Trump Making Powell The Fall Guy Again
“I’m not happy with him. I let him know it, and if I want him out, he’ll be out of there real fast, believe me.”
— President Trump, referring to Fed chair Jerome Powell
April’s Philly Fed M-PMI fell 39 points to -26.4, its lowest reading since April 2023. That followed the drop-off in the New York Fed’s M-PMI during the month, suggesting that the national ISM M-PMI will be below 50.0 this month.
The index for new orders in the Philly survey fell from 8.7 to -34.2, the worst reading since April 2020 (chart). Shipments were also down steeply, while employment dropped 20 points to 0.2. That suggests less expansion, but no layoffs.
Ominously, the Philly Fed prices-paid index increased from 48.3 to 51.0, the highest since July 2022 (when CPI was climbing toward 9.0%). Expected goods inflation is likely to keep the Fed on hold with respect to rate cuts, regardless of Trump’s tantrum about Powell.
BTW, Powell has said he would not step down, if asked.
The Home-Building Season Is Starting Off Badly, New Data Shows Economic uncertainty and rising material costs from tariffs darken the outlook for newly built homes
Housing starts, a measure of home construction, dropped 11.4% in March from February, according to new Census Bureau data. That marked the steepest plunge in a year.
Home-building giant D.R. Horton also signaled that the market for new homes is shaping up worse than anticipated. The company on Thursday missed earnings expectations and cut its full-year guidance, citing a slower selling season than it had hoped for. (…)
Now, President Trump’s tariffs threaten to hobble the market for new homes further. Economists say the trade war is increasing the likelihood of recession. Americans tend to postpone big purchases when they are concerned about a slumping economy, fear that their jobs may be at risk or worry about stock-market losses.
Home builders are also vulnerable to higher costs on steel, glass and other imported materials. About 7% of the goods used in residential construction are imported, primarily from Canada, Mexico and China, which face Trump’s tariff threats.
The administration’s deportation of workers without permanent legal status is another blow to an industry that relies to some extent on these laborers. (…)
D.R. Horton, meanwhile, downplayed the impact of tariffs on its business. The company said it expects its large size will help it absorb any near-term cost shocks from new tariffs.
“We do expect to be able to continue to leverage our relationships and our scale to navigate the cost environment better than smaller builders,” Jessica Hansen, D.R. Horton’s senior vice president of communications and people, said on an earnings call Thursday. (…)
MAGA is not for all…
Trump Says He Is Reluctant to Keep Raising Tariffs on China
President Donald Trump said he was reluctant to continue ratcheting up tariffs on China because it could stall trade between the two countries, and insisted Beijing had repeatedly reached out in a bid to broker a deal. (…)
Trump on Thursday said he was reluctant to keep raising those duties — and suggested he might be open to lowering them.
“At a certain point I don’t want them to go higher because at a certain point you make it where people don’t buy. So I may not want to go higher, or I may not want to even go up to that level,” Trump said. “I may want to go to less because, you know, you want people to buy.” (…)
I thought tariffs sought to stop Americans buying Chinese stuff.
CHINESE CONSUMER WATCH
From Goldman Sachs. Note that these are all in nominal dollars but probably very close to actual volume given near-zero inflation in China.
According to the NBS quarterly household survey, household disposable income grew by 5.5% yoy (5.7% quarter-over-quarter annualized) in Q1, vs. 5.6% yoy (7.0% quarter-over-quarter annualized) in Q4.
Household nominal consumption growth measured in year-over-year terms rose to 5.2% yoy in Q1 from 4.5% yoy in Q4, thanks in part to the ongoing consumer goods trade-in program.
On a sequential basis after our seasonal adjustment, household consumption per capita in nominal terms accelerated to +9.3% quarter-over-quarter annualized in Q1, vs. an increase of 5.9% quarter-over-quarter annualized in Q4. The acceleration in consumption growth was mainly driven by stronger spending on food, clothing, education, culture and entertainment.
The household savings rate decreased in Q1 after seasonal adjustments and fell slightly below pre-Covid trend implied levels, and our estimated cumulative stock of household “excess savings“ edged down to RMB 3.0tn in Q1 from RMB 3.1tn in Q4 accordingly. There are RMB 52 trillion “excess deposits“ in household bank deposits and growth remained largely stable in Q1 vs. Q4.
