Trump’s Trade Wars Are Back—Despite the Supreme Court
(…) To Trump, though, court rulings are road maps, not roadblocks. February’s court ruling simply rerouted him to tools the court hadn’t explicitly prohibited. And fortunately for Trump, Congress has over the years scattered many such tools through the law books, many largely forgotten or unused.
In the past two weeks Trump has announced tariffs of 25% on Brazil, 50% on Canada and up to 200% on generic drugs, and on Thursday, tariffs of 10% to 12.5% across as many as 60 trading partners. The upshot: Trump can wage a trade war that is as sweeping and capricious as before the Supreme Court ruled.
Tariffs are central to Trump’s vision of presidential power: a catalyst for national rejuvenation, a source of revenue and an all-purpose crowbar to force allies and adversaries alike to do what he wants, from lowering their own trade barriers to surrendering territory.
This vision is at odds with the Constitution, which gives Congress authority over tariffs and taxes, except when delegated to the president for specific reasons. It also breaks with the bipartisan consensus in Congress that trade policy should enhance strategic bonds with allies and neighbors. (…)
Yet with these new tariffs, Evercore ISI, an investment bank, estimates Trump will raise a hefty $240 billion to $260 billion a year, just 20% less than before the Supreme Court ruling and still triple the pre-Trump level.
Trump likes to impose and repeal tariffs without notice, for maximum effect. The problem with 232 and 301 is that they require lengthy periods of investigation and comment. Not 338, though.
“This is possibly the new Ieepa,” said Sarah Bianchi, a former trade official under President Joe Biden who is now a policy analyst with Evercore ISI. “If he’s able to use this tariff for leverage, I don’t know why he wouldn’t keep trying. As to which one is next, the European Union would be on your list.” (…)
Trump’s use of 338 is “ironic if not perverse,” Veroneau said, because under the North American Free Trade Agreement, now the U.S.-Mexico-Canada Agreement, Canada gives the U.S. better access than it does to most other countries. It was Trump who then overrode those pacts to hit Canada with duties on steel, aluminum, autos and other goods. Canada retaliated, and Trump is now punishing Canada for retaliating. In effect, he is laying down the principle that discrimination is acceptable as long as it’s the U.S. doing the discriminating. (Under USMCA, Canada does restrict U.S. dairy imports. Trump claims the EU gets better terms.) (…)
Congress may be about to cede to Trump even more power. Just before he died, Sen. Lindsey Graham (R., S.C.) had finally persuaded Trump to back a bill imposing steep tariffs on Russia for invading Ukraine, and the largest buyers of its oil and gas. At Trump’s behest the bill was weakened, allowing Trump to issue waivers. The bill is gaining support in the Senate, while its fate in the House is unclear.
The bill would enable Trump to use tariffs instead of sanctions for geopolitical goals, something the Supreme Court said he couldn’t do under Ieepa. But trade and sanctions expert Peter Harrell said as written, the bill would perversely let Trump waive tariffs on Russia, then tariff the EU for refusing to back his war with Iran. Harrell, who was an adviser to Biden, noted Trump already has the authority to sanction Russia but has barely used it.
“It makes me a little suspicious,” said Harrell. “If he does not seem interested in putting pressure on Russia, but does seem interested in this bill, what would his interest be? The tariffs.”
Euro-Zone Business Activity Jumps to Five-Month High
The Composite Purchasing Managers’ Index compiled by S&P Global rose to 51.9, above the 50 threshold separating growth from contraction for the first time since March. That’s more than anticipated by all but one economist in a Bloomberg survey that had a median estimate for a slight uptick to 50.2.
The region’s two largest economies both exceeded expectations, according to the survey conducted July 9-22. Germany’s reading unexpectedly jumped well above 50, snapping three months of contraction, and France’s downturn softened to the weakest since February. (…)
Friday’s survey revealed some good news on inflation, with cost pressures cooling sharply to the lowest since the outbreak of the war, thereby helping moderate the rate of inflation for selling prices across goods and services. (…)
Flash PMI readings across Asia-Pacific showed solid growth in Australia, Japan and India. The UK saw a surprise increase above the 50 threshold, supported by the World Cup, staycations and scorching weather. US data are due later on Friday.
More PMI info:
- The rise in output in July was in line with a renewed increase in new orders, the first in five months. Although modest, the rate of growth was the fastest since April 2023.
- New export orders continued to fall, but the rate of decline was only marginal.
- The rate of job creation was only marginal, however, as sustained reductions in manufacturing staffing levels tempered the boost to employment from the service sector. Data indicated that gains in workforce numbers were concentrated outside of the largest two eurozone economies, with Germany and France continuing to see employment fall.
- Input prices continued to rise sharply during the month.
