Good morning,

US April inflation came over night softer, and that's no surprise really - we knew that energy, food and service costs were going lower. Everyone said, well, what pain for China if April exports were strong, not to the US of course, but to the world (+8.1%)YoY. The same is said about US CPI. It's actually slower to 2.3%YoY despite a very soft USD & tariffs that started since February.

What does that mean? Why did the the US-China both come to the table to stop the embargo of trade? Can both of these arguments be true? Of course. First, we must talk about these different balance sheets. They are one and the same. But they interact differently.

CPI is a domestic phenomenon. US inequality/lack of affordable housing/high costs of college/healthcare/etc are DOMESTIC IN NATURE. We call it NON-TRADEABLE. Sure, higher steel & timber make building a house more expensive. Higher appliances also make it expensive. But let's be honest here, the biggest costs of the house is the land & next costs is the regulations and the permits and the actual time and capital erecting it.

California/NYC/Seattle where the jobs are all have regulations that make it very expensive to build. And that has been the case during LOW TARIFF REGIME.

So listen, just think if you live anywhere. When you get a paycheck, where does your money go? Well, if you rent or mortgage, then it's HOUSING.

Next, if you live in the US and send your children out of state or private for education, it's not a rounding error on two middle class incomes.

Of course, another essential - FOOD.
Another one is transport - that includes FUEL + Car (and indirect cost is TIME).

Goods, while you know, nice to have, durable goods you buy once and hopefully last you a decade or two, like a washing machine or a fridge or a microwave.

Toys, definitely like you buy according to age and once & don't repeat and prolly can get used because everyone disposes of this once the child is done.

Of course - China would say it didn’t care that there was an embargo on Chinese goods by it’s #1 customer but a 1trn surplus country with manufacturing share of GDP key to investment and consumption & indirect sector like services would care.

Why? Factories shut first (impact on China), shortages/empty shelves later (impact on the US & due to front loading much later & most goods are discretionary), & so the pain that China feels from trade war is real while the US is expectations of pain via financial assets movement, which may or may not come. And the reality is who blinked/caved first doesn’t matter. But anyone who laughed at this & said China can just hunker down & accept massive unemployment of 5 to 8millions is not realizing the importance of jobs, especially manufacturing job.

It anchors the entire economy, including services.

UK-US trade-deal and what does it tell you about Asian trade deals?

The UK got 100k auto for 10% vs 232 25% for autos & that's basically 100% of UK auto exports to the US (exported 104k in 2024)

UK got jet engines & plane parts at 0%, which is also a top export

UK got 0% on steel but the UK is on the verge of closing the last steel plant, which is Chinese owned anyway, so no benefit here but maybe it will help beef up some production.

10% on the rest of exports.

Mutual reduction of tariffs on ethanol + beef (agri win for the US but not so much) For autos, given the 10% tariff but at 100k quota, which is basically all of UK autos, there is no room for "rerouting" of other autos that won't get tariffed. Meaning, the lower tariff from 25% to 10% but with a quota is an interesting move that sets up for EU trade talks on autos.

Steel - UK not a threat so 0% means maybe UK can beef up product but less competitive than the US as the US is almost self-sufficient w/ steel

Agri - US will need to produce beef that UK standard to export. I suppose that can't be hard

Ethanol is at 0% tariff so a win for US agri. For US soybean producers etc, ethanol is a win but how big is it if its biggest export market, China, is shut?

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? 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.

I'm back in Hong Kong after being in Poland for two weeks. Poland is a country that is better every year (I have been going there every year since 2015) & a country that is very mindful of its geography and being next to two giants (Germany & Russia) that have historically invaded. Kaliningrad (Russia, which was a former Prussian or German town) borders the north & so the Pols are painfully aware the very thin line between peace and a potential invasion. The entrance to my husband's family farm marks several grave cites. One of them is the Tomb of Unknown soldiers from WW1 and we regularly find WWII remnants on the farm ground as well as rubbish from the communist collectivist era when it was part of the Soviet Union or Russian empire. Poland is an interesting country for me to visit as it is am EM with world class infrastructure but at the same time you can see in the people the pain of the past. If you see older Pols, they look like they have had a hard life in their body and face. This is very similar to what you see in China or other parts of Asia where the impoverish past is very recent and generational differences in skin/look/aesthetic reflect not just time but also transformation of society.

It is a marathon & not a sprint. Produce below costs & run losses & still produce & gain market share as your goods are much cheaper (selling below costs & hence running losses) & competition goes out of business.

