Macro Dose - Tariff Impacts on Trade So Far: What You Need to Know
Trade Deficit Impact, Market Scenarios, & More
Since becoming a multi-trillion-dollar asset class, crypto has not really been able to escape the qualms associated with macro. If Macro were a narrative in crypto, it would likely be leading in mindshare right now, even ahead of AI.
The first thing to come to mind in crypto right now is everything related to tariffs. What was touted as a tool to reshore manufacturing jobs for middle America has seemingly evolved into an attempt to direct trade away from China, with the Trump administration willing to eat some pain in order for this to happen.
In today’s edition, we’ll discuss how trade is changing already amidst a changing tariff regime, impacts on U.S. imports, and more…
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Current Macro Situation
Markets initially rejoiced when Trump first posted that he would delay tariffs for the rest of the world for 90 days, breathing a sigh of relief. A much shorter rally took place after it was announced that electronics from China would only be subject to a 20% tariff. That was before Trump himself and Commerce Secretary Howard Lutnick downplayed this announcement, proclaiming that ‘sectoral tariffs’ would be applied to semiconductors, pharma equipment, and other critical goods.
Markets may be in for a scenario where, instead of a sharp V-shaped recovery being imminent, a U-shaped recovery is the most likely outcome. Had Trump continued his tariff rampage and not softened his language, the Fed may have been forced to step in and ease the pain that was being felt in the bond markets. Some might view what actually ended up playing out as worse than if markets were allowed to slide a bit more, which may have resulted in more powerful intervention beyond some tariff delays.
By placing this much pressure on Powell to act, Trump is seemingly admitting his policies are damaging, especially in the short term. Lowering interest rates can be viewed as a tool for weathering the storm that is tariffs; inflation concerns and weakening of the dollar are afterthoughts compared to the notion of the broader U.S. economy experiencing pain.
Already, imports from China and other countries have decreased drastically. Some of this might be explained by higher monthly import numbers due to frontloading in anticipation of tariffs, but 64% reductions weekly are too high for this to explain the decrease in its entirety. What might be happening is importers are already opting to just let shipments sit at customs, reluctant to pay the tariff as they know there’s no way they can make a profit on this merchandise if they do.
The other side of the trade war is U.S. exports. It’s worth remembering that the U.S. is still the second-largest exporter in the world, with total 2024 exports sitting at $3.2T, not too far behind China’s $3.6T.
The difference is that the leading U.S. export category is commodities and energy. When it comes to manufactured goods, the U.S. deals in highly specialized aircraft and medical equipment. The U.S. plays much less of a role in manufacturing consumer electronics and appliances, things that are common in day-to-day life.
Already, U.S. exports are drastically falling, the opposite of what would ideally be happening. China has been grooming Brazil to replace U.S. agricultural trade for some time, ready to activate this relationship should the time come. China also recently stopped importing U.S. LNG, instead taking its business to Canada. The same is happening with imports of Australian beef, taking the place of U.S.-exported beef, which was a multi-billion-dollar market.
If tariffs are contingent on the U.S. trade deficit with China lowering, then it’s possible that the opposite plays out instead. It’s looking more and more likely that China may simply stop importing anything meaningful from the U.S., while exemptions and carveouts will allow more Chinese goods to be subject to a lower tariff rate. This will lower the trade deficit in nominal terms, but raise it as a percentage of total trade.
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