Up the Down Trump Tariff Escalator Markets rally on Bessent’s optimism about a U.S.-China trade truce.
Do you think the markets are trying to tell President Trump something? Stocks and the dollar rose Tuesday after word leaked that Treasury Secretary Scott Bessent told a private investor conference that he expected trade tensions between the U.S. and China to ease soon.
The main equity indexes regained most of their losses from Monday after various media sources confirmed the Treasury secretary’s optimism that both China and the U.S. don’t want the current all-out trade war to continue. He also reportedly said Mr. Trump’s goal in imposing 145% tariffs on imports from China wasn’t to totally decouple the two economies.
If Mr. Bessent knows what Mr. Trump’s real China and trade strategies are, everyone would love to hear it because so far it looks like ad hoc improvisation. But we—and the markets—will take whatever good news we can get these days. So would businesses across the country that are freezing investment or not hiring as they try to figure out what will happen when Mr. Trump’s 90-day pause on his highest non-China tariffs ends. (…)
If Mr. Bessent can move markets merely with comments that a trade truce is coming, imagine how they’d respond if Mr. Trump simply called the whole tariff thing off.
- Trump Says He Has ‘No Intention’ of Firing Fed Chair Powell President also says China tariffs ‘will come down substantially’
President Trump said he is not planning to fire Federal Reserve Chairman Jerome Powell and he signaled that tariffs on China could be lowered, prompting relief from investors who had been spooked by the White House’s aggressive moves in recent weeks.
“I would like to see him be a little more active in terms of his idea to lower interest rates…but, no, I have no intention to fire him,” he told reporters in the Oval Office. (…)
Trump’s softer tone on Powell came after he lashed out at the Fed chair, writing on social media last week, “Powell’s termination cannot come fast enough!” (…)
“This is a perfect time to lower interest rates. If he doesn’t, is it the end? No. It’s not,” Trump said.
Trump has privately raised the possibility of firing Powell to advisers in recent months. Last week, he expressed confidence that he had the authority to oust Powell. “If I want him out, he’ll be out of there real fast, believe me,” Trump said. And he renewed his criticism of Powell on Monday. Trump’s social-media posts about Powell have triggered market volatility.
Trump’s public attacks on Powell unnerved some of his advisers, who made the case to the president that attempting to fire the Fed chair would result in a market downturn and prompt a messy legal fight, according to people familiar with the matter. (…)
In the Oval Office on Tuesday, the president also said 145% tariffs on China are “very high.”
“It won’t be that high,” Trump said. “It will come down substantially. But it won’t be zero. It used to be zero.” (…)
And now, ladies and gentlemen, at the count of three, I will snap my fingers and we will all wake up. T’was just a bad dream, sorry for the rather minor inconveniences to all of you around the world…
We will now attempt to return to our regular programming.
John Authers(…) it would be unwise to think of this as a true turning point. Raising the possibility of firing Powell was an unforced error in the first place, and the messaging suggests chaos. The White House press secretary had amplified Trump’s criticism only hours earlier, while the actual announcement of hugely important market-sensitive information came ad hoc in response to a reporter’s question. Would the issue have been cleared up without a question?
A further reason this shouldn’t do much to restore confidence that the administration knows what it’s doing is that there’s a clear alternative waiting in the wings. Powell has to go next year anyway. The obvious replacement is Kevin Warsh, a former Fed governor and investment banker. (…)
Warsh would represent that rare combination of genuine change with the stability of continuity. And he probably wouldn’t meekly cut rates just because the president asked him to. Which is good. (…)
If the administration really wants to change the Fed, it can wait until next year with a new man in place.
Understanding Trump’s Trade War
(…) Whatever he thought was going to happen with his tariff announcement, it didn’t, and President Trump is in planless improvisation mode now. But the episode is also of a piece with every other move in his early administration, aimed at exciting conflict, sticking a thumb in the eye of an establishment whose policies he has long criticized (without really understanding them) and, more importantly, that he believes wants his destruction or impoverishment.
The world now faces a known unknown. It may be months or years before a comfortably intelligible trade-policy equilibrium is re-established. (…)
By now, Mr. Trump has been through five presidential or midterm elections, each decided by a rounding error, usually in favor of his opponents. So he expects, after next year’s midterms at the latest, that the death struggle with Democrats will resume. Impeachment will follow. He’s ready for it.