Once you reach a critical mass of market share (monopoly) then the sector consolidates and u can raise prices. These companies can survive because they are backed by state policy that want certain sectors to develop & not worry about profit margins.

This is why Chinese equities underperform Indian equities or American equities over a long period but China dominates global manufacturing.

The EU trade deficit with China is basically what the US trade deficit with China used to be. And as the US markets increasingly shut out China, imports from China will rise as goods are produced at a cheap costs. If u look at China industrial profits, they have been terrible but product has continued to rise. Why? All about gaining market share, the long game. Profit margins for exporting are higher than domestic as competition is fierce so there is a strong desire to export vs selling onshore for diminishing return.

All this sets up for an unsustainable global trade picture & I suppose the question is whether Europe or others are happier with cheaper goods (the key thesis for global trade) or having to erect barriers to trade (protectionism like EV tariffs they imposed) beyond what they already have.

I'm going on Fox News at 240pm EST for the Charles Payne show to discuss tariffs impact on the US and Asia. Today, the US slapped anti-dumping duties on Southeast Asian solar with varying rates but they are essentially embargos on the import from the region, especially from Cambodia, Laos and Vietnam, and slightly less so Malaysia.

This is a result of the Biden administration probe that started a year ago that was initiated by a South Korean Hanwha Qcells, Arizona-based First Solar Inc and several smaller producers. South Korea is one of the countries that deployed a lot of capital to the US after the US imposed tariffs on solar on China a decade ago and recently Biden introduced industrial policy the IRA.

As the US gave Southeast Asia exemptions, about 70% imports came from the region. But now with anti-dumping duties, that is essentially done for US markets. But note that most of these exports are by Chinese producers that committed capital to arbitrage tariffs. They already started to halt production last year as the anti-dumping duty probe started. Note that this is an interesting study because it is a bipartisan issue of using antidumping duties/tariffs to protect a domestic industry or foreign companies that have invested capital in the US (Korea's solar). Meaning, it raises costs and ultimately is targeting Chinese solar. Much of Cambodian solar is Chinese. Is this a big loss for the region? Well, even for companies that are not Chinese, the tariffs are a reminder that the costs of allowing Chinese investment leads to also domestic solar companies in Vietnam being smacked with tariffs.

While it is just solar, it raises the question of two issues: Where is Chinese solar moving next to avoid tariffs to the US? If that's not possible, then that means it will need to sell to wherever it can (Europe!).

For the Southeast Asians, the impact is two folds.

Let's talk about Trump tariffs. They are up, it's a question of whether how much, to whom, which sector rather than whether.

I want to clarify a simple fact that needs to be nailed home - trade and investment go together. Tariffs are a friction to trade & if you just take the idea that tariffs are going up (we'll discuss soon the details) then INVESTMENT IS GOING TO BE RESHUFFLED.

Half of global FDI is US driven. Global investment will be reshuffled. Okay, let's talk about first w/ who is LEAST TARGETED & we got to who is MOST. Trump trade authorities come from 3 sources:
1) International Emergency Economics Power Act (IEEPA) to give the president the power to declare a national emergency & impose tariffs.

He did this w/ fentanyl for Mexico & Canada + Reciprocal tariffs.

2) Section 232 Tariffs that basically gives the Secretary of Commerce (Lutnick) the power to do a COMPREHENSIVE investitations to determine sectors that undermine US national security

3) Section 301 Tariffs - Basically to target a specific country, this one is a China tariff one and the power goes under USTR.

The questions is what is Trump's team plan for getting these materials for the US now that we are on track for a Cold War.

If globalization didn't consider the strategic aspect of production, as in offshored so much that you no longer have what you need for production and blind faith in a globalized worth that has few if not just 1 supplier, then what is the game plan for deglobalization? Interestingly:

a) Japanese companies have more than a year of supply as they experienced this with China in 2010 when China used rare-earth as leverage in geopolitics;
b) American companies have LITTLE OR NO INVENTORY;
c) The only US mine - Mountain Pass - not commercially viable until end of the year.

So I guess they will have to buy it via third market that will mark this stuff up. Tariff arbitrage is a new industry.

Made in China is essentially done in the US if tariffs stay where they are. For final goods, it's just a one-off shift in price & transitory. That to me is so shocking if you think about it.

But what about intermediates? That's about half of total imports. Because it impacts production in the US and will cause supply shocks & won't be transitory. Trump Team on Reciprocal Tariff Day or "Building Leverage Day" or playing all his cards at once:

I'll smack everyone with tariffs because I am #1 in importing. If you have a trade deficit, you get a tariff.

