U.S. and China Agree to Temporarily Pause Reciprocal Tariffs

Jeffrey Roach (00:03):

Hi, I’m Jeffrey Roach, Chief Economist for LPL Financial with a few key charts to explain the current macro landscape. First, the demand for home improvement rebounded. After the biggest monthly surge last month since early 2023, retailers posted another monthly gain in sales. April retail sales rose 0.1% after rising a revised 1.7% month to month in March as buyers splurged before any new tariffs were enacted. Now here's what's interesting. The biggest contributor in April was restaurant spending, and I think that's a sign that consumers are willing to allocate toward discretionary spending. Also, the demand for home improvement has skyrocketed as households stay put, given the abnormalities of the housing market. Retailers for building materials hosted the biggest gains since 2022. The bottom line is this, retailers in the home improvement space are benefiting from the strong demand for renovations and home improvements, and given those abnormalities in the housing market, we should expect that to continue.

Jeffrey Roach (01:06):

If it's a big, if the labor market holds, steady consumer incomes should support discretionary spending, adding to the likelihood that the Fed can stay on hold as long as growth prospects remain stable. Second, US effective tariff rate is down to 13.1%. The temporary trade deal with China, which paused reciprocal tariffs for 90 days, and those details are still emerging. But what that did was push the U.S. effective tariff rate down to 13.1%. That's from 22.8% according to Fitch ratings. However, this is far from being over. The temporary deal puts greater pressure on the two countries to develop a mutually amicable agreement. What investors know now is US tariffs on Chinese products are down to 30%. That's from 145%, and China will lower their tariffs on US goods down to 10% from 125%. The temporary agreement should allow for further discussions and negotiations. Now, since that weekend, businesses are aggressively shoring up their China plus one strategy, which describes the efforts of firms reducing reliance on just one country by expanding operations in additional countries other than China.

Jeffrey Roach (02:23):

Now, decreasing dependency on China does not mean decoupling altogether. This is an important concept as trade negotiations continue. So third, the fog has not yet lifted. Inflation is decelerating, giving markets something to cheer about. However, uncertain trade policy is keeping the fog from lifting. April consumer prices rose 0.2% from a month ago after falling 0.1% in March. Consumer inflation for April was benign, but it's possible that tariff threats are not yet fully realized. In the months ahead we should see the impact on consumer prices. For now, investors can only guess what the decline in container ships out of China foreshadows for supply chains. Some of the sticky components of inflation may not get much relief, even if trade policy improves. For example, medical care and auto insurance prices continue to rise, putting acute pressure on consumers and are less sensitive to trade. Now, good news, airfare, car prices, and clothing prices were among the categories that decreased in April. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.