From a 30,000-foot level, Americans have obviously been badly served by importing banana-republic dynamics into our politics. But here we are. (…)
A column like today’s is a hard sell to newspaper readers used to the comfortable illusion that presidents are primarily focused on their carefully considered policies and how they will benefit the country. (Witness the hopeless piling up of commentary seeking the “strategy” in his trade actions.) (…)
But we still have to cope with Mr. Trump’s acts in office. In one sense, his presidency is but a culmination of a succession of presidencies incapable of finding America’s national interest in the welter of signs and events. George W. Bush’s disappeared down the rabbit hole of the global war on terror, Barack Obama’s down the rabbit hole of a woke rectification of sinful America. Joe Biden’s “Build Back Better” fantasy foundered on the delusion that there was something FDR-like about him and his moment.
The challenge is America’s place in a world of one or more powerful states with which we are simultaneously essentially at war but also inextricably interdependent. This world isn’t as unfamiliar at it looks. The model for existing in such a world, if not for the prior claim of retirees and other federal beneficiaries on most of the national revenue, would be Theodore Roosevelt’s talk softly and carry a big stick.
From a policy view, the worst effect of Mr. Trump’s trade sidetrack is the failure quickly to rebuild America’s military deterrence power.
China Signals That Door to U.S. Trade Talks Is Open, But Not Under Duress
“China’s attitude towards the tariff war launched by the U.S. is quite clear: we don’t want to fight, but we are not afraid of it. If we fight, we will fight to the end; if we talk, the door is wide open,” foreign ministry spokesperson Guo Jiakun said at a daily press briefing on Wednesday.
If the U.S. really wants to resolve the issue through dialogue and negotiation, it should stop making threats and engage in dialogue with China on the basis of equality, respect and mutual benefit, said Guo.
The U.S. can’t say it wants a deal while exerting extreme pressure on China, and that strategy won’t work, Guo added.
Wednesday’s comments came shortly after President Trump said that he’s not going “to play hardball” with China, and that the two countries will ultimately reach a trade agreement.
Treasury Secretary Scott Bessent on Tuesday also told attendees of a closed-door JPMorgan investor gathering that he expects the trade conflict with China to de-escalate, according to people who were in the room for his remarks. (…)
The Chinese foreign ministry spokesperson also remarked on the U.S.’s recent efforts to reassert control over the Panama Canal.
“No lies can cover up the U.S.’s ambition to control the Panama Canal,” Guo told reporters on Wednesday, urging the U.S. to stop interfering with China’s exchanges and cooperation with Latin American countries. including Panama.
Bloomberg:
Trump added that “we’re going to be very nice and they’re going to be very nice, and we’ll see what happens.”
Trump also said he didn’t see the need “play hardball” with Chinese leader Xi Jinping and that during discussions he wouldn’t raise Covid-19 — an issue that is politically sensitive in Beijing. The White House recently launched a website that suggested the virus came from a lab in China, irking the nation’s diplomats. (…)
Xi still hasn’t spoken to Trump since his US counterpart returned to office, with no public indication that talks between the world’s largest economies are taking place, even at lower levels. (…)
Foreign Minister Wang Yi told his counterparts in the UK and Austria that China’s stance toward the US aims at not only “safeguarding its own interests, but protecting international rules and multilateral trade system.” China’s premier, Li Qiang, reportedly wrote a letter to Japanese Prime Minister Shigeru Ishiba this week, calling for a coordinated response to Trump’s tariffs. (…)
Trump “chickening out” was among the top trending topics on China’s Weibo social media website on Wednesday. (…)
Still, the Treasury chief said a comprehensive deal could take two to three years to hammer out. He also reiterated his view that China has stifled its consumer economy and favored manufacturing at the US’s expense, saying that any agreement would require a rebalancing of trade that allowed the US to increase manufacturing.
Negotiations with China over such a deal haven’t started yet, he said.
