The Fine Print on Tariff Deals Is Still MIA
Despite some recent wins, more clarity is needed around trade policies.
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Despite all the teeth gnashing from financial press around tariffs over the past six weeks, equities have managed their way through the storm quite well. The Nasdaq, which briefly broached bear market territory soon after "Liberation Day," is now in the black for 2025. It was joined there yesterday by the S&P 500. Before the market open on Tuesday, the April consumer price index reading came in better than expected and at its lowest level in four years. I am almost counting the days until Fed Chairman Jerome Powell comes out with a statement that the lack of tariff-driven inflation is both "temporary" and "transitionary." He might turn out to be right this time around.
The main trigger for the market rebound has been some positive news on the tariff front. Last week, the administration announced a new trade framework with the U.K. that lowered tariffs on most British goods to 10% while a full agreement is hammered out. Monday, before the bell, a much more important framework was announced with China. This lowered tariffs on most Chinese goods to 30% from an astronomical 145% while the two largest economies in the world come to a full agreement over the next 90 days. This ignited a better than 1,150 point gain the Dow on Monday.
Obviously, anything can happen over the next three months, and both frameworks were very light on details. Further progress needs to be made so the markets are assured of certainty. There is likely to be a huge amount of frontrunning while these deals are completed. Cargo ship operators with capacity and warehouses with the same on the West Coast are going to see fat times over the next few months. An avalanche of Chinese goods is projected to come into the country as a precaution against talks breaking down.
This is going to bolster the government’s coffers, thanks to the tariffs collected on that merchandise. This was a key contributor to the significantly larger than expected government surplus in April. Increased imports will artificially depress second-quarter gross domestic product as well, much like they did in the first quarter. It will be fascinating to see what portion of this 30% tariff are eaten by the importer and the exporter, and what is then passed on to the consumer. This will be a key factor in inflation levels in the months ahead.
Obviously, Amazon AMZN was a huge winner from this week’s détente with China, given what a large percentage of the goods ordered through its websites are made in the Middle Kingdom. Apparel retailers like Abercrombie & Fitch ANF, that source most merchandise from Asia, also have seen nice rebounds in stocks.
Boeing BA also looks like it will be a huge winner in these new trade deals. Some of the key ways countries can reduce their trade imbalances with the U.S. is via greater purchases of defense items, taking more LNG shiploads and buying more commercial aircraft. Boeing plays in two of those key areas. The manufacturer got a new $4.8 billion order yesterday in the $600 billion trade package announced with Saudi Arabia. The stock is likely to continue to run higher despite the company still having considerable management challenges.
The quote “There are decades where nothing happens; and there are weeks where decades happen” seems more apropos by the day.
At the time of publication, Jensen was long AMZN, ANF and BA.
