Daily Commentary

MarketMinder’s View: There are a lot of very dismal economic forecasts tied to the Trump administration’s tariffs, which we assess for the economic and market implications only—we are agnostic on politics, preferring no politician nor party. Those forecasts hinge on the tariff burden being huge, slamming households and businesses with severe burdens. Now, we disagree with the basic underlying principles. Tariffs are bad policy, in our view. But it is difficult for tariff payments alone to render recession when you remember they recirculate, just like other tax revenue. The friction tariffs add to commerce is a negative, but it isn’t like payments get sucked out of the economy. But setting all that aside, for tariffs to be an actual burden, they have to be collected. So far, that isn’t happening to the extent many analysts presumed. “New tariffs on China that came into effect over the last two months have raised a ‘surprisingly low’ amount so far, analysts at Citi said. Customs deposits, which include more than just tariffs, came to $9.6bn (£7.4bn) for March, which was $2bn more than the same month a year earlier. However, the investment bank said this haul was far less than economists expected following the introduction of 10pc tariffs on China at the start of February and a doubling of that levy at the start of March. Analysts wrote: ‘A $2bn increase is a far cry from the $10bn in tariff revenue we would expect to see at this point.’” That was just with the initial twin 10% tariffs tied to fentanyl. If the US didn’t have the customs infrastructure and manpower to collect those in full, how in the world can we expect collection of all blanket reciprocal tariffs announced this week? As our coverage noted, the US government doesn’t have presently anywhere near the headcount and bureaucracy needed to inspect and collect on every parcel entering the country. And last we checked, Uncle Sam was trying to downsize, not hire—and we suspect any funds to beef up headcount would have to be appropriated by Congress, where Republicans are divided over tariffs. Now, one could argue this revenue miss resulted from businesses’ dodging tariffs, which reciprocal tariffs aim to stamp out. But we doubt they will be successful, given it would remain easy to route trade through countries with the lower blanket 10% rate. It is all smoke and mirrors. In our view, this speaks to the potential for all this to go far less badly than feared.

MarketMinder’s View: This piece is an interesting read, but it doesn’t really answer the titular question. It does detail the economic debate over whether blanket tariffs are beneficial policy and arrives at a conclusion we agree with: Tariffs are unlikely to reduce the trade deficit (which is a meaningless stat anyway) or boost manufacturing employment. Politics feature heavily, so we remind you MarketMinder doesn’t prefer any political party nor any politician and assesses developments for their potential economic and market effects only. And as the article shows, in an era when most US manufacturing is advanced and high-tech, automation plays a huge role. This, not actual industrial decline, is why manufacturing employment is down over time. Total manufacturing output, adjusted for inflation, is actually up hugely since the alleged decline began in the 1970s and is only a bit off its 2007 high. So from an employment standpoint, we agree, an increase in manufacturing output from here is unlikely to have a parallel effect on manufacturing payrolls. But let us take a step back and explore what the article doesn’t address: Will tariffs even spark an output boom? We doubt it. While they are theoretically an incentive to produce more here, reality is complicated. Building new factories takes time, permits and high up-front investments. This requires companies to navigate a morass of state and local regulations, which tend to drag out projects. Think back to 2022’s CHIPS Act, which sought to boost domestic semiconductor production. Most of the projects announced aren’t scheduled to open until 2028 or later. In our view, this points toward tariffs’ real aim, which increasingly appears to be spurring trade partners to improve market access for US goods. For more, see Friday’s commentary, “A Broader View of Tariffs and a Rocky Thursday.”

MarketMinder’s View: Jobs reports are always backward-looking, late-lagging confirmations of past economic growth. Hiring doesn’t create growth—growth begets hiring. So March’s strong Employment Situation Report, which showed nonfarm payrolls adding 228,000 jobs, tells us the US economy remained on solid footing in recent months. It doesn’t tell us what the Fed will do, or what the Fed should do, despite the endless attempts to divine that (with this article one example). Mostly, it is interesting as another data point on whether the heightened rhetoric over federal job cuts matches the numbers. So far, the jury is still out. Excluding the Postal Service, federal payrolls fell by just 3,200 jobs. That is extremely short of the rough numbers trotted out in the ongoing anecdotal coverage of this topic. Why the difference? The coverage discusses planned layoffs. Meanwhile: “The BLS noted that employees who are on paid leave or receiving severance pay are counted as employed.” There is a pretty long runway here for courts to continue weighing in. Regardless, it seems pretty clear a robust private sector can absorb displaced government workers (whom we feel for, make no mistake). And it is all backward-looking for stocks.