Okay, I want to talk about tariffs a bit because there are a lot of tariffs. On everyone:
1) Steel + aluminium +25%
2) Autos is 25% (and some auto parts except USMCA qualified) - but note that Trump has realized that steel & alum are INTERMEDIATE GOODS and when you tax that then you got a big problem so he's BACKTRACKING on that for the auto sector, as in, they don't get steel & alum on top of auto
3) 10% on everyone ex China on top of above until early July in Asia.
4) China gets embargo level of tariffs or >100% and some >200%.
5) Exemptions for semiconductor, energy, pharma, ICT (phones, laptops etc), commodities.
How bad is this?
1) Steel + aluminium +25%
2) Autos is 25% (and some auto parts except USMCA qualified) - but note that Trump has realized that steel & alum are INTERMEDIATE GOODS and when you tax that then you got a big problem so he's BACKTRACKING on that for the auto sector, as in, they don't get steel & alum on top of auto
3) 10% on everyone ex China on top of above until early July in Asia.
4) China gets embargo level of tariffs or >100% and some >200%.
5) Exemptions for semiconductor, energy, pharma, ICT (phones, laptops etc), commodities.
How bad is this?
Tariffs are a tax on investment so Trump is PUTTING A TAX ON INVESTMENT ABROAD.
Specifically: steel & alum & auto ex USMCA and specifically China.
More to come of course but this is now.
He is starting to understand that when you tax a lot of stuff, especially sectoral, especially intermediates, you are SHORTENING SUPPLY CHAINS AS THIS COMPOUNDS.
A car is made of thousands of parts. Steel is part of it of course. So he has to make exemptions to make sure things don't kill the auto sector that he is trying to rescue/prop up. But supply chains are complicated.
The US used to be almost tariff free. Low single digit of trade-weighted tariff. That means a lot of PING PONG OF TRADE.
As in you can ship intermediates back and forth and have things assembled etc. SUPPLY CHAINS LENGTHENED.
Tariffs SHORTEN SUPPLY CHAINS.
Specifically: steel & alum & auto ex USMCA and specifically China.
More to come of course but this is now.
He is starting to understand that when you tax a lot of stuff, especially sectoral, especially intermediates, you are SHORTENING SUPPLY CHAINS AS THIS COMPOUNDS.
A car is made of thousands of parts. Steel is part of it of course. So he has to make exemptions to make sure things don't kill the auto sector that he is trying to rescue/prop up. But supply chains are complicated.
The US used to be almost tariff free. Low single digit of trade-weighted tariff. That means a lot of PING PONG OF TRADE.
As in you can ship intermediates back and forth and have things assembled etc. SUPPLY CHAINS LENGTHENED.
Tariffs SHORTEN SUPPLY CHAINS.
So this complex supply chains that is stretching across US-Canada-Mexico and Asia (ping-ponged across Asia from Japan to Malaysia/Thailand/China) etc is all going to get shortened.
So that is what tariffs will do. Supply chains will be more REGIONALIZED.
No matter what the negotiations will be - US w/ China for example, or US with other Asians or Europeans, the fact is that Trump tariffs are starting at MAXIMALIST positions and will settle at a MORE REASONABLE POSITION BUT STILL VERY HIGH TARIFF REGIME VS BEFORE.
And they will be very TARGETED to shorten supply chains to favor US/Canada/Mexico & maybe key allies in Asia and key allies in Europe.
US trade will China will ultimately be to serve rest of the world or to feed into the above. It will ultimately be cutoff. Because China and the US are strategically decoupling. They are putting a floor on that speed but the speed is towards decoupling.
So that is what tariffs will do. Supply chains will be more REGIONALIZED.
No matter what the negotiations will be - US w/ China for example, or US with other Asians or Europeans, the fact is that Trump tariffs are starting at MAXIMALIST positions and will settle at a MORE REASONABLE POSITION BUT STILL VERY HIGH TARIFF REGIME VS BEFORE.
And they will be very TARGETED to shorten supply chains to favor US/Canada/Mexico & maybe key allies in Asia and key allies in Europe.
US trade will China will ultimately be to serve rest of the world or to feed into the above. It will ultimately be cutoff. Because China and the US are strategically decoupling. They are putting a floor on that speed but the speed is towards decoupling.
Here is the simple question - WHAT HAPPENS NEXT? We know we live in a complex system that is intertwined between trade, investment, people mobility, financial systems.
So you can't move too fast & furious. You will break something. Trump knows this. He tested it and found the spot. The spot is Apple dependency on China. The spot is financial dependency on others as US imports capital & FINANCIAL ACTS FASTER THAN STORE PRICES.
Americans haven't felt tariffs. But US firms know. They are the most fierce and global firms out there.
Never underestimate American capitalist to be able to commoditize to maximize profits. That means their supply chains or suppliers are where most efficient.
