sector showed the second-smallest gain recorded over the past 11 months, often linked by survey respondents to uncertainty surrounding the economy and tariffs. Demand growth was subdued in particular by a fall in exports of services (which include tourism-related activities as well as cross-border activities by service providers) on a scale not seen since January 2023.

Manufacturing output meanwhile edged back into growth after slipping into decline in March, though the expansion was only marginal.

Whilst new orders placed at factories rose at a slightly increased rate, linked to higher domestic orders, the increase was only modest and curbed by a marked fall in export orders. While tariffs had in some instances reportedly helped drive new sales to domestic customers, trade policy was widely linked to falling foreign sales.

Sentiment among companies about their output over the coming year fell for a third successive month, dropping sharply to register the least optimistic outlook since July 2022. The latest reading was the joint-second lowest since September 2020, surpassed only by October 2022.

Sentiment about the future was relatively more resilient in manufacturing than services, as factories often reported hopes of positive impacts from government policies such as recent trade protectionism measures. Factory confidence nonetheless fell to its lowest since last August amid concerns over higher costs, supply constraints, weaker economic growth, and falling demand from export customers.

Service sector optimism also cooled, sliding further from December’s one-and-a-half year high to its lowest since October 2022. April saw growing numbers of companies cite concerns over government policies and the resulting economic uncertainty.

As with manufacturing, the number of service providers expecting output to rise over the coming year continued to exceed those reporting a decline, though in both cases the resulting net degree of positive sentiment has fallen well below long-run averages to signal subdued confidence levels.

Employment rose slightly in April, up for the fourth time in the past five months, albeit registering a smaller gain than in March and a much-reduced rate of hiring compared to the strong 31-month high seen at the start of the year. Although a modest net increase in payroll numbers was recorded across the service sector in April, manufacturing jobs were cut for the first time since October.

Hiring was often restricted by concerns over the economic outlook and demand environments both at home and in export markets, with rising cost concerns and labor availability also cited as restricting factors.

Average prices charged for goods and services rose in April at the sharpest rate for 13 months, increasing especially steeply in manufacturing (where the rate of inflation hit a 29-month high) but also picking up further pace in services (where the rate of inflation struck a seven-month high).

Higher charges were attributed to rising costs, linked widely in turn to tariffs, rising import prices, and increased labor costs. Input costs in the manufacturing sector rose at a pace not seen since August 2022, as suppliers pushed through price hikes linked to tariffs, supply concerns and a weakened exchange rate. Service sector costs meanwhile rose at a slower rate than in March, though the increase was the second-largest recorded over the past six months as higher raw material prices were accompanied by upward wage pressures.

The S&P Global Flash US Manufacturing PMI edged up from 50.2 in March to 50.7 in April, remaining above the 50.0 no change level for a fourth month in a row, yet signaling only a marginal improvement in business conditions for a second consecutive month.

Factory production moved back into expansion territory after a brief decline in March, and new orders growth ticked higher from the modest gain signaled in March. Longer delivery times – which are typically associated with busier manufacturing supply chains – were also again reported, albeit to a slightly lesser degree than in March. However, employment fell for the first time since last October, acting as a drag on the headline PMI index. Inventories of inputs were unchanged.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

(…)
“Output rose in April at its slowest pace since December 2023, indicating that the US economy is growing at a modest annualized rate of just 1.0%. Manufacturing is broadly stagnating as any beneficial effect of tariffs are offset by heightened economic uncertainty, supply chain concerns and falling exports, while the services economy is slowing amid weakened demand growth, notably in terms of exports such as travel and tourism. (…)

This PMI survey smells stagflation in both manufacturing and services. Accelerating service inflation is surprising given the sharp decline in oil prices and slowing wages.

S&P Global does not have a China flash PMI but the FT previews the May 1 PMI report:

• Chinese factories slow production and send workers home as US tariffs bite Owners say American customers have cancelled or suspended orders

(…) In interviews with the Financial Times and via dozens of social media posts, workers shared pictures of quiet production lines or factory suspension notices, highlighting how the tariffs are starting to bite.

Workers said the trade war had prompted the suspension of production for a week or more at plants making products ranging from shoe soles to jeans, electrical outlets and portable stoves. Some factory owners said they were cutting overtime or weekend work. (…)

About 15 per cent of all Chinese exports last year went to the US.

Business Inflation Expectations Increased to 2.8 Percent

From the Atlanta Fed:

• Firms’ year-ahead inflation expectations increased by 0.3 percentage points to 2.8 percent, on average.