Thanks to the ongoing consumption boosting measures and improved nproperty sales in top-tier cities, the NBS consumer confidence index ticked up in the first two months of this year (February as the latest data available).
Now Trump Wants a Shipping Tax ‘If this happens, we’re out of business,’ says one shipping CEO.
As if President Trump’s tariff blitz isn’t causing enough heartburn. Now his Administration wants a shipping tax that would raise costs across the economy and make U.S. exports less competitive.
U.S. Trade Representative Jamieson Greer recently proposed to charge fees on Chinese shipping companies and all carriers that use Chinese-built vessels. Fees would range between $500,000 and $1.5 million every time a Chinese-built ship stops at a U.S. port, plus a surcharge for operators with large orders from Chinese shipyards.
Mr. Greer has also proposed export quotas for U.S.-flagged and -built ships that would increase over time. At the start, 1% of U.S. ocean-carried exports would have to be transported on U.S.-flagged vessels of U.S. operators. This would increase to 15% by the seventh year, and 5% of those ships would also have to be built in the U.S. (…)
But China’s dominance has come mainly at the expense of South Korea, Japan and other countries, not the U.S. American-flagged ships cost about 4.4 times more to operate than foreign-flagged vessels. They are also four to five times more expensive to manufacture, which is why even the Netherlands and Finland surpass the U.S. in shipbuilding.
A large culprit is higher union labor costs and inefficiencies caused by trade protection—namely the 1920 Jones Act, which requires that goods are transported between U.S. ports on American-flagged, -operated and -built ships. Shielded from competition at home, U.S. shipbuilders are uncompetitive globally.
No large U.S.-built ship has been sold to an overseas buyer in decades. Mr. Greer’s proposed fees and export quotas won’t change that. All they will do is raise costs for U.S. businesses and consumers already whacked by Mr. Trump’s tariffs, which, by the way, will make U.S. shipbuilders even less competitive. Steel makes up 60% of a ship’s costs.
Mr. Greer is reportedly revising his plan to mitigate the harm to exporters, though the fine print will matter. Meantime, this looks like another example of this Administration’s ill-thought, self-damaging economic nationalism.
- U.S. Moves Ahead With Plan to Charge Fees on Chinese Ships Trade representative plans to charge ships for each voyage, not for each U.S. port call, following industry pushback
The U.S. Trade Representative’s office on Thursday released the plan to charge steep fees on Chinese-owned and operated ships, and lower fees on Chinese-built vessels operated by non-Chinese carriers.
Ships will be charged for each voyage to the U.S. and not for each call at a U.S. port, a step back from an earlier proposal that had drawn sharp criticism from a raft of industries that warned of devastating costs to consumers and businesses. The USTR on Thursday said the fees will only be imposed on any given ship up to five times a year.
Starting in six months, Chinese owners and operators will be charged $50 a net ton on each U.S. voyage. This fee will increase by $30 a net ton each year for the next three years. Non-Chinese operators of Chinese-built ships in six months will be charged based on net tonnage or by container, starting at $18 a net ton or $120 a container. This will increase by $5 a net ton, or the proportional amount for each container, in each of the next three years. (…)
China churns out more vessels than any other country. Its shipyards account for nearly 29% of containerships on the water and 70% of containerships on order, when measured by capacity, according to data firm Linerlytica. The nation also dominates construction of shipping containers and ship-to-shore cranes. (…)
The USTR said fees and restrictions on any given vessel will be suspended for up to three years once carriers can show proof of an order of a U.S.-built vessel. (…)
The USTR said it would charge foreign-built car-carrier vessels based on their capacity, starting at $150 per car equivalent unit beginning in six months, to encourage U.S.-built car carrier vessels.
USTR won’t charge fees on bulk commodity exports on ships that arrive in the U.S. empty, nor on voyages in the Great Lakes, Caribbean and between U.S. territories.
The USTR also said in three years it would impose restrictions on transporting liquefied natural gas via foreign vessels and will increase the restrictions incrementally over the following 22 years to encourage the building of LNG vessels in the U.S.
