Stocks mildly sold off today, because Trump introduced more uncertainty to the trade war on top of a week of confusion in the courts. On Wednesday, The United States Court of International Trade unanimously ruled that Trump’s liberation day tariffs were “unlawful” and that “the challenged Tariff Orders will be vacated and their operation permanently enjoined.” This was big news that helped markets continue to float upwards, but the next day brought more uncertainty when an appeals court paused this ruling so they can hear the case.
Because our economy genuinely is directed by whatever president deals says on Truth Social, his explanation for why he caved to China rankled markets today, as he said some of the last words any stock market bull wants to hear: “China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!”
The Mr. NICE GUY reference is about his “FAST DEAL” cave being to China’s benefit because “to put it mildly, ‘civil unrest,’” was supposedly unfolding across its alleged emptying factories. Now president deals is signaling to the public that he doesn’t like the current level of Chinese tariffs that the market has talked itself into being bullish, and this has left a cloud hanging over the economy and negotiations with China going into the summer months.
In reality, Trump was likely spooked by America’s shockingly emptying west coast ports, which precipitated his pivot from being wholly unreasonably obstinate to just mostly unreasonably obstinate in his bid to destroy the global economy with debunked 19th century economics. That he posted this whining diatribe well after the fact is proof that he sees and hears people saying he caved, and the anxious part of his brain is probably screaming “hey buddy you caved” at him. Maybe America’s preeminent diva is going to wake up next week and decide that the tariff rate on China is now 225 percent. Who knows? Who can invest with any long-term certainty in this environment?
Which begs the fundamental question here after these court rulings and Trump’s threat: what the fuck is the effective tariff rate on Chinese goods??? Is it 140 percent? Is it 25 percent? Is it 50 to 65 percent as Trump previously suggested he would be amenable to? This uncertainty alone is what can spook an economy into pulling back spending and creating a recession. Consumer sentiment continued to stay near historic lows in May, and Treasury Secretary Scott Bessent likely didn’t help that dynamic by admitting that trade talks with China are “a bit stalled.”
We learned today that the United States net exports deficit had the biggest one-month drop in goods imports on record in April (20 percent, while exports grew 3.4 percent), but that has more to do with where it was than where it fell to. The United States technically had negative GDP in the first quarter of the year, but no economist would say we actually had negative GDP, as that figure was entirely driven by the largest negative net exports figure on record. All this economic gobbledygook is actually quite simple to understand for any layperson: people stocked up on inventory before Trump made it more expensive. Now the April data is suggesting that people are buying tariffed imports just below the rate we have normally imported the past four years.
Four weeks ago, the Port of Los Angeles Executive Director Gene Seroka said “we’ve got about five to seven weeks of normal inventory in the country right now. Then we start to see spot shortages if it goes much beyond this.” Walmart’s CEO and CFO said they will start raising prices in June due to the tariffs overwhelming their profit margins, and the fear is that if even Walmart can’t absorb these tariffs, small businesses will get walloped by them. Inflation is at four-year lows, but the Federal Reserve and the bond market are not looking at that as necessarily good or lasting news, as the buzzword these days is stagflation, and the fear is that current low inflation reveals weak economic growth, and inflation will come roaring back as Trump’s tariffs really sink their teeth into our consumer-driven economy. This is why the Fed and Jerome Powell won’t cut rates despite falling inflation, and that is why Trump wants to fire Powell.
We are exiting the bullish “sell in May and go away” season and entering a new phase of this trade war, where uncertainty is at its peak about what price businesses and consumers will have to pay for United States imports. Trump’s cans he kicked down the road in these tariff delays will arrive in early July, creating another liberation day-style fork in the road for markets of whether we live, die, or kick the can down the road again.
The lone certainty we do have right now is that tariffs are in place and products that have not changed their prices are more expensive now than they were two months ago. What that price will be in the future seems to be anyone’s guess, especially on products coming from China. Inventories that businesses stocked up on before the tariffs will begin to run thin in the coming weeks and months, and this reality has even been apparent to Trump as he consistently laments how little girls don’t need that many dolls for Christmas. If he keeps this level of madness up, he might get his wish and then some.
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