• How do your current sales levels compare with sales levels during what you consider to be “normal” times?

• How do your current profit margins compare with “normal” times?

Trump Meets His Match: The Markets

Since returning to Washington three months ago, Trump has toppled federal agencies, consolidated executive power, challenged global alliances and reconfigured America’s economic relationships around the globe. His moves have been met with protests, court challenges, dipping poll numbers and political opposition.

Yet so far, the only force that has reliably prompted him to back down is Wall Street. (…)

Both the president and White House officials argue that the sharp U-turns are all part of a long-term plan to force allies and adversaries alike to strike trade deals with the U.S. And they stress that Trump remains determined to follow through on his pledge to reset global trade.

But in each scenario, Trump was presented with evidence by his aides and cabinet secretaries, including Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, that holding firm on his decisions would spur further disarray in the markets, according to people familiar with the matter. Earlier this month, Trump acknowledged that he paused the tariffs in part because he watched the bond markets and people were getting a “little queasy.” (…)

Since Trump took office, the S&P 500 index is down roughly 10%, the index’s worst performance in the first 94 days of any presidential term on record, according to Dow Jones Market Data. The S&P’s data goes back to 1928. (…)

Shortly before he announced the 90-day pause on tariffs, Trump wrote on social media, “THIS IS A GREAT TIME TO BUY!!” After markets surged in response to the pause, Trump boasted that the financier Charles Schwab, his lunch guest at the White House, just made $2.5 billion off the news. (…)

Is This Trump’s Mitterrand Moment? The French President saved his government by giving up socialism. It’s a precedent for tariffs.

The WSJ Editorial Board:

President Trump continues to walk back his original tariff assault, and markets are pleased. They rose again Wednesday after Mr. Trump said he won’t fire the Federal Reserve Chairman and is likely to retreat from his highest China tariffs. Is this Mr. Trump’s François Mitterrand moment?

Readers of a certain age will recall how the French Socialist President swept into power in 1981 promising a far left agenda of government control over the private economy. The market reaction was brutal. Within a year he had put socialism on pause and by 1983 he had abandoned most of it. He went on to serve two terms.

That historic U-turn comes to mind as we watch Mr. Trump execute a reversal by stages in his tariff agenda. First he carved out space for Mexico and Canada from his reciprocal tariffs. Then he put his reciprocal tariffs on everyone except China on a 90-day pause. Then the Customs bureau gave exceptions to Apple, Nvidia and big electronics companies. Now comes word that Mr. Trump may substantially cut his 145% tariff rate on China.

That’s a long way in three weeks from the declarations by White House aide Peter Navarro and Commerce Secretary Howard Lutnick that there would be no tariff-rate changes. It’s hard to see this as anything other than a retreat amid the harsh reaction of financial markets, worries about recession and price increases, and a sharply negative reaction from the rest of the world—friend and foe.

The good news is that at least Mr. Trump is finally listening to reality. The CEOs of Walmart, Home Depot and Target paid a visit to the White House this week and told Mr. Trump prices would soon rise and store shelves might soon be empty as the tariff impact grows. This would be more than the “little disturbance” Mr. Trump warned about when he first unveiled his tariff barrage.

Financial markets have also had an impact, as they rise or fall based on the latest news about tariffs and Mr. Trump’s plans for Fed Chair Jerome Powell. There couldn’t have been a clearer market test in the last three weeks about the economic damage these columns warned about. The MAGA media echo chamber that praised Mr. Trump’s tariffs as strategic genius looks foolish.

Another harsh reality is that China called Mr. Trump’s bluff and seems to have won this round. (…)

Beijing has also warned countries not to do trade deals with the U.S. that exclude China—or else. With even U.S. allies facing Mr. Trump’s tariff assault, Beijing’s threat has resonated in a way that it never previously did. U.S. diplomatic sway is ebbing.

The question going forward is whether Mr. Trump is internalizing these economic and political lessons or merely pausing to fight his trade war another day. We doubt even Mr. Trump knows the answer, since so much of his decision-making is ad hoc. He’ll keep his universal 10% tariff in any case.

But if the President is looking for political advice, he could do worse than check out the polling cited nearby by Mark Penn and Andrew Stein. It shows that the public largely opposes his tariffs, whose damage poses the single biggest threat to his Presidency. Better to heed the polls and the verdict of Adam Smith, and take the Mitterrand path to political survival.

