Orange Man Bad Trade Deficit

5/30/25 Reuters:

"WASHINGTON, May 30 (Reuters) - The U.S. trade deficit in goods narrowed sharply in April as the boost from the front-running of imports ahead of tariffs faded.

"The goods trade gap contracted 46.0% to $87.6 billion last month, the Commerce Department's Census Bureau said on Friday. Goods imports decreased $68.4 billion to $276.1 billion. Exports of goods increased $6.3 billion to $188.5 billion."

Trade is Amazingly Weird

5/28/25 AP:

"While California farmers often rattle off a list of challenges they face including high labor costs, water restrictions and overseas competition, many avocado growers say they have a good thing going. A key reason may come as a surprise to some — Mexican imports.

"When the United States lifted its ban on Mexican avocados in 1997, California growers worried at first that the imported fruit would displace their production.

"But the steady flow of avocados has wound up helping, not hurting, their sales by allowing for a year-round supply to markets and restaurants that has fomented demand, farmers say. Before the influx, most American consumers considered avocados to be specialty items — and when they came into season in California, industry officials had to work to rev up widespread interest in order to sell them."

Yes.  Foreign competition helped domestic growers. This is why oversimplified models of tariffs are just that: oversimplified  

Kangaroo Market Continues

Bounce, bounce,  bounce!  It would be interesting to know how many of yesterday's sellers are today's buyers.   If they are the same,  we are seeing day traders not expressions of mistrust. 

If this is unclear to you, let me explain.  In the 1990s, I worked for a company called DSC, which bought a startup for which I worked called Optilink.  I started plotting the market motions of our stock.  Along with a generally rising price which made our Employee Stock Purchase Plan a major source of wealth, there a short-term oscillation that a friend described as a drunken sine wave.  At the time, there many programmed trades.  A while would buy 100,000 shares at say, $30/share and sell it the following day for $32/share.  $200,000 gain more than covered the transaction costs. 

I started doing the same.  Of course, 100,000 shares was out of my range, but even 1000 shares was.  The transaction costs and a 40% marginal income rate meant that it was profitable but not enough to justify the risks involved.   When our stock crossed above $45/share, I stopped. 

This was not insider trading.  I had no special knowledge of what our company as a whole was doing.  This was strictly being a minnow following the whales.  (Bad metaphor; suggest better?)

Watch Inflation Become A Good Thing

4/10/25 CBS News:

"The Consumer Price Index in March rose 2.4% on an annual basis, showing progress in the Federal Reserve's battle to bring down inflation to a 2% rate. 

"By the numbers

"The CPI was forecast to rise 2.6% last month, according to economists polled by financial data firm FactSet. The CPI, a basket of goods and services typically bought by consumers, tracks the change in those prices over time. 

"March's report comes after inflation rose 2.8% on an annual basis in February. 

"On a monthly basis, prices actually fell 0.1% in March, the first monthly drop in nearly five years."

Later in the article is a discussion of the prospect of inflation as higher tariffs raise prices.  

"Because tariffs are paid by U.S. importers like Walmart when they accept shipments of foreign goods, they typically pass off all or some of the tariff cost onto consumers through higher prices."

Why "all or some"?  If other suppliers, such as in the U.S. or other nations subject to lower tariffs, manage to come up with competitive prices, retailers may not be able to pass the suddenly dramatically higher prices of Chinese goods.  

Rgular readers will recall my pleasure when I replaced a broken PRC drill press vise with a far better made Taiwanese one for roughly twice the price.

If doubling the price of poorly made PRC drill press vises makes them price competitive with far better made Taiwanese products (and who knows, maybe American products) there may be little or no price pressure on consumers.   There might just be a pile of PRC drill press vises remaindered at a price that makes W-M and Harbor Freight rethink China as a source. 

Kangaroo Market

DJIA up 6.5%.  NASDAQ up 7.5%.  S&P up 7.71%.  I suspect it was not equity markets that caused Trump to pause tariff war, but 10-year Treasury yields now up to 4.396%.  This was not the goal.

UPDATE: The rally survived noon.  NASDAQ gained 12%.  DJIA gained 7.8%.  S&P 500 gained 9.5%.  I hope reassuring the PANICans was not the primary push for the sudden delay in higher tariffs. 

70 Nations and Counting

The White House reports 70 nation's requesting tariff negotiations.  (I am not sure if they are counting the EU as one, but my guess is thst they are counting each member as one.)

Unsurprisingly,  after last week's Wall Street bloodbath, yesterday was not a disaster and today is looking quite good.  The Dow 30 and S&P 500 up about 3%.  I suspect when this all sorts out. I will be a $100K wealthier than the start.  My mutual funds likely bought on the fall.

I confess thst I find Trump’s way of doing things quite unnerving.  He relies on brinkmanship for trade negotiations.  If thst word is unfamiliar to you:

"Brinkmanship is the practice of trying to achieve an advantageous outcome by pushing dangerous events to the brink of active conflict. The maneuver of pushing a situation with the opponent to the brink succeeds by forcing the opponent to back down and make concessions rather than risk engaging in a conflict that would no longer be beneficial to either side,"

If that sounds like JFK during the Cuban Missile Crisis, it should.  We went nose to nose with the Soviet Union and Kruschev blinked.  This was a scary time.  We reached DEFCON 2.  I doubt Ukraine will be like that,  but Taiwan may well reach that point.

UPDATE: As my wife observed, this is a message to Iran.  "I am prepared to destroy the world economy and our own for American jobs.  What will I do to get you to abandon nuclear weapons?"

UPDATE 2: The market recovery did not last although it is not falling dramatically.

UPDATE 3: Trump announces direct negotiations with Iran.

Brutal Tariff Policies Cause Change

4/7/25 Politico.eu:

"BRUSSELS — The EU has offered the United States a “zero-for-zero” tariff scheme, European Commission President Ursula von der Leyen said Monday, seeking to avoid a tit-for-tat trade war."

Tariffs on Penguins

4/3/25 NPR discusses how Trump's tariff schedule includes many places with whom we have no trade,  often because they are only inhabited by penguins. 

This is unsurprising.   The tariffs are calculated by a formula based on balance of payments.   Spreadsheet.   Copy and paste country code list.  Lookup balance of payments data with LOOKUP function.  Add a formula to column C to calculate tariff.  No balance of payments imbalance?  Automatic 10%.

He is not angry at penguins.