TACO hell and the 'mob of macro intelligentsia'
Plus, US and Australian Q2 inflation; and QT and bond yields
The latest round of US-China trade talks yielded a relaxation of export and other controls on both sides, including China's exports of critical minerals to the US, although carefully limited by the Chinese to just six months. Bill Bishop has readouts from both the US and China sides. As Alan Beattie noted, China's highly strategic use of export controls gave it the upper hand in negotiations relative to Donald Trump's scattergun approach to trade policy. At the same time, China is using the export licenses to demand commercially sensitive information from foreign importers.
The outcome was consistent with the Trump Always Chickens Out (TACO) dynamic discussed previously, which invariably leaves higher tariffs in its wake, despite the climb-downs that are the basis for the TACO taunt/trade. In the case of China, US tariffs will mostly remain above 50% depending on how you stack them for any given good. While well short of the embargo level of 145% that toasted global equities in April, they remain punishingly high and will lead to significant trade diversion away from the US, but also to the US via third-country markets. That much is already evident in China's May export data, which saw exports to the US collapse by 35%, but exports to the world as a whole increase by nearly 5%.
With China squared away, at least temporarily, other countries are expected to receive letters over the next two weeks advising them of their new tariff rates in the absence of new deals before the 9 July deadline. Such deals seem conspicuous by their absence, which is probably just as well. Any deal just rewards US violations of international rules and norms. But that probably means 50% tariffs for the EU.
Here comes the judge
The US Court of Appeals for the Federal Circuit turned its administrative stay on the International Court of Trade's ruling enjoining the IEEPA tariffs into a stay that will remain in place for the duration of the Trump administration's appeal. The Federal Circuit will give the case an expedited hearing. Oral argument is scheduled for 31 July, suggesting a decision as soon as mid-August or early September. The uncertainty around the legality of much of Trump's IEEPA tariff regime will continue until at least then. Follow James Ransdell for updates.