Tariffs implemented today are just the start of suite of planned levies that would bring US tariffs to above the Smoot-Hawley days in just a few weeks.

Even with modest retaliation by trade partners, these policies are shaping up to slice 2% off US real growth.

Thread. The new admin followed through on its promise to impose 25% levies on CAN and MEX and an additional 10% on China today, bringing the total costs of these new tariffs to an estimated 160bln on US consumers and biz. That marks the implementation of just over 40% of the plans.

The most recent proposed tariff additions bring the total increases to well above campaign promises.

The plans in total brings US duties to near 20% of imports, a level not seen since Smoot-Hawley and will slice 2% off GDP even with conservative retaliation estimates.

Thread. Over the last couple days the admin has proposed an additional 10% tariff on China starting 3/4 as well as new 25% tariffs on the EU planned on 4/2.

These levies taken together would increase costs / government revenues by nearly 300bln/yr, reflecting some import substitution.

The post election crypto euphoria is collapsing.

Many have completed a full round trip and even BTC is down 20% from highs. While there are idiosyncratic elements, if past cycles are any indication, these are likely first signs of liquidity drying up across markets.

Thread. Bitcoin is down 20% from post-election highs.

While DOGE keeps chopping, Congress is now signaling a desire for even bigger cuts.

The house budget passed last night extends the TCJA with 1.5-2tln in pay-for cuts to programs for the poor, outlining a big fiscal tightening ahead despite no deficit progress.

Thread. Because TCJA is current law simply extending it will simply keeps the status quo and wouldn't have an incremental positive or negative drag on the economy.

What matters then are any other cuts that have to get passed in order to get it extended, which create a fiscal drag.

While US economic conditions are surprising to the downside relative to euphoric expectations, the rest of the developed world are beating pretty depressed expectations coming into '25.

The pressures have started to turn the US exceptionalism trade, with room to run.

Thread. As discussed in yesterday's thread, US growth is coming in below the very elevated expectations coming into the year and that's even before the DOGE and other fiscal efforts show up in the data. h/t @yardeni for the charts.

https://x.com/BobEUnlimited/status/1893984352414937467

Economic data is coming in weaker than expected even before the growth negative fiscal policies from the new admin start to show up in the stats.

And for the first time we are starting to see some cracks in the euphoric expectations built into these markets.

Thread. As @Downtown highlighted a couple weeks ago, this is most important chart to understanding how things may play out in '25.

Expectations in the market are much higher than coming into previous years even as growth slows, which creates the risk of a disappointment ahead.

Japan is experiencing a temporary supply shock in rice prices, contributing to sharp rises in reported inflation.

But with services price growth still contained, the FX stable, and wages still lagging behind price gains, an aggressive tightening looks unwarranted.

Thread. The headline inflation numbers from Japan overnight indicated the recent inflation acceleration continued, with 6m SA numbers back near cycle highs of 4%.

Fresh tariffs discussed on autos, pharma, and semis likely adds 100bln to the cost burden, raising the total if implemented to ~300bln/yr.

Rising import costs with similarly sized retaliatory tariffs on US products could create a near 2% drag on US growth ahead.

Thread. As a reminder there are 2 main impacts from the proposed rise in tariffs - increasing costs on US consumers and the hit to US exports from retaliatory tariffs. These new proposals yesterday add nearly 100bln more in burden.

Federal workforce cuts are the only economically meaningful impact of the DOGE process so far.

250k layoffs of probationary workers added to 75k of future unfilled positions from the buyout totals a couple months of payroll growth. Other cuts so far are just noise.

Thread. In recent weeks the admin announced intention for a significant workforce reduction, and there are signs that meaningfully started over the weekend.

The primary focus is on probationary workers (typically <1yr) which represent about ~10% of the gov workforce or ~250k workers.

Wage growth is slowing and most indications show it's running only modestly above pre-covid.

For an economy now solely reliant on HH demand, the combo of slowing labor force growth and weakening wage growth puts increasing burden on HH dissaving to keep growth going.

Thread. The US economy has experienced a pretty strong income-driven expansion in recent years, with nominal income growth financing a continued expansion in nominal spending. With both running around 5-6%.

Implementation of across the board reciprocal tariffs is a notable step up in the impact of the trade war on the US economy.

