So, what did this week bring us in the world of tariffs? That might depend on your position. If you don't have a stake in the financial markets, you could be sitting back with a bag of popcorn and laughing at the situation. However, if you are a foreign leader attempting to guess President Donald Trump’s next move, you may be pulling out your hair. Whatever the situation, another week of tariffs has dominated political and business news headlines.
US-China Tensions Intensify on Tariffs
The White House quietly announced the US tariff rate on Chinese goods was raised to 245% – "as a result of its retaliatory actions." The Chinese regime responded, saying it would resist “unilateral bullying,” though it did not escalate the situation with further retaliations. Still, the administration says, “[T]he ball is in China’s court”; it is up to China's leader, Xi Jinping, to take the first step in reaching an agreement.
“China needs to make a deal with us. We don’t have to make a deal with them,” White House Press Secretary Karoline Leavitt said at a press briefing, quoting the president. “There’s no difference between China and any other country except they are much larger, and China wants what we have, what every country wants: the American consumer. Or, to put it another way, they need our money.”
When asked why he would not contact Xi, Trump said the United States would soon have an agreement. “We’re gonna make a deal. We’ll have a deal,” Trump said. “I think that you will see we’ll make a very good deal with China.”
Powell Throws Tariff Tantrum
Federal Reserve Chair Jerome Powell threw a tariff tantrum in Chicago this week. Appearing at an April 16 event hosted by the Economic Club of Chicago, Powell lambasted the administration's policy changes, warning that they could revive inflation, lower growth, and threaten the Eccles Building's twin mandate of price stability and maximum employment.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said in a speech. “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”
Powell’s tariff talk has evolved quite a bit since Trump's election victory. At first, he refrained from commenting on tariffs. Later, the central bank chief said the economic literature dictates that tariffs can lead to higher cost pressures. Now, the Fed Chair is asserting that Trump's levies could trigger persistent inflation.
This, of course, resulted in the president lashing out at Powell. In an April 17 Truth Social post, Trump urged the Fed to lower interest rates. "Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete 'mess!'" he wrote. "Powell’s termination cannot come fast enough!"
While the White House has insisted it would not fire Powell before his term expires next year, some think Trump would be justified in putting the kibosh on the Fed Chair's term now.
Economist Stephen Moore's group, Committee to Unleash Prosperity, wrote in an April 17 morning newsletter:
"Anyone remember when the Federal Reserve Board was supposed to be politically independent? Well, never mind.
"Powell’s rant yesterday against Trump and tariffs warning of 'higher inflation and lower growth' sent the Dow tumbling by more than 500 points. This was arguably the most partisan tantrum by a Fed chair in modern times - attacking a new president’s policies so aggressively and adding to market turmoil when the Fed’s job is to calm markets. Instead he screamed 'Fire' in a crowded movie theater.
"We are not fans of many of Trump’s tariff strategies. But the idea that inflation is raging out of control is counterfactual. So far commodity prices are LOWER than they were when Trump entered office and the latest inflation report showed consumer prices coming down."
And, yes, inflation has been stable ahead of the tariff implementation.
Import Prices Unexpectedly Fall
According to the Bureau of Labor Statistics, import prices fell 0.1% in March, down from the downwardly adjusted 0.2% increase in February. Lower energy costs drove import prices below the consensus estimate of 0%. Export prices were flat at 0%, down from the upwardly revised 0.5%.
While economic observers consider the trade numbers to be stale, the figures join the plethora of other reports indicating price inflation had been slowing before the president's tariff plans. The headline inflation rate slowed sharply to 2.4%, while producer prices tumbled 0.4%.
Market watchers pay attention to import and export prices as the data can reflect pipeline inflation for businesses and consumers. The April statistics could be far more revealing about the impact of President Trump’s trade agenda on prices since a majority of the levies were applied throughout the month, be it the 10% universal baseline tariff or the 25% import duties on foreign-made vehicles.
Speaking to reporters at the White House, Trump hinted at providing “help” to automakers affected by his tariffs. He also told the press he would speak with Apple CEO Tim Cook about potential assistance in the tariff-driven transition. So far, it remains unclear what type of aid the administration could provide to the auto or tech industry.
The United States has provided tariff exemptions for electronics, chips, laptops, and smartphones. However, the administration has stated they will be short-lived because they will transfer to a different tariff regime. Suffice it to say, market ebullience was also short-lived.
"All those products are going to come under semiconductors, and they're going to have a special focus type of tariff to make sure that those products get reshored," Commerce Secretary Howard Lutnick said in an interview with ABC News. "So what Trump's doing is he's saying they're exempt from the reciprocal tariffs, but they're included in the semiconductor tariffs, which are coming in probably a month or two. So these are coming soon."
Manufacturing Boom Continues
Abbott Laboratories, a global health company, announced it plans to invest about $500 million in US manufacturing. The maker of medical devices and other health-care products will allocate the funding to two US facilities in Illinois and Texas. This is part of a wider effort to expand Abbott’s footprint in the United States and boost domestic research and development.
Honda is reportedly transferring production from Canada and Mexico to the United States to avert tariffs. The Japanese newspaper Nikkei reported that the automaker was considering moving car production to the United States to ensure 90% of vehicles sold in the country are manufactured there. The outlet reported that Honda plans to bolster output in the United States by up to 30% over the next two to three years. While the company did not directly reject the reportage, Honda Canada said in a statement to the press: "We constantly study options for future contingency planning and utilize short-term production shift strategies when required."
This comes as Federal Reserve data showed US manufacturing production rose for the fifth consecutive month in March, rising 0.3%. Durable goods production increased 0.6%, buoyed by aerospace equipment (1.8%) and motor vehicles (1.2%).
Is Trump making American manufacturing great again? The upcoming data will be revealing.
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