- US farmers have expressed dismay that an overly punitive fee structure would harm their ability to export goods by forcing ships to visit fewer American ports in an attempt to reduce the fees they have to pay. (FT)
China stops buying liquefied gas from US Standstill shows how Sino-American trade war has spilled into energy sector
(…) “There will be long-term consequences,” said Anne-Sophie Corbeau, a gas specialist at Columbia University’s Center on Global Energy Policy. “I do not think Chinese LNG importers will ever contract any new US LNG.” (…) raising questions over the huge expansion of multibillion-dollar LNG terminals that is under way in the US and Mexico.
Last year, only 6 per cent of China’s LNG came from the US, down from a peak of 11 per cent in 2021. However, Chinese companies including PetroChina and Sinopec have signed 13 long-term contracts to buy LNG from US terminals, some of which run to 2049, according to data from Kpler.
Such long-term deals were essential for getting huge LNG projects off the ground in the US, though Corbeau said developers have recently tried to renegotiate terms to take into consideration rising inflation and the costs from US tariffs. (…)
An Even Dumber Idea Than Tariffs If import taxes don’t rebalance the economy, will Trump try a partial default on Treasurys?
This newspaper’s editorial columns a couple of months ago branded President Trump’s tariffs on Canadian and Mexican imports “the dumbest trade war in history.” Alas, my colleagues and I might have spoken too soon. A much, much dumber one is lurking just around the corner: an export tariff on U.S. Treasurys.
Welcome back to Intellectual Trumpism. If you gaze past Mr. Trump’s personal bluster and inconsistency on trade policy, it’s starting to look as if the White House is manifesting the views on the global economy of a circle of unorthodox economists. As Mr. Trump implements—granted, haltingly—these economists’ ideas on tariffs, we should take seriously the risk that the administration will push ahead with some of their other ideas, this time on global financial markets. (…)
The Trumpist idea is that historical factors have pushed America into the role of furnishing the world’s safe assets, particularly the dollar and the Treasury note. Global demand for these assets is enormous—the world economy would judder to a halt without them—and satisfying that demand forces the U.S. to run a trade deficit. (…)
Sustained demand for dollars overseas causes the greenback to be perpetually overvalued, the idea goes. This overvaluation kneecaps exporters, inhibiting a natural rebalancing of the trade account. And the longer these imbalances persist (and the more debt the U.S. government, households and companies take on), the less stable the global financial system becomes.
Tariffs are one potential fix, insofar as they disrupt the trade flows that match these financial flows. (…)
The real danger is that we get the narrower, more practical version: controls focused on the market for Treasurys. U.S. government securities “become exported products which fuel the global trade system,” Stephen Miran, now chairman of Mr. Trump’s Council of Economic Advisers, wrote in a widely circulated paper. “In exporting [those securities], America receives foreign currency, which is then spent, usually on imported goods. America runs large current account deficits not because it imports too much, but it imports too much because it must export [Treasurys] to provide reserve assets and facilitate global growth.”
Mr. Miran helpfully summarized three potential “solutions” to this “problem.” One is the “Mar-a-Lago Accord” you keep hearing about. This is shorthand for U.S.-coordinated global action by foreign governments to devalue the greenback and revalue other currencies. The inspiration for both the concept and the name is the Plaza and Louvre accords of 1985 and 1987, respectively, which arrested a rapid dollar appreciation. Mr. Miran’s second idea is for the U.S. to accumulate its own foreign-exchange reserve of foreign governments’ bonds to manage the dollar exchange rate.
The third proposal counts as the single worst idea ever floated by anyone associated with either Trump administration about anything: a tax on foreign holdings of Treasury securities. (…)
Such a measure, which Mr. Miran dubbed a “user fee,” would withhold some portion of the interest payments Treasury remits to foreign governments that own American bonds. (…)
The real link between the dollar, foreign investors and the trade deficit is that America’s status as issuer of the world’s preferred safe assets means the rest of the world is happy to buy as much debt (government or private) and equity as we sell to finance our political choice to subsidize domestic consumption—a political choice that is popular here in the U.S.
Or rather, the rest of the world is happy to buy that debt so long as we’re not defaulting on it. And make no mistake, such a capital tax would be a default. That’s what one calls it when a debtor unilaterally reneges on all or part of a promised repayment.