John Authers:

(…) There is much to debate over exactly how much the president conceded, but the key point as far as Mr. Market is concerned is that he’s shown that there is indeed a “Trump Put” — an option that allows investors to limit their losses if shares fall. The strike price is lower than had been hoped, but the key is that Trump has shown that when challenged, he blinks. (…)

Despite the relief at signs that they can bully the president, investors are still plainly unhappy, and the direction of travel for the market from here is not clear. That’s in large part because the U-turns could be more complete.

Trump wants tariffs on China to be “substantially lower,” but not negative, while Scott Bessent then assured everyone that the cuts won’t be unilateral. In other words, the administration wants to make a deal to reduce tariffs from their current absurd level, which we knew already. The shift in rhetorical tone is important; far more precision is needed before we can lift the uncertainty.

That’s problematic because uncertainty in itself inhibits economic activity and money-making. The Federal Reserve’s regular Beige Book, a collation of anecdotes and observations from the different branches’ contacts with business, illustrates the problem neatly. The latest, published Wednesday, is dominated by the uncertainty created by tariffs. Oxford Economics keeps this handy breakdown of the themes that dominate each edition. It speaks for itself:

While tariff uncertainty persists, the risk is that it will so inhibit businesses as to drive the economy into an unnecessary recession. Once that possibility can be ruled out, then a consistent market advance could happen.

(…) while the selloffs had forced the president to dial back the rhetoric, his most recent words run counter to his lofty long-term aims of remaking American society and the economy by changing the world. With decision-making evidently erratic, Shvets predicts “rolling chaos over years to come.”

If you can’t rely on a Trump Put with a fixed strike price, then predicting a change in policy requires knowledge of, first, the Kremlinology of who has the president’s ear at any one time (should we listen to Bessent? Navarro? who?), and, second, the state of the president’s mind.

Investors know virtually nothing about either. That shrouds future moves with uncertainty and effectively forces them to show more caution, or in more technical terms to demand greater risk premia and therefore lower prices. (…)

While financial markets got into risk management since mid-February and particularly since Liberation day, one can bet that the Trump administration will also gear up towards risk management seeing charts like this one:

Is there anyone still thinking there is a grand, well thought out plan behind all the announcements of the past 2 months?

They are not done yet:

US Officials Mull Easing Tariffs Targeting the Auto Industry

The Trump administration is considering whether to reduce certain tariffs targeting the auto industry that carmaker executives have warned would deal a severe blow to profits and jobs.

One measure would spare automobiles and parts already subject to tariffs from facing additional duties from levies on steel and aluminum imports, according to people familiar with the matter. That would eliminate so-called “stacking” of levies.

Another option being studied would fully exempt auto parts that comply with the US-Mexico-Canada trade pact, known as the USMCA, some of the people said. Those components don’t currently face tariffs, but the administration had planned to tax the non-US share of those parts from Canada and Mexico. Fully sparing those parts would abandon that approach, which would present a potentially herculean logistical challenge.

The Financial Times earlier reported that the Trump administration is considering reducing tariffs on auto parts — and that they might also exempt auto parts bought from China from a 20% tariff applied to the country over a dispute over fentanyl. (…)

If adopted, the changes would be a significant reprieve for automakers who have warned of devastating consequences from the Trump tariffs, including higher vehicle prices, production cuts and potential job losses. The industry relies on deeply integrated supply chains spanning North America for the vehicles they sell in the US. (…)

In the Oval Office on Wednesday, Trump was asked if he was considering changes to auto tariffs and indicated he was not — while also suggesting he might even increase levies on the Canadian auto sector.

“No, we’re not considering it now, but at some point it could go up,” Trump said. “Because, again, we don’t really want Canada to make cars for us. To put it bluntly, we want to make our own cars, and we’re now equipped to do that.” (…)

BTW: Trump to Mark 100 Days in Trip to Michigan Autoworker Heartland

(…) “Remember, there’s no tariff when they build their plants here — and everybody wants to,” Trump told reporters in the Oval Office on Wednesday. “The higher the tariffs go, the more likely it is they come in and build a plant.” (…)

China Says US Should Revoke All Unilateral Tariffs, Denies Talks

(…) He also dismissed speculation that progress has been made in bilateral communications, saying “any reports on development in talks are groundless,” and urging the US to “show sincerity” if it wants to make a deal.