And that is China for a few things. Let's talk about it.
So you can't move too fast & furious. You will break something. Trump knows this. He tested it and found the spot. The spot is Apple dependency on China. The spot is financial dependency on others as US imports capital & FINANCIAL ACTS FASTER THAN STORE PRICES.
Americans haven't felt tariffs. But US firms know. They are the most fierce and global firms out there.
Never underestimate American capitalist to be able to commoditize to maximize profits. That means their supply chains or suppliers are where most efficient.
And that is China for a few things. Let's talk about it.
The analysis of direct exposure to China from the US by sectors work for now because US tariffs on rest of the world remains at 10% for now (until early July).
The US imports about 1.8% of GDP from China in 2023. Note that tariffs on Chinese goods are at embargo level EXCEPT FOR SEMICONDUCTOR, ICT (LAPTOPS, PHONES ETC), which face pretty high tariffs of roughly 40% ish anyway but not embargo level.
The biggest bottleneck will be toys & baby strollers and car seats. Trump is probably going to exempt carseats and babystrollers. Their impact on CPI or quality of life for Americans is basically not much.
That being said, look at the intermediates. Basically these are parts that make up the final goods, whether textile or machinery etc. China holds a large markshare.
So that has an impact of we are embargo level. But note that you can still source from OTHERS.
The US imports about 1.8% of GDP from China in 2023. Note that tariffs on Chinese goods are at embargo level EXCEPT FOR SEMICONDUCTOR, ICT (LAPTOPS, PHONES ETC), which face pretty high tariffs of roughly 40% ish anyway but not embargo level.
The biggest bottleneck will be toys & baby strollers and car seats. Trump is probably going to exempt carseats and babystrollers. Their impact on CPI or quality of life for Americans is basically not much.
That being said, look at the intermediates. Basically these are parts that make up the final goods, whether textile or machinery etc. China holds a large markshare.
So that has an impact of we are embargo level. But note that you can still source from OTHERS.
Who are these OTHERS? Well, Asians and Europeans. These are the manufacturers of the world. Btw, are they just Chinese goods being rerouted? Or are they countries using Chinese intermediates or other Asian intermediates?
The point here is to say this:
a) Intermediates make a bigger difference than toys/babycarriages as FINAL GOODS ARE JUST A ONE-OFF SHIFT. Once you have raised that price, you basically reset yourself.
Just think of GST or consumption taxes that have been raised. It's a one time shift in price. Intermediates COMPOUND PAIN & so inflationary costs longer lasting & that has impact on investment decisions.
b) Trump needs the rest of Asia and rest of the world if he wants to go hard on China as the US NEEDS TO BE ABLE TO SUBTITUTE IT.
c) Trump team needs to realize that the US employment remains FULL and thus with wages high & people not willing to do mundane repetitive tasks, you have to be SELECTIVE. I think Miran knows it. Not sure about Navarro. You want STRATEGIC SECTORS not all MANUFACTURING.
a) Intermediates make a bigger difference than toys/babycarriages as FINAL GOODS ARE JUST A ONE-OFF SHIFT. Once you have raised that price, you basically reset yourself.
Just think of GST or consumption taxes that have been raised. It's a one time shift in price. Intermediates COMPOUND PAIN & so inflationary costs longer lasting & that has impact on investment decisions.
b) Trump needs the rest of Asia and rest of the world if he wants to go hard on China as the US NEEDS TO BE ABLE TO SUBTITUTE IT.
c) Trump team needs to realize that the US employment remains FULL and thus with wages high & people not willing to do mundane repetitive tasks, you have to be SELECTIVE. I think Miran knows it. Not sure about Navarro. You want STRATEGIC SECTORS not all MANUFACTURING.
What are strategic sectors? Well, the US pretty much has most of it.
Energy - checked!
Food - Checked
Steel - almost self sufficient
Aluminimium - nope hence 25% tariffs
Rare earth - nope but mining capability coming
High-tech manufacturing - aerospace, chips (design but not manufacturing but Chips Act have helped built some)
There is a list. Strategists know what they are.
Footwear and textile aren't strategic. There are now more clothes in the US than can be worn five generations from now. Not to say they are good clothes but these things are not going to matter when there's say a war.
The point is if you want to divert energy towards domestic production, it has got to be worthwhile an endeavour because, well, Americans are productive and don't need to do low value adding tasks but globalization has key flaws like strategic sectors have been ignored.
What's missing from the above list? Well, a few things but they are NOT TRADEABLE SECTRORS.
Energy - checked!
Food - Checked
Steel - almost self sufficient
Aluminimium - nope hence 25% tariffs
Rare earth - nope but mining capability coming
High-tech manufacturing - aerospace, chips (design but not manufacturing but Chips Act have helped built some)
There is a list. Strategists know what they are.