The great folly of a capital tax on Treasurys is that it would undermine the desirability of those assets even as our fiscal deficit continues to rage more or less out of control. I argued last week that Mr. Trump’s trade protectionism is a roundabout way of avoiding politically painful entitlement reforms. Wait to see how excruciating such budgetary decisions will become if Washington faces a sustained global selloff of Treasurys.
Here and there:
For the U.S. economy as a whole, exports to China are a small slice of a $29 trillion gross domestic product. But “if you’re a U.S. soybean farmer, this is just about the biggest issue going at the moment,” said Neil Shearing, an economist at Capital Economics.
U.S. Agriculture Secretary Brooke Rollins promised on Sunday that farmers would be bailed out if hurt by the president’s trade war.
Prologis said its customers, which include Amazon.com, Home Depot and FedEx, have been rushing in merchandise, rerouting shipments and taking on overflow storage space as they seek to get ahead of President Trump’s new tariffs.
Meloni “has an advantage on the EU mediators — she is talking to the decider”, said Stefano Stefanini, Italy’s former ambassador to Nato. He said her meeting with Trump could be useful for the EU to find out what he wanted. “The US trade representative doesn’t really know [that]“, Stefanini added.
- Trump gave little public hint of his demands of the EU in exchange for rolling back the tariffs. “I am not a big fan of Europe and what they’ve done with immigration,” he said. “They’ve got to get smart.”
- Stefanini said Washington could press for Europe to further distance itself from China. “If the EU makes a deal with the US, it will be forced to further de-risk or decouple from China as a consequence. It’s either China or the US.”
- “When you engage Trump on the basis of ‘national interest’, that’s his favourite language,” Stefanini said. “He might not give in, but it is something that he understands. If you talk to him about transatlantic solidarity, that is a waste of time.”
Tech industry fears Donald Trump’s trade war will hamper US AI ‘dominance’
Industry insiders, including tech executives, supply chain experts and analysts, said the US president’s escalating trade war is likely to hinder the expansion of American computing power. This is because the measures may drive up costs for building semiconductor fabrication plants and AI data centres in the US. (…)
“I am much more worried about the impact on a single component in a given data centre that may be delayed now because some [overseas] supplier is making a decision about their business,” said a person involved in the development of Stargate, the US $500bn data centre project being led by OpenAI, SoftBank and Oracle. “These are fairly complex builds [which can be] delayed because of a switch for the fans.” (…)
Altana, a research group which maps global supply chains said the China tariffs alone mean American data centre developers face an increase in annual costs of more than $11bn. (…)
“Even if the GPU itself is exempt from tariffs, you are still going to get hit by massive costs in the US if tariffs still apply to the components,” said Ahmad. “The number of product categories is so vast, and the smallest component can bring your supply chain down.”
(…) semiconductor production in the US would still be more expensive because the tariffs push up prices for key tools and materials.
“The threat of the US kneecapping itself in the ability to rebuild onshore manufacturing is real,” he said. “It will be cheaper to build manufacturing capacity outside the US, while companies with the highest share of US manufacturing stand to lose the most.” (…)
“[Amazon is] not going to demand that we have the chip made in the US because it will take years to build the capacity and build the product,” the person added. “But we will not lower our prices — if we do, we’ll be screwed by the US government because we would be frustrating their policy of forcing people to make all chips in America.” (…)
- US rare earth champion faces trade war test after tariffs halt China sales MP Materials has been sending concentrates to Chinese partner as it races to expand in US
The US miner central to America’s efforts to build a domestic rare earths supply chain has halted shipments of its concentrates to China after being caught in the trade war between the two countries. (…)
But the company still sold most of its output of rare earth concentrate to China, the world’s main processing and separation centre for such materials. Those sales have come to a halt, three people familiar with the matter told the Financial Times. One said China’s retaliatory 125 per cent tariffs on US products had made the sales uneconomical. (…)
Gracelin Baskaran, a critical minerals expert at the Center for Strategic and International Studies, said there was a question over whether the US government would step in to support MP. (…)
“Selling these critical materials under 125 per cent tariffs is neither commercially rational nor aligned with the national interest,” the miner said. MP added it had invested nearly $1bn to restore a full rare earth supply chain in the US. It said it was now using a refinery in California to process half of its production output and selling almost all of that material outside China. (…)
So far, MP has been able to separate and process light rare earths but not the equally essential heavy rare earths, particularly dysprosium and terbium, needed to make high-performance permanent magnets and which go into F-35 fighter jets, cars, MRI machines and other electronics.
