WTF is happening now?

A quick recap of what happened over the weekend.

> Trade war:  Trump negotiated against himself and suggested on social media that he might lower the tariff against China to 80% [link]. American car makers collectively slammed the proposed US/UK trade deal, saying that under the deal, it would “be cheaper to import a UK vehicle with very little U.S. content than a USMCA compliant vehicle from Mexico or Canada that is half American parts” [link]. The US/China trade talks got underway on Saturday between US Commerce Secretary Bessent and China’s Vice Premier. The first day of talks ended without comment [link]. Then, last night, the US and China announced a 90-day deal that would temporarily lower (but not eliminate) the tariffs that were arbitrarily imposed by the US, and the retaliatory tariffs that were put in place by China. The result? Tariffs on most Chinese goods would fall from 145% to 30%, while tariffs on US goods would be lowered from 125% to 10% [link].

> Real war:  The India/Pakistan conflict escalated rapidly on Saturday, with both sides exchanging rocket fire on strategic military targets [link]. By Sunday morning, the sides had agreed to a ceasefire [link]. Trump claimed credit for facilitating the ceasefire [link], but official non-Trump statements don’t align on the importance of Trump’s involvement in the process [link]. Then the ceasefire was broken just a few hours later [link].

> Dow:  The DJIA finished up over 200 points on Thursday after Trump said, “You better go out and buy stocks now. Let me tell you. This country will be like a rocket ship that goes straight up” [link]. The DJIA lost 100 points on Friday. After the 90-day US/China trade war pause, the DJIA was up over 1000 points.

  MB BOTTOM-LINE:  Trump is claiming that this is a “total reset” in relations with China, but in reality, he’s only rolled back his own capricious tariffs, and the tariffs that remain are still 10 times higher than they were before Donald Trump. And the pause is temporary. The only clear through-line that I can see between all of Trump’s comments and actions is that he intends for there to be some elevated global tariff that will remain against every country, in some form, even after whatever deals that can be made are signed and done. Regardless of propaganda from Trump, that’s simply a tax on American consumers that will worsen the inflationary environment. While the Fed refused to cut, other central banks like the European Central Bank, the Bank of England, and the Bank of Canada, have used rate cuts to try and stimulate their economies, and China has gone even further by implementing a wide range of stimulus measures beyond simple rate cuts that are designed to juice economic performance. I’m not a trained economist, but it’s hard not to see all of these actions (from a super-high level) as being anything other than inflationary. It feels to me like the great economies are playing a game of inflationary hot potato. 

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