Just these policies alone will raise the tariff rate on US imports from 1.5% to 4.8%, taking the total proposed tariff rise to just over 11%.

Thread. Expectations are that the new admin will announce across the board reciprocal tariffs as soon as later today. With the vast majority of major economies with higher tariffs on US goods than the US places on their goods this would represent a significant step up on import levies.

Market expectations of future inflation are rising to highs just as underlying inflation momentum is slowing sharply.

Without a pretty extreme rise in tariffs, current medium-term expectations look too elevated.

Thread. 5-year break even inflation rates have risen to their highest level in since early '23 in recent days, a time when headline inflation was in the mid-6%s and core checked in at the mid-5%s. Pretty different from today.

Nearly all the big policy efforts by the new admin announced so far are likely to create a drag on growth over the next 6-12m.

These moves create a risk that investors expectation of the most pro-business administration in the post-war era will not come to reality.

Thread. The sharp constraints on immigration and pickup in enforcement are likely the most impactful policy shift so far. Reducing foreign labor supply significantly will keep labor markets tight and reduce potential growth.

https://x.com/BobEUnlimited/status/1887481174701818032

With nearly all job growth coming from foreign-born workers in the last 3yrs, the new admin tighter immigration policy will have substantial macro consequences.

In just a few weeks crossings have fallen by >90% from peak and domestic arrests are 3x higher than before.

Thread. Most of the expansion of the US labor market in recent years has come from a rise in employment of the foreign-born workforce. The native born worker level has remained largely flat since March '22.

While there is a lot of focus on a trade war, the real risk is a capital war.

Foreign central banks selling their 3.5tln in treasury bonds could wreck US markets and economy. And it looks like they tested it out already just after the election.

Thread. TIC estimates about 3.5tln in US treasury holdings total by foreign central banks, though these central haven't been big players for years as they scaled back reserve accumulation, bought other US assets or lent USD abroad. The vast majority still in custody at the Fed.

A sharp $1-2tln/yr slowdown in government spending in line with recent statements would have a big macro impact.

But with congress holding the purse, there are real questions about whether the President's actions are actually slowing spending. No signs yet.

Thread. One of the clearest ways to see the intentions of the federal government expected spending behavior is based on the QRA announcements which indicate the expected future deficit. The first from the new treasury secretary showed no change from the same period last year.

The US tariffs and likely retaliation adds up to a roughly 1% drag on US real growth if they are in place for an extended period of time.

Likely manageable its own, but a real risk when paired with other short-term negative growth policies and euphoric expectations.

Thread. A trade war causes rising prices on the tariffed goods coming into the country (offset by substitution) and a fall in exports as foreign countries producers and consumers engage in their own substitution.

The new admin suggestion they will follow through on 25% MEX & CAN tariffs created a ripple in markets late yesterday.

While the moves were modest, USD rallied, stocks and bonds sold off, and gold rose, giving some market-based direction on possible tariff impacts.

Thread. There was swift market impact from the suggestion that the President would follow through on his day 1 rhetoric of Feb 1 tariffs of 25% on CAN and MEX.

The USD rallied vs. CAD by more than a penny initially on the news and then recovered some of that afterward.

The ECB has abandoned their inflation-only focus in favor of policy shifts pro-actively supporting growth, particularly for depressed Germany.

A big shift in their decision making framework, reinforced by their continued cuts given conditions.

Thread. Europe has a sticky inflation problem with low commodity prices helping drag down headline and masking the persistence of the much larger services sector. Headline remains above their mandate and core even higher.

Achieving expected mid-double digit earnings growth with ~5% topline requires rapid margin expansion.

Despite all the rhetoric of how AI is boosting productivity and margins, companies just aren't seeing it. Topline is muted and margins aren't surging.

Thread. One of the biggest indications of euphoric growth expectations are analysts penciling out a boom in earnings over the next year - rising to near 17% y/y by YE '25.

DeepSeek news hitting the kindling of euphoric expectations and driving a sharp reversal overnight.

Here is how its spreading across global markets. Thread. While the DeepSeek news was known at the end of last week, many investors took time over the weekend to digest the news.

The result has been a plunge in US markets from the opening, that looks to be accelerating as US investors kick off their day. S&P500 down 2.4%.