Beijing has sent People’s Bank of China Governor Pan Gongsheng, his deputy, Xuan Changneng, and Finance Minister Lan Fo’an to Washington, which this week will host meetings of the World Bank Group and International Monetary Fund. That could create an opening for top Chinese and American officials to exchange views and open the door to trade talks.
Also, one key member to the Chinese team that will negotiate with the Trump administration was likely put in place last week, when Li Chenggang was appointed vice commerce minister and trade envoy. (…)
How Are Imports from China Used in the US?
Thirty-seven percent of US imports from China are intermediate goods that are used in US production—such as in the machinery, tool, and auto industries—see chart below. In addition, small and medium-sized enterprises account for 41% of imports from China.
The bottom line is that imports from China are not only t-shirts, shoes, and TV monitors purchased by US consumers. Almost 40% of imports from China are intermediate goods used in US production.
As a result, a dramatic increase in tariffs on China will also increase US companies’ costs of production.
Japan Must Correct Trump’s False Data for Trade Talks, Kono Says
Before Japan can proceed with trade talks with Washington, authorities must first correct several misunderstandings held by President Donald Trump, former foreign minister and previous digital transformation minister Kono Taro said Wednesday.
“President Trump could flip according to how the market reacts to it and what he’s quoting, the facts, numbers, are quite wrong. So we need to first correct his misunderstanding to put our proposal on the table,” Kono said in an interview with Shery Ahn on Bloomberg TV. (…)
A Japanese delegation is expected to hold its second round of trade talks with their US counterparts later this month, while Minister of Finance Katsunobu Kato is set to meet US Treasury Secretary Scott Bessent this week.
“We definitely need to finish this negotiation, but we shouldn’t rush in,” Kono said. (…)
“We need to be very careful about economic security issues, and the supply chain involving China,” he said. “How we are going to trade, how we are going to do to China collectively among the West, that is also a separate issue.”
A Japanese delegation is in Beijing this week, where Tetsuo Saito, the chief of the ruling party’s junior coalition partner Komeito, was set to deliver a letter from Prime Minister Shigeru Ishiba to Xi Jinping. The gesture highlights Japan’s desire to balance managing its relationships with China, its largest trading partner, and with the US, its sole formal security ally.
Euro-Zone Private Sector Stalls as Tariff Woes Hit Services
The Composite Purchasing Managers’ Index by S&P Global fell to 50.1 from 50.9 in March, remaining narrowly above the 50 threshold separating expansion from contraction, data Wednesday showed. Analysts had predicted a drop to 50.2.
The deterioration was largely down to Germany, whose own main PMI gauge unexpectedly declined to less than 50 for the first time in four months. France also missed analyst estimates, remaining stuck beneath that level. Both of Europe’s two biggest economies saw surprise weakness in services. (…)
“A faster drop in new business suggests this weakness might stick around for a while. However, the higher fiscal spending on infrastructure in Germany and defence spending across Europe should eventually benefit not just manufacturing but also the service sector, though with a bit of a lag.” (…)
“Costs have risen at a similar rate to March, but the increase in selling prices has slowed significantly,” he said. “Goods prices are showing mixed behaviour: input prices have reversed their inflationary trend of the past four months and have fallen, while output prices have increased a bit more than in March but still modestly.” (…)
There is more important info from the Flash PMI release:
- Companies were generally reluctant to expand output given a further reduction in new orders during April, the eleventh in as many months. Moreover, the latest decline in new business was the most marked in the year-to-date. Contractions were seen across both the manufacturing and services sectors. New export orders (which include intra-Eurozone exports) also decreased, and at a broadly similar pace to that seen for total new business. New export orders have decreased continuously since March 2022.
- After having risen for the first time in eight months during March, employment broadly stagnated in April. A solid reduction in manufacturing staffing levels outweighed a modest and slower increase in workforce numbers in the service sector. Continued falls in employment in the largest two Eurozone economies cancelled out job creation elsewhere.
From the Japan Flash PMI:
“Indices measuring new business inflows, which are helpful to gauge near-term output trends, also continued to diverge at the sector level. Factories saw new orders decline at the steepest rate in over a year amid a stronger deterioration in foreign demand, as well as reports of subdued client spending and concerns over tariffs. In contrast, services companies reported the strongest rise in new work since January. (…)
Notably, overall optimism regarding the one-year outlook for output fell to the lowest level since the initial wave of the COVID-19 pandemic in August 2020.”
