The Trump tariff regime began on Friday, but an hour before the global tariffs took effect the White House issued a statement indicating that the following countries would be temporarily exempt pending further negotiations:
- the European Union,
- Mexico, and
- South Korea
Much of the burden, and indeed the target, of these tariffs will be China.
CHINA RESPONDS, OF COURSE:
China responded to President Trump’s announcement of tariffs on $50 billion of Chinese steel and aluminum imports by announcing their own tariffs. China will slap tariffs on $3 billion of U.S. imports of soybeans, sorghum and live hogs, products from Farm Belt states that supported Mr. Trump in the 2016 election, along with a few other targeted items.
FED RAISES RATES:
The Fed unanimously agreed to raise its benchmark federal funds rate by a quarter of a percentage point to a range between 1.5% and 1.75%. The Fed is projecting faster economic growth, higher inflation and lower unemployment in the coming years. The new Fed chair Jerome Powell made it clear that they are trying to move quickly enough to prevent the economy from overheating (i.e., too much inflation), but not so quickly that they slow growth and inflation stays below their 2% target. “We’re trying to take the middle ground.”
The S&P 500 had its worst week in two years falling nearly 6%. The bugaboos affecting the market remained the same, fear of a trade war (in response to tariffs) and rising borrowing costs. On top of these two concerns, Facebook’s privacy scandal didn’t help matters.
GOOD NEWS ON DURABLE GOODS:
“Durable goods” are defined as goods meant to last three years or more. In February, orders for such goods rose by 3.1%. If you pull out defense spending from that statistic, the rise was still 1.8% and reached the highest level since 2014 when we were in the midst of big durable goods spending on the U.S. energy boom. This could be new business spending spurred on by the new tax law, but we’ll wait and watch to see if this continues.
NEW HOME SALES:
Of course, with interest rates moving up, we are going to watch home sales closely to see if this market can remain healthy despite higher borrowing costs. In February, sales of single-family new homes in the U.S. was 618,000, a bit lower than the 622,000 of January (0.6% less), but higher than the 615,000 of February of 2017 (by 0.5%). Even with the increase in sales since the recession, new home sales are still somewhat low historically. We will see if the pent up demand will continue to push this higher despite rising interest costs.
STOCKS TUMBLE: https://www.bloomberg.com/news/articles/2018-03-22/asia-braces-for-stocks-slide-as-trade-tensions-rise-market-wrap
NEW HOME SALES: http://www.calculatedriskblog.com/2018/03/new-home-sales-at-618000-annual-rate-in.html
TARIFFS BEGIN: https://www.wsj.com/articles/how-countries-won-u-s-tariffs-exemptions-retaliation-threats-intense-lobbying-and-an-emphasis-on-alliances-1521838750
GOOD NEWS ON DURABLE GOODS: https://www.wsj.com/articles/demand-for-long-lasting-u-s-factory-goods-rose-at-best-rate-since-june-1521808657
FED RAISES RATES: https://blogs.wsj.com/economics/2018/03/22/real-time-economics-fed-raises-rates-u-s-china-clash-on-trade-baby-boomers-hit-the-burbs/
CHINA RESPONDS, OF COURSE: https://blogs.wsj.com/economics/2018/03/22/real-time-economics-fed-raises-rates-u-s-china-clash-on-trade-baby-boomers-hit-the-burbs/