Trade, Dollars & Deals – Top 3 Takeaways – April 18th, 2025 - Driven By Braman Motorcars
Takeaway #1: It’s time to make a deal
Yesterday the best export that Europe’s got – Italian Prime Minister Giorgia Meloni arrived at the White House tariff free. And if what was said by President Trump during their meetings becomes a reality – there should soon be other imports arriving from Europe tariff free. In addition to President Trump, rightfully, identifying Meloni as a “great prime minister” he repeatedly spoke confidently about arriving at a trade deal... At first saying that he’ll have “very little problem making a deal with Europe”, while also saying shortly thereafter that “There will be a trade deal, 100%”. And that’s significant as the US does (or at least did) just under $900 billion in round trip trade with the EU per year. China, as big of a trade partner as it is, only accounts for slightly higher than half of that total. Speaking of China, the president once again also said that there will be a deal that will be made but he didn’t offer any additional details about his level of confidence about that happening anytime soon. And while the details of whatever the president and EU leaders hammer out matters, almost just as much as the details of the deals is the need for greater certainty in the financial markets. I’ll explain. My base case for what the effects of this current tariff / trade war will be is now inflationary. And it’s for one big reason. The value of the US Dollar. It’s rapidly becoming a problem – at least from the perspective of potential inflation. The US Dollar Index, which is the value of the US Dollar against a basket of the leading world currencies, has been getting slaughtered. On “Liberation Day” when Trump announced the tariffs the US Dollar Index was at $104. Today it’s down to $99.50. If that was the swing in a stock price over a couple of weeks no one would even blink. But in the currency world that kind of volatility is almost never a thing. Without getting into the weeds of US Dollar Denominated assets the bottom line is this. The value of the dollar in your pocket today is worth 4.3% less than it was just a couple of weeks ago on the world stage. That’s a problem. That means that independent of the potential impact of tariffs affecting the price of goods going forward, the rapidly dropping value of our currency is now inherently inflationary. The last time that the value of the US Dollar Index was below $100 was in July of 2023. Inflation that month ran at 3.2% - that’s a rate that’s close to a full point higher than the inflation rate most recently. As the value of the Dollar declines it mitigates the deflationary effects that I expected (and that we did start to see) on the price of energy and interest rates. And about that... that’s another problem in the making.
Takeaway #2: The Fed
It was widely reported yesterday that President Trump Truthed this near the start of his day: The ECB is expected to cut interest rates for the 7th time, and yet, “Too Late” Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete “mess!” Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough! While an administration official later clarified that Trump’s Truth shouldn’t be interpreted as a threat for the president to attempt to seek to fire Federal Reserve Chairman Powell, the point that he was making remains. This week the Federal Reserve chairman made it rather clear that until there’s more clarity on economic policy, the Fed is unlikely to change its policy. That’s a problem because like the president, I firmly believe that the Fed should be cutting rates. That was another expectation I had that would aid in offsetting potential cost increases from the tariff policy. On that note, the financial markets, which two weeks ago today, priced in about a 100% chance of an interest rate cut in May, have now backed that out to June at the earliest. So, the bottom line is this. Tariffs that are considerably higher than they’ve been, with a Dollar that’s considerably weaker than it’s been, and with interest rates that are already too high but that will evidently be staying there for longer is not a good recipe for economic success. If deals get done quickly from here and certainty reverses these things – which is a possibility, this could still prove to be deflationary and a win-win economically, but that window is quickly closing. And as for the tariffs...
Takeaway #3: They’re Barely Flowing
Ok, more than barely, but relatively anyway. Here’s the thing. You know how President Trump had been saying that we were taking in $2 billion per day in tariffs? That was based on previous projections. Essentially if all trade had remained the same and the tariffs were paid it would have been $2 billion per day. But what is the number currently? $500 million per day. Which, even if you’re not particularly good at math tells you that only approximately a quarter of what had been traded before Liberation Day is currently being traded the same way. Some of that is due to rapid buying and stocking up by companies prior to the tariffs taking effect to build inventories, some of it is due to cancelled orders which we’ve seen Amazon, for example, along with companies like Jaguar and Land Rover too. Again, if this is temporary it’s probably not a big deal, but if it’s sustained it would mean that even the short-term economic benefit from higher tariffs to the Treasury narrower trade deficit would be mitigated. Numerous economic signs are pointing in the direction of time being of the essence for Trump to start making some deals without risking sustainable damage to the U.S. economy.