CONSUMER WATCH
Credit-Card Companies Brace for a Downturn
(…) JPMorgan Chase and Citigroup added money to their rainy day funds to cover expected future losses. Retail-card issuer Synchrony is tightening its lending standards. U.S. Bancorp is chasing a more affluent customer base that could better withstand a downturn. (…)
There are some early warning signs. Consumers are holding off on nonessential splurges such as vacations. Executives at American Express and Citigroup said that travel and entertainment spending lost momentum in the first quarter, while spending in less discretionary categories picked up. The share of cardholders making only the minimum payment is running above prepandemic levels, Capital One said Tuesday.
Bank executives said consumer spending has remained strong in the first few weeks of the current quarter.
“Consumers are still solidly in the game,” Bank of America chief Brian Moynihan told investors last week.
Sustained spending levels in April appear driven more by confidence than panic, card issuers said. Though retailers that offer Synchrony cards started running marketing campaigns to induce purchases before price increases went into effect, so far the impact hasn’t shown up in the data, chief executive Brian Doubles told investors. The store-card issuer’s weekly sales remained relatively flat through early April. (…)
The top 10% of earners now account for roughly half of all U.S. spending, according to government data.
On the other end of the market, credit is becoming harder to get. Synchrony reported a 3% drop in active accounts and a 4% decline in purchase volume in the first quarter, as it pulled back from riskier borrowers with lower credit scores.
Meanwhile, issuers that already cater to high-income consumers are seeing steadier performance. American Express reported a 7% increase in U.S. consumer spending in the first quarter, and said that trend continued in the first 12 days of April. (…)
Bank of America’s credit and debit card data show a marked slowdown in wage growth this year:
Bank of America credit card data reveals a growing divergence for consumers. Six percent more households are consistently paying off all of their credit card debt each month compared to 2019, but a smaller share of “revolvers” may be relying more on credit to maintain their spending levels.
The share of those consumers who carry a credit card balance from month to month (aka “revolvers”), has declined both YoY and compared to 2019 levels for all income cohorts (Exhibit 6). While some consumers may be paying off their balances to avoid higher interest payments as rates remain higher for longer, it could also be that some consumers are in a better financial position than they were pre-Covid. Taken together with elevated deposits, in our view, this suggests most consumers have some capacity to “tap” into savings or credit to increase their spending if need be.
But among those that do carry a balance, card utilization rates are higher compared to pre-2019 levels. Perhaps unsurprisingly, lower-income households are using their credit cards more than any other income group – around four times more than middle- and higher-income households compared to pre-Covid levels. Additionally, while there was some seasonal drop in credit card utilization from January to March, it continued to rise YoY for those with lower incomes. Meanwhile, utilization rates were flat YoY among those in the middle- and higher-income groups.
And according to Bank of America credit card data, while early stage (30-day) delinquencies have increased slightly YoY in March, they have declined over the past 6 months.
While many consumers remain in good financial shape, they may be cutting back on “nice to have” discretionary spending like travel and leisure activities in order to do so (read more about this topic in the April Consumer Checkpoint). In our view, this may partially reflect easing wage growth and the rising cost of living. Consequently, is this slowdown in discretionary services affecting employees in these industries? We think so.
While average hourly earnings are still increasing among companies in these industries, it is at a much lower rate than four years ago, according to data from the Bureau of Labor Statistics. Additionally, these employees have generally been working fewer hours over the past two years, which is partially offsetting any YoY pay increases.
In fact, we have largely seen a slowdown in average weekly YoY earnings growth for both the retail and leisure and hospitality industries over the past four years (Exhibit 10). And while there was a small increase in retail employees’ average hourly earnings YoY as of March, it was potentially temporarily boosted by heightened demand as consumers tried to get ahead of tariff-related price increases.
Trump’s “empty shelves” warning
The CEOs of three of the nation’s biggest retailers — Walmart, Target and Home Depot — privately warned him that his tariff and trade policy could disrupt supply chains, raise prices and empty shelves, according to sources familiar with the meeting.