In Japan:
- Overall new business growth eased at the start of the third quarter. The latest rise in composite new work was moderate, and was driven mainly by the sharpest increase in manufacturing orders for just over five years.
- By contrast, new business growth in the service sector slowed to only a mild pace.
- Total new export business expanded modestly in July, and at the fastest pace in four months.
- Underlying data showed a stronger rise in overseas demand for goods, while foreign demand for services declined again.
Magnificent 7 Lose $797 Billion as AI Skeptics Dump Tech Stocks
The culprit was earnings from Alphabet Inc. and Tesla Inc. after the bell on Wednesday, which spooked traders and cast doubt on the durability of the AI trade that has powered the stock market for more than three years. Alphabet raised its capital spending forecast to as much as $205 billion this year.
Meanwhile, Tesla Chief Executive Officer Elon Musk told investors that 2026 will be “a massive capex year” after the electric vehicle maker reported profits that were far below analysts’ expectations.
“The real problem is the amount of spend that’s going on,” said Ken Mahoney, chief executive officer of Mahoney Asset Management. “No one knows what the return on investment is.” (…)
The Mag 7 index is now down 11% from a record reached in late May, erasing $2 trillion in market value. (…)
Other major AI spenders also fell, with Microsoft Corp. sliding 2.2%, Amazon.com Inc. sinking 4.6% and Meta Platforms Inc. declining 3.4%. All three report earnings next week. (…)
(WSJ)
Goldman Sachs now forecasts GOOG’s 2026/27 capex of ~$205bn / ~$350bn, respectively.
Some are asking “when will this end?”
Alphabet said that cloud revenue grew 82% to $24.8B with a backlog of $514B driven by customers including Apple, Meta and Anthropic.
By comparison, Amazon, the leading cloud-computing player, reported $37.6B in revenue in the first quarter, +28% YoY. Microsoft’s cloud business, the industry’s second biggest, grew at a 40% pace in its latest reported quarter.
CEO Sundar Pichai says the industry is in the “early innings” of the AI transition, which implies the heavy spending could go on for a while.
CFO Ashkenazi said that “our goal is to invest as long as we see an attractive return on that investment.” Ashkenazi said Google is supply-constrained for multiple quarters ahead.
GOOG’s Cloud segment revenues jumped +82% YoY in Q2’26 and the backlog increased $50B QoQ to $514B. Importantly, operating margin rose some 1500bps YoY due to significant enterprise AI demand (nearly 90% of Fortune 100 companies are using Gemini Enterprise and new customer acquisition doubled YoY).
This GS table shows that Cloud operating income was $8.8B last quarter, 19% above Goldman’s estimate, with margins of 35.6%.
Management explained that AI is now moving from the “infrastructure” to “platform” and “application” layers of AI monetization.
GOOG’s Q2 Search & Other revenue growth of +16.8% YoY beat expectations and confirmed the integration of AI Overviews & AI Mode into one seamless search experience driving increased usage (AI Mode at 1B+ applications).
Beware of how EPS are presented. The last sentence on the above table is important. Alphabet’s mark-to-market gain iin Q2 was approximately $6.25 per share. So Operating EPS were $2.86.
Alphabet’s Google disclosed that it owns $94.1 billion in SpaceX shares, representing the bulk of $99 billion in unrealized marketable securities gains in the second quarter.
Recall that Q1’26 included $36.9 billion ($2.35/share) of unrealized equity gain from the same equity stakes.
DRY POWDER NO MORE?
- From Barron’s:
In barely more than a month since its historic initial public offering, SpaceX has delivered one of the weakest post-debut performances of any major U.S. listing since the end of the Great Recession. The stock has performed worse than 90% of other U.S. IPOs with market capitalizations of $1 billion or more since July 2009.
Over the first 27 trading days, SPCX is down -23% from its first day closing price of $161. As of last Friday, retail investors had plowed $315 million into SpaceX stock.
IPOs Have Been a Losing Bet Since 2019
The chart below shows that IPOs since 2019 have underperformed the broader market over the following three years, driven by three main forces:
1) Peak valuations: The 2020–2021 wave came public at rich multiples amid zero rates, stimulus and speculative retail demand, leaving little room for gains.
2) A hostile rate regime: The Fed’s hiking cycle from 2022 compressed valuations and hit the long-duration, unprofitable growth stocks that dominate IPO cohorts hardest.
3) Low quality, high bar: The boom pushed marginal companies public before they were ready while the market-adjusted benchmark was set against an index carried by a handful of mega-cap winners.
Each of these forces could persist: valuations may re-inflate in the next IPO window, rates look set to stay structurally higher than the 2010s and index returns remain concentrated in a few mega-caps that keep the relative bar high.
(Source: Jay Ritter, Apollo Chief Economist)