Footwear and textile aren't strategic. There are now more clothes in the US than can be worn five generations from now. Not to say they are good clothes but these things are not going to matter when there's say a war.
The point is if you want to divert energy towards domestic production, it has got to be worthwhile an endeavour because, well, Americans are productive and don't need to do low value adding tasks but globalization has key flaws like strategic sectors have been ignored.
What's missing from the above list? Well, a few things but they are NOT TRADEABLE SECTRORS.
Globalization & China selling cheaply goods (some below production costs) = GOODS DEFLATION for the past 25 years & the impact of that is that MANUFACTURING JOBS HAVE BEEN MOVED OFFSHORE. So while people can buy DISCRETIONARY GOODS CHEAPER, they face the following: ESSENTIAL GOODS HAVE BEEN ABSOLUTELY SKYROCKETED.
Now, what's inflated? Non-tradeable sectors. You know what they are:
Healthcare
College (higher education)
Childcare/Nursery
Housing
Food.
These things are NON-TRADEABLE mostly. The rise of inequality in the US is a reflection of corporations and wealthy people ABLE TO BORROW CHEAPLY (Fed ZIRP + QE) while at the same time ABITRAGE labor & environmental and taxation to MAXIMIZE PROFITS.
Meanwhile, the basic goods that Americans needs or helps Americans with upward mobility have been INFLATED.
Now, what's inflated? Non-tradeable sectors. You know what they are:
Healthcare
College (higher education)
Childcare/Nursery
Housing
Food.
These things are NON-TRADEABLE mostly. The rise of inequality in the US is a reflection of corporations and wealthy people ABLE TO BORROW CHEAPLY (Fed ZIRP + QE) while at the same time ABITRAGE labor & environmental and taxation to MAXIMIZE PROFITS.
Meanwhile, the basic goods that Americans needs or helps Americans with upward mobility have been INFLATED.
You say, well SERVICES HAVE BEEN EPIC. But not all service jobs are equal & manufacturing jobs have traditionally been GOOD AT ABSORBING LOW-SKILL LABOR.
Being waiter = no healthcare, likely no 401k contribution, & no paid time OFF. Even tips are taxed.
Being a full-time worker has much better perks & stability & that stability anchors and individual and a community and ULTIMATELY A SOCIETY.
Compare an Uber driven to say an Amtrak driver. They have different outlook on life. The former gives you flexiblity and good if you are an aspiring actor auditioning all the time & having other endeavors on the side. But as a breadwinning, family supporting job, terrible.
Being waiter = no healthcare, likely no 401k contribution, & no paid time OFF. Even tips are taxed.
Being a full-time worker has much better perks & stability & that stability anchors and individual and a community and ULTIMATELY A SOCIETY.
Compare an Uber driven to say an Amtrak driver. They have different outlook on life. The former gives you flexiblity and good if you are an aspiring actor auditioning all the time & having other endeavors on the side. But as a breadwinning, family supporting job, terrible.
I gotta run now. But Trump tariffs on China are bad but they are not like the world is going to fall apart bad like what you have read.
Why? They are basically non-essentials & can be ultimately substituted given time. But the reality here is that u need a bit of time (hence exemptions being added here on both the US and China side) & u need other places to substitute because let's be honest, no Americans want to pollute their cities or sit around sewing shoes. They want to good high-paying manu jobs.
And as time goes on, Trump will add more sector tariffs (strategic ones being considered are chips, pharma and shipbuilding) but he will also ADD MORE EXEMPTIONS & also negotiate deals.
But the bottom line is that US & China a strategically decoupling and Trump chaos has one certainty - if you are a US firm totally reliance on China, you better diversify your supply chains, like YESTERDAY.
That message is very clear to all the CEOS. And so tariffs will have their intended effect of TAXING INVESTMENT, or investment in China by US firms, even if they may or may not help Trump "win" trade wars.
The point is not about winning but to TAX INVESTMENT, especially US investment in China, so that they MOVE.
Why? They are basically non-essentials & can be ultimately substituted given time. But the reality here is that u need a bit of time (hence exemptions being added here on both the US and China side) & u need other places to substitute because let's be honest, no Americans want to pollute their cities or sit around sewing shoes. They want to good high-paying manu jobs.
And as time goes on, Trump will add more sector tariffs (strategic ones being considered are chips, pharma and shipbuilding) but he will also ADD MORE EXEMPTIONS & also negotiate deals.
But the bottom line is that US & China a strategically decoupling and Trump chaos has one certainty - if you are a US firm totally reliance on China, you better diversify your supply chains, like YESTERDAY.
That message is very clear to all the CEOS. And so tariffs will have their intended effect of TAXING INVESTMENT, or investment in China by US firms, even if they may or may not help Trump "win" trade wars.
The point is not about winning but to TAX INVESTMENT, especially US investment in China, so that they MOVE.
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