How The Trade Imbalance -- Tariff Story -- Plays Out -- Not Ready For Prime Time -- Monday, April 7, 2025

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Not ready for prime time.

This is how the tariff story plays out:

• lots of rhetoric; lots of sabre-rattling;
• for reasons I do not understand, the big story seems to revolve around AI, huge data centers, and blades -- which, if accurate -- is a story about energy -- particularly natural gas
  
• the gap between the US and the rest of the world with regard to AI will only widen
• these large data centers use so much energy and the rest of the world simply doesn't have it
• as hard as the US equity market is getting hit, the rest of the world is in a much worse place ...
• the Chinese billionaires will feel it first and Xi was already on "borrowed time" with regard to the billionaires
• if this goes badly, Xi could be out, and that would allow new leaders to save face by working with Trump on tariffs
  
• elected leaders in EU, UK already getting an earful from their voters
• China, most of the rest of the world (the part of the world that counts) -- the economy of non-US countries survive only because of the trade imbalance
• the leaders of every country know that -- the trade imbalance and what it means to their economy
• it's now a race -- and the story is not yet being told -- but it's now a race among every country to protect its trade (with or without a trade imbalance)
  
• four major sectors: China, Asia (excl China), EU, UK
• it's like March Madness
• the top four picks coming out of the top 16:
• China (#1) vs Asia ex China (#1) in the east bracket
• EU (#1) vs UK (#1) in the west bracket
• small Asian countries are more nimble, and able to move more quickly and to force China's hands, Trump will offer deals to Asia ex China before offering deals to China
  
• Asia excl China comes out ahead
• the EU, heavy with regulators and way too slow to react with a dozen of competing countries, will lose to UK with regard to Trump making first / early deals
• the race:
• in the east, Vietnam (Asia excl China) gets a "push" from Trump
  
• in the west, UK gets a "push" from Trump
• oh, by the way, the UK was the first to suggest this very possibility -- one story over the weekend;
• and this is it: once one country gets a deal with Trump, the dominoes fall fast
• this is the risk for every country: which country is left holding the bag -- that is, the last country to see tariffs dropped.
• again, every country is going to do what they can to protect their trade advantage
• if UK gets the edge in the west, the EU will follow quickly
• if the EU starts to show signs of life, Asia / China will start to go wobbly
• Asia excl China will move quickly to drop tariff rates, and their rates are so high they can afford to come down significantly and still hold a positive trade imbalance
• the art of the deal: 
• Trump starts out big and then comes down in price ... 
• likewise, he and Musk talk about "a trillion dollars" in trade imbalance. Even if they get half that, they will be happy -- that's the short term. 
• in the long term, politically, Trump and Musk can point to all the chip factories, LDCs, auto manufacturers, etc., coming back to the states.

The "tipping point" to all this: the first country to make a deal with Trump.

It's going to be the UK.

Who gets left holding the bag: China or the EU?

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Parting Thoughts

Does any county in the world (outside of the US) have a "Fed" that can goose their economy? I know the EU has a lot of regulators to slow their economies.

There has been some discussion that car-buyers in the US have been out in large numbers the past two weekends to take advantage of existing prices before tariffs go into effect.

Imagine what happens -- especially in the housing market -- if the Fed cuts rates.

The Fed:

• a lot of folks think the Fed is already behind the curve
• several months ago, the Fed was asked point-blank if they were considering possible Trump policies
• JPow's answer: they didn't deal with hypotheticals; IIRC the first replies with regard to the tariffs, the Fed said they were not modeling tariffs in their projections and then gave a litany of reasons -- mostly they didn't have the models in the first place
• last month, the Fed said they were now following the tariff story -- and again that was before anything was announced -- I would call that "anxiety"
• to me, this has all the earmarks of piss-poor planning. 

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What's Not On Today's Radar Scope

The stories not getting much air time today:

• the war in Europe
• events in the Mideast
• deportations
• Hegseth's security debacle
• measles outbreak
  

Out of sight, out of mind --> opportunities:

• how will Putin play this opportunity in Ukraine?
• how will Israel/Trump play this opportunity with regard to Iran
• at some point, Israel/Trump need to stop the source of the Houthi munitions
• deportations: actual numbers no long matter; "quality" vs "quantity"
• college agitators will take a low profile
• Trump administration voids "all" Sudanese visas -- affects 300,000 Sudanese in the US
• other agitators will get the message
• University of Southern California: #1 source of foreign students -- China?

• China cannot afford to have all their US students return to China.
• for many, many reasons
• least of all: access to technology
  
• Trump holds another "trump" card (pun intended)
• so what's Hegseth up to? Headed to Panama. 
• and RFK, Jr? Headed to Texas / New Mexico -- stresses importance of vaccines.
• deaths doubled over the weekend; went from one to two
  

The stories not getting much air time today: the difference between Trump and Biden --

• work
• one was asleep (or worse) for four years; was incredibly, in hindsight, inactive
  
• one is active 24/7
• outlook
• one had a "sorry" outlook on life
• one is optimistic and holds an "America-first" outlook
• staff
• Trumphas some really, really, really bright people working for him
• yes, and some really dumb folks and some really bad ideas, but that's true of all administrations; that's how politics work
• most interesting: with all that's going on, the press attempt to make Trump's weekend of golf a story did not work; I saw the story once and had to look for it
• tonight: all attention on NCAA men's basketball championship