Actually, on second thought, I'll also tariff my net customer Australia who buys more from us and has zero tariff.

Take that! How do you like Liberation Day!!! Winning.

This is a thread on Trump's latest barrage of tariffs:
1) What are they?
2) Who is most impacted?
3) And what are the Asian economies going to do about it, short-term and medium term?

@sharp_writing
asia.nikkei.com/Opinion/Vietna… Trump reciprocal tariffs are not about "cheating" and differential in "tariff rates" or "non-tariff" barriers. They are simply benchmarked using outcome & calculation using bilateral trade balance divided by US exports divided by 2. Yep, basically, trade balance. So?
a) Everyone gets 10% at the minimum - so Australia, which has a trade-surplus and an ally, whelp, gets 10%; Trump team high-fiving each other on this win.
b) And then there's the mid range of 20s - Yes, Japan + Malaysia, South Korea and India. SK is supposedly having an FTA with the US or free-trade and there's no tariff barrier between the two but you know, who cares, let's slap this one because they somehow "cheat" and "rip us off" because, well, we import Korean stuff like cars and ships and makeup.
c) Indonesia, Taiwan and Thailand get slapped with 30s ish level and it doesn't really make sense but whatever. Oh, interestingly, semiconductor is exempt, which is like more than 50% of Taiwan's export to the US so I mean, why be so mean unless they are exempting it to tax later.
d) China gets 54% or actually part of the 30s - 34% to be precise and with 20% that means it's 54% and not sure if this is on top of what other tariffs. Anyway, we know they are hawkish on China so Vietnam is interesting because, little Vietnam has been a good trade partner but gets slapped anyway with 46%. Yep, 46%.

Link to research:
research.natixis.com/Site/en/public…

At the Asia Society to listen to Asia’s view of Trump 2.0. Will share later ideas shared!

https://twitter.com/Trinhnomics/status/1906588239588454537

China:

Highly popular in China as he is entertaining as he has made China great again. His pressure has pushed China reforms forward. China has become more resilient and less reliant against the US. Chinese indigenous tech is decent & confidence domestically is highest ever. External pressure has rallied stakeholders around the central leadership for advancing tech & expanding domestic demand. Exports will not be a key driver & infra ROI down. China has benefited from Trump pressure.

Trump has a good story teller for China as Trump has helped the China story. The Chinese is projecting stability in a more volatile world & saying that China is open for business while the door is closing by the US.

DowJones & SPX down while China is up. Nasdaq down & HSI up. All thanks to Trump.

Trump "Liberation Day" is coming & if it is anything to go by like other tariff days, it won't feel "liberating." Why? Because he is front-loading bad news.

It sounds crazy but I have given it some thoughts and here are what I think his short-term objectives. First, we know he has 20% tariffs on China on top of others so we are now got a lot of friction to trade with China, which the Trump administration sees as its #1 security threat.

But isn't happy with this friction to trade and investment and keen to close loop holes. Remember that Biden also increased tons of investment and tariff curbs with China.

How to close it is the question? It requires others to do it. Who are the others? The easiest is Mexico and Canada as they have USMCA, which Trump agreed in 2020 (previously NAFTA).

I have a thread that I was going to make about auto tariffs but instead, I decided to just read/listen. The Peterson Institute has a good paper on modeling 25% tariff on the EU I am listening to this one by Paul Krugman because, well, he's a free trader and a great trade economist. And most importantly, he's old enough to have some historical perspective. Interesting to listen to him (I am a student of Fukuyama as well) because I think what's interesting is that people of his generation couldn't imagine the world we are in today in the 1980s when they recommended the policies they did.

tradetalkspodcast.com/podcast/206-pa… If you don't like listening, here's the transcript: tradetalkspodcast.com/wp-content/upl…

Let's go to the last part of the Miran's paper, which is currencies (Chapter 4 & 5).

Remember that his articulation of all the ills of the US trade imbalance is about the USD as a reserve currency & also the security support the US has to do (two burdens) that has grown, dwarfing the US economy RELATIVE size.

So let's talk about it. But before we even talk about, we have to go through a bit of economics history, if that is okay with you. We'll keep it pretty brief. Triffin was a famous guy. He famously testified before Congress in 1959 & predicted the collapse of the Bretton Wood system, which happened in 1971 when the US broke away from the gold-dollar link.

