Tariff Impacts Less Clear as Trade Dynamics Shifted

Jeffrey Roach:

Hi, I'm Jeffrey Roach, chief economist for LPL Financial, with an update on what's new in the macro landscape and a call to action for investors. First, wholesale prices will move into the hot seat. In these unique inflationary periods, investors have to look a bit deeper to get insights on trends and risks to the inflation outlook. Investors just received an update on producer prices for October, which rose slightly from a month ago. The biggest contributor to rise in final demand producer prices was portfolio management. Clearly a category immune to tariffs since markets seemed to be preoccupied with that trade-related tax. However, for those in the wholesaling and retailing industries, the annual pace of producer prices plummeted. As the chart reveals, we should expect a bit more volatility in producer prices, especially as businesses manage supply chains amid the risks of tariffs. The consumer impacts from tariffs vary widely and are industry specific as businesses often apply for exclusions or bear part of the costs.

Jeffrey Roach:

Consumer prices surprisingly decelerating down to 1.7% in late 2019. That was after businesses adjusted to the trade war with China. Second, trade balance with China is lowest since 2010. During the first Trump administration, the U.S. trade deficit with China was at its depths, but in recent years, the U.S. has narrowed that deficit. For 2023, the deficit shrunk to $279 billion, which was a 17% decrease in total trade with China compared to 2022. The decrease was due to a combination of factors, including China's economic slowdown and supply chain shifts. This is extremely important since the shifting of supply chains has essentially limited the risks from U.S. businesses being overexposed to China as our trading partner, or at least relative to just a few years ago. Third, U.S. and China are in major role reversals. One of the things investors are worried about right now is what happens when the new administration implements tariffs, despite the uncertainty about what could be just rhetoric versus actual new policy, we can at least drill into what is different now versus the last time President Trump was in the White House last time, the U.S. had experienced a significant slowdown from roughly 6% GDP growth to a bit over three and a half percent in just a couple quarters.

Jeffrey Roach:

Meanwhile, China was rolling with roughly 7% growth. Well, today's scenario is a lot different, China currently has greater headwinds to their economy, making the U.S. having the upper hand in terms of negotiations. This is an important fact not to be ignored as investors await the new policies of Trump 2.0. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.