“The big box CEOs flat out told him [Trump] the prices aren’t going up, they’re steady right now, but they will go up. And this wasn’t about food. But he was told that shelves will be empty,” an administration official familiar with the meeting told Axios.
Another official briefed on the meeting said the CEOs told Trump disruptions could become noticeable in two weeks.
CEO Gloom Rivals Financial Crisis as Tariffs Hit S&P 500 Stocks
Not since the financial crisis has Corporate America been so downbeat about the state of the economy in earnings calls, an ominous sign for investors trying to figure out how much more pain Donald Trump’s trade war will inflict on the stock market.
The ratio of positive to negative comments on macroeconomic conditions during this reporting season has dropped well below its average and is on track for the worst proportion since 2009, according to a Bank of America Corp. analysis of the first conference calls. (…)
“Almost every corporate CEO is revising down their outlook,” said veteran market strategist Jim Paulsen. “The commentary warnings of the corporate sector have escalated.” (…)
So far in the current quarter, 27% of the firms in the S&P 500 Index have cut their guidance for 2025 while only 9% have increased their outlook, according to data compiled by Bloomberg Intelligence. (…)
Vance Says Territory Concessions Needed for Ukraine-Russia Deal
Vice President JD Vance said the US has issued a “very explicit proposal” to Russia and Ukraine on a path forward to a peace deal, adding “it’s time for them to either say yes or for the United States to walk away from this process.”
“The current lines, somewhere close to them is where you’re ultimately, I think, going to draw the new lines in the conflict,” Vance told reporters in India on Wednesday, after finishing a tour of the Taj Mahal. He added that doing so would mean both Ukraine and Russia would have to give up some territory each side currently controls.
Freezing the conflict along existing battle lines would be a far greater sacrifice for Ukraine, which has sought to regain all territory in the country’s east and south seized by Russia since 2014, including Crimea, and following the February 2022 full-scale invasion.
The US is prepared to recognize Russia’s control over the Ukrainian Black Sea peninsula and to ease sanctions on Moscow as part of a potential peace deal, Bloomberg previously reported. President Volodymyr Zelenskiy said on Tuesday his country wouldn’t recognize the Russian occupation of Crimea, which is internationally recognized as Ukrainian territory. (…)
Data: ISW/CTP. Map: Axios Visuals
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Ukraine’s Zelensky Pushes Back on U.S. Peace Plan The Ukrainian president said his country would never recognize Russian control of Crimea, a key Russian demand
“Ukraine will not legally recognize the occupation of Crimea,” Zelensky said at a press conference here on Tuesday. “There’s nothing to talk about here. This is against our constitution.” (…)
In recent days, American officials had floated the idea of formally acknowledging Russian control of Crimea, the Black Sea peninsula seized by Russia’s military in 2014, while freezing the conflict along current lines. It couldn’t be established whether the idea was for the U.S. to recognize Russia’s hold on Crimea, or for Ukraine to do so as well.
American officials also said Ukraine would be kept out of the North Atlantic Treaty Organization, though it isn’t clear how that provision would be enforced. (…)
The Art of the Deal!
Officially signing away Crimea would be political suicide for any Ukrainian politician.
So far, Ukrainian officials have broadly condemned the idea as a violation of international law.
“Attempts to ‘exchange’ Crimea for a cease-fire would not bring real peace,” said Tamila Tasheva, a member of Ukraine’s Parliament and a Crimean Tatar, an indigenous people of the peninsula. “Instead, they would set a dangerous precedent—rewarding aggression, legitimizing war crimes and encouraging other authoritarian regimes to act similarly.” (…)
Official recognition of Crimea as Russian territory would be a historic win for Putin.
The peninsula, which juts into the Black Sea from southern Ukraine, has long been a target for Putin. He denounced the decision to transfer control of Crimea from Russia to Ukraine in 1954, when both countries were part of the Soviet Union. In 2014, he dispatched Russian troops in unmarked uniforms to take control of the territory, marking the start of his invasion of Ukraine.
More recently, the peninsula served as a staging ground for Moscow’s full-scale invasion in 2022, with tanks rolling in from Crimea to occupy parts of the Kherson and Zaporizhzhia regions.