The remarks suggest that President Donald Trump’s comments this week signaling that he could lower tariffs on China — which currently stand at 145% for most goods — will not be enough to de-escalate tensions. The US leader said Wednesday that “everything’s active” when asked if he was engaging with China and that Beijing was “going to do fine” once talks had settled. (…)

The remarks from China’s MOFCOM and MOD come hours after Pan Gongsheng, governor of the People’s Bank of China, warned of the threat ongoing frictions pose to trust in the global economic system.

“All parties should strengthen cooperation and make efforts to prevent the global economy from sliding into a track of ‘high friction, low trust,’” Pan said at a Group of 20 meeting in Washington on Wednesday, according to a social media post by state broadcaster China Central Television. (…)

Pipeline to China

John Mauldin shows a chart revealing that China has been buying a lot more crude oil from Canada than from the USA lately.

You might think this is because of tariffs, but it’s really about pipelines. An expansion of Canada’s Trans Mountain Pipeline opened last May, enabling Albertan oil to reach the Pacific Coast. This is a more direct route to China than the US Gulf Coast.

Tariffs aren’t helping, though. China has a way to replace some of the oil it previously sourced from the US, while Canada has a new market for its surplus oil. The bigger question may be how long it will last. With China aggressively switching to electric
vehicles and renewable energy, its oil demand seems to have peaked and may diminish over the next decade.

What John omits to mention is that the Trans Mountain pipeline is a new gateway to Asia for Canadian crude which, landlocked, could only be sold to the U.S.. While Canada’s heavy crude deserves a discount to lighter WTI, U.S. refiners have always exploited their unique position.

But new export capacity is helping close the differential, suggesting that U.S. future crude costs will rise by $3-5/bbl.

Canada’s natural gas is in a similar position but the Canadian government is actively exploring ways to build east-west pipeline capacity to broaden export markets and reduce dependence on the U.S..

All these will contribute to a rising U.S. trade deficit with Canada…

Canadian grades represent approximately 70pc of the US midcontinent refinery feedstock.

EARNINGS WATCH

The Dollar’s Slide Is Raising Red Flags for Corporate Earnings

Rising tariffs and the weakening dollar are casting a shadow on companies’ profit guidance this earnings season, with more damage seen unfolding over the coming quarters.

Companies across Europe are already sounding the alarm following the dollar’s slide to three-year lows versus the euro and to a 10-year trough against the Swiss franc. (…)

Given that Stoxx 600 index members get 60% of their sales from overseas, such a large dollar slide is unwelcome, as it would sharply reduce the worth of US earnings once converted back into local European currencies. As a result, US-exposed stocks in the region are falling with the dollar and many investors are turning to domestically-geared firms as an alternative. (…)

“European companies will have to wake up to the idea that their price competitiveness can no longer rely on a stronger US dollar,” said Florian Ielpo, head of macro research at Lombard Odier Investment Managers.

While the current earnings season won’t capture the effect of tariffs unveiled on April 2, “the third quarter will be the eye of the storm,” Ielpo predicted. (…)

Each 5% rally in the euro and other local currencies against the dollar shaves 1.5 to two percentage points off earnings growth in the MSCI Europe gauge, Morgan Stanley strategists estimate, describing the currency moves as “a broad-based drag.” (…)

For American companies that sell abroad, dollar weakness can be a boon — shares in companies that make most of their sales outside the US, such as Coca Cola Co. and Philip Morris International Inc., have bucked this month’s stock-market rout.

Yet, only a third of revenue for S&P 500 constituents comes from overseas. For the remaining, domestic-focused companies, such as retailers, a falling greenback is usually bad news, because it raises prices for imports and erodes consumers’ purchasing power, UBS Group AG strategists note. (…)

As economic gloom deepens, strategists are cutting their earnings estimates for the year. As for the S&P 500, earnings-per-share growth is seen as 7.3%, down from 11.4% at the start of the year, data compiled by Bloomberg Intelligence shows. Meanwhile Europe’s Stoxx 600 earnings growth estimates have been cut to minus 2% from 3% in January, according to Barclays Plc strategists. (…)

The FT informs us that “While fewer than a fifth of the blue-chip stocks in the S&P 500 index had held first-quarter earnings calls by Tuesday, tariffs were cited on more than 90 per cent of them, according to FactSet. The term “recession” was mentioned on 44 per cent of calls, compared with less than 3 per cent on those covering the fourth quarter of 2024.”