What did he say? Well, simply, that as a gold-dollar reserve currency, the US would have to expand its liabilities as fast as required for global trade. But since it's backed by gold, which grows SLOWER than global trade, then we got a problem as lower rates would cause a run on the gold stock or dollar liabilities > gold stock.

And if the US didn't accumulate fast liabilities, well, global liquidity would shrink as US rates would go to high and cause global deflation.

If you want to learn more about it, see the paper below. The author btw isn't a fan of Triffin so says he got a bunch of stuff wrong and whatever he got right, it was probably not by design but accident.

Either way, he predicted that & got very famous obvs. What else did he predict?

bis.org/publ/work684.p…

Okay, let's talk about Trump end game. To do that, let's read Stephen Miran's "A User's Guide to Restructuring the Global Trading System" together.

Note that there's a disclaimer that this is not a policy advocacy but catalog of tools available for them to "reshape the global trading system."
hudsonbaycapital.com/documents/FG/h… Trump has been talking about global trade & how he thinks the US trade deficit is unfair since the 1980s (see his Oprah interviews) so this is beef he carries and he has the power to do it.

Trump 1.0 was a test case and Trump 2.0 is going to go full steroid on what he views as the current world order not working for the US. It may work for u, but not for him & his team is going to change it. Here's how Miran is laying it out.

Emerging Asia Braces for Trade War Impact: Losers and Winners of Trumponomics

A thread. Let's go!

research.natixis.com/Site/en/public… Let's start with the basics. What's on & what's promised/threatened. So far, on 12th March 2025, we have:
+25% on steel & aluminum on everyone (for steel, not new for everyone & just those that got exemptions. In Asia, that's AU, SK, and Japan. Canada & Mexico got exemptions and so did EU).
+20% on China, including Hong Kong.

Hello, I want to point one thing out. Vietnam is not just a rerouting place for China. How do we know that? Because Vietnam's biggest exports are not even Chinese investment - it's South Korean, yes Samsung Electronics.

People don't just invest in Vietnam because China is targeted. The shift happened before Trump trade war. See Samsung Electronics.

They do it because Vietnam WANTS that investment. It wants manufacturing. It puts it as a priority above all else.

And because Vietnam's cheap. It got cheap labor. It got supportive policy, both hard and soft infra. Example, Samsung Electronics started moving out of China into Vietnam way before Trump trade war of 2018.

Why did they move to Vietnam? Well, the Vietnamese wanted it & provided tons of incentives.

And why did the Koreans move there? China was GETTING EXPENSIVE. And the Chinese are starting to compete with them.

And then there's the geopolitical issue between China and South Korea.

So South Korea started to move to Vietnam and once that became a success, it INCREASED INVESTMENT and then other South Korean firms came.

Trump is exempting autos from Canada and Mexico 25% and my guess is more exemption is coming (energy is an easy one I guess even with 10% it seems ill-advised).

There is a ceiling to Trump tariffs and that's economic reality of higher prices (domestic production can't suddenly increase at the same pace as tariffs). If he paces his tariffs, targeting only certain sectors/country, then he can mitigate inflation fallout and shift supply chains. If too fast and furious, it leads to demand destruction.

And so here we are. He is backtracking but w/ looming threats of auto and reciprocal for 2 April. But markets sense that something has got to give. And so US growth slowdown in the short-term as imports blow up with front-loading (even gold is getting front-loaded), and any surge of industrial production will take time, esp with capex intensive sectors like auto.

This leads to rate cut odds & stagflation risks. And so the dollar falls.

But it's falling from great heights so definitely due Trump tariffs or not.

Okay, I'm going to talk about what Trump has done & what I think he will do & then I'll talk about Vietnam. It's a long-winded way to get to that answer but necessary.

To understand what he will do, we must know his end game. Some people say, "Well, dude doesn't know himself. Look at his rambling."

Let's take a look. Trump has been President for a month and 1 week. So far, in chronological order, what he has done:

4 February, slapped an additional 10% tariffs on China. This time, this is the first time that it includes Hong Kong. So while the amount is smaller than 60% mentioned, it widens in territory. This hasn't been rescinded and is ON. This covers roughly 14% of total US imports.

26 Jan he threatened Columbia 25% tariffs, mostly because they didn't want to take his deportees (remember he wanted to deport but to do that need origin countries to accept) - that was then solved immediately.

At the same time (Feb), threatened Canada & Mexico w/ 25% tariffs, also basically want them to take deportees and hold the borders so to speak, and that is delayed until 4th March but last night he rambled something like April. Irrespective, this is not yet implemented.