T-Day

• The S&P 500 rose by 0.4% on Tuesday, the Nasdaq 100 gained 0.8%, while the Dow Jones finished marginally in the red.

• Consumer discretionary stocks, including Tesla (+3.6%) and Nike (+2%), led the day’s gains.

• The potential for a 20% tariff on most imports into the U.S. has raised concerns, with analysts warning that the trade risks may be underappreciated by the market.

• Meanwhile, economic data showed the factory sector contracted again in March, with price pressures at their highest since 2022.

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As we head into the initiation of broad-based tariffs, let's take a look at the chart of the U.S. trade balance ...

We can see the dramatic trade deficit that developed from the early 90s, driven by China's economic plan to corner the world's export market (by manipulating a persistently weak currency). It sharply widened leading up to the Global Financial Crisis.

Then we had Trump 1.0. and core to the Trump agenda was "structural reform", meaning balancing global trade. That came with a multi-year negotiation on trade with China, which resulted in a "phase one" trade deal, but has ultimately delivered an even deeper trade deficit.

This recent collapse in the chart is the front loading of trade over the past two months, in efforts to get ahead of tariffs.

Now, if we look back at the trade war of 2018-2019, it was even admitted by Trump that getting any movement on trade (with China) could be considered a success, given the history of the prior twenty-five years.

This time around? If we're wondering if the bark might be worse than the bite, we can look no further than Trump's Secretary of State selection. Marco Rubio wrote a book in 2023 titled Decades of Decadence, which probably got him the job to run the State Department.

In his book, he has a chapter on China.

He called the Chinese Communist Party "a totalitarian regime bent on world domination". He said the rise of China was the result of "a series of extremely bad decisions, almost all of which were made by the elite political class of the United States." As China rose, "the US government helped them at every step of the way, failing to see the threat that was right before their eyes."

Also remember, the race for AI supremacy is a two-horse race (between the US and China). The winner will be the difference between AI that serves humanity and AI that controls humanity (serving the interests of the Chinese Communist Party).

So, we should expect Trump to leverage tariffs on China to the fullest extent.

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