Beijing’s April 4 export controls have almost entirely halted outbound shipments of heavy rare earths as officials put in place a licensing regime, Chinese market participants say. (…)
For the time being, China is the world’s only source of separated heavy rare earths, analysts say. “The US has two choices — we’re going to have a supply chain disruption or we can negotiate,” said Baskaran of the CSIS. “It’s going to be painful.” “China went for our deepest vulnerability. They didn’t go for the one that we’re highly vulnerable in, just the one we’re completely vulnerable in,” she said. (…)
Nvidia chief Jensen Huang flies to Beijing for talks Meetings with Chinese vice-premier and DeepSeek founder come after US clamps down on chipmaker’s sales to China
(…) Huang said China was “a very important market for Nvidia” and expressed hope that his company could “continue co-operating” with the country, according to state broadcaster CCTV.
On Tuesday, Nvidia said it expected a $5.5bn hit to earnings from new US export restrictions on its H20 chip, a lower-powered model that had already been designed to comply with Joe Biden-era controls limiting exports to China.
Huang’s talks indicate that Nvidia is not willing to give up on the Chinese market and is considering designing yet another chip for it even though its previous efforts have been banned by Washington.
Plans for the Nvidia chief’s visit to Beijing were finalised after US President Donald Trump’s unexpected move to ban the H20 chip. The group reported $17bn in sales from China last year, but faced growing threats to its business from Beijing even before Trump interceded.
In previous trips to China, Huang has shied away from publicised meetings with high-level officials. (…)
China has pushed to build up its domestic semiconductor industry and directed domestic tech companies to buy Huawei’s AI chip. The Chinese tech champion is working to address difficulties in using its Ascend AI chip for model training, which has left domestic companies reliant on Nvidia. Huang has called Huawei “China’s ‘single most formidable tech company’”. (…)
FYI:
A humanoid robot and robot dog perform while on display at Robot World in Beijing today. Humanoids will compete for the first time in a half-marathon Saturday in Beijing. (Axios)
This is called “capital flight” It usually only happens to poor countries, and it never ends well.
(…) It’s important to realize that this is not typical for a trade war. Usually, when you put up tariff barriers, your currency gets stronger, not weaker.1 That’s how it went when Trump put up tariffs against China in his first term.
That’s not what’s happening now, though. What’s happening now is that a bunch of investors are selling large amounts of U.S. bonds and other assets. (…)
But ever since Trump announced his “liberation day” tariffs, that long-standing correlation has suddenly and dramatically reversed:
(…) The Economist has a good explainer on this, and Allie Canal has a good thread about it as well. Basically, Trump’s tariff announcements — and his later partial walk-back — caused a lot of volatility in markets, which caused a lot of Wall Street traders’ bets to blow up. That meant the traders had to raise cash in order to pay back loans they had taken out in order to make those bets. And the easiest way to raise cash quickly is to sell Treasury bonds. So this was probably part of what was going on.
But this doesn’t explain the fall in the dollar. Normally, when Treasuries get sold off, people park their money in cash, instead of moving it overseas. This time, a bunch of investors actually pulled their money out of America entirely.
In other words, for the first time in many decades, the U.S. has experienced capital flight. And if it continues, the consequences for the U.S. economy could be absolutely dire.
Could this have anything to do with that?
Federal law and Supreme Court precedent say presidents cannot fire the Fed chair over a policy disagreement.
But the Trump administration is asking the Supreme Court to overturn that precedent and let the president fire the heads of independent agencies.
The conservative court has generally sided with Trump in his push for more power to fire federal officials, but even a ruling in his favor in this case may not apply to the Fed.
“I don’t think that that decision will apply to the Fed, but I don’t know. It’s a situation that we’re monitoring carefully,” Powell said yesterday. (Axios)