A week where the markets went nuts? Of course I was on vacation! This is an abbreviated version of the newsletter because of the timing of the China trade news.
It’s been a while since I saw a retreat celebrated as much as that China reset. I can’t call that a “deal” – all we did was just agree to go back 5+ weeks. That’s not a deal… that’s a “we messed up and want a do-over.” We put on unilateral tariffs, threaten an escalation on any reciprocal tariffs, and before you knew it, 10% tariffs became 125% (plus the original 20% for fentanyl). And now we are back to 10%. So we are back to our situation on April 2 and there is some work to be done.
That having been said, this reset was important for a few reasons:
· It gives companies who were less prepared a mulligan to restrategize inventory decisions – especially with respect to key items such as rare earths.
· According to Bloomberg, the new 90-day deadline delay until August allows for most Holiday-related items to arrive. This means that any “empty shelves” scenario is less likely to take place for the holiday season. That gives a lot of psychological relief to consumers, businesses (on both sides of the Pacific) and the administration.
· China’s 90-day deadline is after the other 90-day deadlines, so presumably, we will be able to come to some agreement with our allies that we can use as a template for China.
· We are currently charging China 30% tariffs (10% reciprocal + 20% fentanyl). This is not that different from the 34% on Trump’s April 2 tariff table. In other words, we could do absolutely nothing for years and just collect most the amount of tariffs Trump wanted in the first place. So unless the Chinese start complaining (which they may, since a fentanyl point person was in Genva), it’s not clear anything needs to be done. Bessent even said the 90-day deadline could be extended.
· Given that Trump seems to be going for easy wins, I don’t know that we will get much more serious drama with China over trade. For now, both sides seem to be content with the status quo.
As for the other trade “deal” last week, I have been out of town and was not around when the trade deal with the UK was announced. I tried researching what this “trade deal” was, but there really wasn’t much out there. As best as I can figure, the US is still getting 10% tariffs and there were some carve-outs for some UK industries. Granted, the UK did have a goods trade surplus with the US, so this deal was always going to be easy to negotiate. Maybe this is what a deal looks like when Cosmo Kramer makes a deal with his twin brother, Kosmo Starmer.