The FT lists several companies quantifying the costs of Trump’s policies on their businesses.: GE Vernova: $400M, Baker Hughes: $200M, Boston Scientific: $200M, J&J: $400M, RTX: $850M, GE Aerospace: $500M. That’s $2.6B on only 6 companies. “A little disturbance” he said.

Five-Minute EV Charging Is Here, but Not for U.S.-Made Cars CATL’s and BYD’s rapid-charging technologies underscore China’s dominance in the EV sector, a technological priority for Xi Jinping

Two of the world’s leading battery developers are locked in a technological race that has brought the charging time for an electric vehicle to just five minutes—about the amount of time it takes to refuel a traditional gasoline-powered car.

And, in a twist with geopolitical ramifications, both of the technological leaders are Chinese. It is a show of prowess that underscores just how far China has extended its global dominance over next-generation technologies, in some cases leaving the U.S. years behind.

The claimed leap forward on EV batteries is merely the latest technological feat for a country that has stunned Western governments with a string of breakthroughs on artificial intelligence, semiconductors and EVs—a vindication of leader Xi Jinping’s ambitions of turning China into a global technological powerhouse. (…)

The technologies won’t be introduced on a wide scale right away. The batteries can only be charged at a network of superfast charging stations that is still being built out.

Still, CATL’s and BYD’s technologies serve as the latest example of how China is years ahead of the U.S. in EV technology, even as the Trump administration intensifies efforts to curtail Chinese companies’ access to cutting-edge technology. (…)

CATL is now responsible for making more than one-third of the EV batteries on the global market, including those inside made-in-China Teslas.

CATL and BYD’s claimed technological advancements are unlikely to benefit American consumers, at least in the near term, given sky-high tariffs levied by the U.S. against Chinese goods—and in particular EVs manufactured in China. (…)

In March, 52% of passenger cars sold in the country were battery-electric vehicles, plug-in hybrids or range-extended vehicles, according to the China Passenger Car Association. (…)

Chinese battery makers are leading producers of lithium-iron-phosphate, or LFP, batteries. These iron-based battery cells cost less than the nickel-and-cobalt combination used widely in North America and Europe.

CATL’s newest fast-charging battery, the second generation of its Shenxing lineup, is an LFP battery with a range of about 500 miles. CATL said it improved electron transmission efficiency to avoid overheating during rapid charging. (…)

China has more than 13 million EV-charging facilities nationwide, counting both publicly and privately operated ones, state media has reported. The U.S. has around 77,300 charging locations with about 230,000 EV-charging points in total, data from the Joint Office of Energy and Transportation showed. It is unclear if the two figures are directly comparable, but industry experts widely regard China’s EV-charging environment to be far ahead of the U.S.’s.

Separately on Monday, CATL introduced a new sodium-ion battery that it calls Naxtra. At the moment, mainstream EV batteries are reliant on lithium, creating a potential bottleneck around supplies of the material. CATL says sodium-ion batteries, if mass-produced, could help reduce its dependence on lithium.

Sodium-ion batteries are made from a sodium compound called soda ash, which can be produced using table salt. Unlike lithium, sodium is easily accessible everywhere. The U.S. has also been working on developing this technology.

• Tesla Sales Slumped Again in EU Last Month Decline stands in contrast with a 17% increase in registrations for battery-electric vehicles

(…) New-car registrations for Tesla models, a reflection of sales, logged a 36% slump in March to 18,224 vehicles, according to the European Automobile Manufacturers’ Association, an industry body. The March contraction came after Tesla recorded a 47% slump in February registrations and a 50% drop in January.

Tesla’s latest decline stands in contrast with a 17% increase in overall registrations for battery-electric vehicles across the EU in March, 24% growth for hybrid-electric cars and 12% growth for plug-in-hybrid models. (…)

Trump Says Millionaire Tax Would Push Wealthy to Leave the US

(…) “I think it would be very disruptive because the millionaires would leave the country,” Trump told reporters in the Oval Office on Wednesday. “Other countries that have done it have lost a lot of people. They lose their wealthy people. That will be bad because the wealthy people pay the tax.” (…)

How about this disruption?

75% of US scientists who answered Nature poll consider leaving More than 1,600 readers answered our poll; many said they were looking for jobs in Europe and Canada.

More than 1,200 scientists who responded to a Nature poll — three-quarters of the total respondents — are considering leaving the United States following the disruptions prompted by Trump. Europe and Canada were among the top choices for relocation.