Tariffs and the Economic Fallout: Who Will Blink First?
The standoff is beginning to take a toll on economic activity. Jeffrey Snider, host of Eurodollar University Channel, remarked on the impact of tariffs, stating:
“For months, people have wondered what the real impact of tariffs and trade restrictions would be. Now we’re starting to see it — and the early signs are worse than expected.”
Snider cited alarming key economic indicators signaling a major global economic slowdown:
“Here’s what’s happening across the global economy: U.S. imports from China fell 64%. Global container shipments are being canceled in record numbers. South Korean exports just flipped from +5.5% to –5.2% — in one month. Philly Fed manufacturing orders crashed 75 points since January. The Conference Board’s LEI just posted its 23rd drop in 25 months.”
Despite the weaker US data, China’s economic data suggest economic resilience. Beijing’s stimulus measures appear to be gaining traction. Notably, retail sales jumped 5.9% year-on-year in March after increasing 4% in January and February, with unemployment falling from 5.4% to 5.2% in March.
A tighter labor market could potentially boost consumer confidence, fueling domestic consumption, key for the push toward a consumption-led economy. If successful, this transition could mitigate the impact of US tariffs and enhance China’s leverage in trade negotiations.
“In my opinion, Trump will blink first,” said Alicia Garcia Herrero, Natixis Asia Pacific Chief Economist, forecasting a US concession.
US-Hong Kong Markets Diverge on Tariffs
Market trends reflect investor sentiment toward tariffs and the potential effects on the US and China’s economies. On April 21, US markets faced heavy selling pressure as US President Trump fueled concerns about Fed independence.
Fed Chair Powell recently warned tariffs may slow growth and drive prices higher, potentially delaying Fed rate cuts. The lack of policy support leaves the US economy vulnerable while Beijing considers fresh stimulus measures to bolster domestic demand and consumption.
Monday’s sell-off left the Nasdaq Composite Index down 17.8% year-to-date (YTD). In contrast, the Hang Seng Index has gained 6.43% YTD, while the CSI 300 is down a relatively modest 3.69%, recovering from its April 7 low.
Brian Tycangco, editor and analyst at Stansberry Research, recently remarked on market trends, stating:
“Hong Kong’s key indices are rallying today even after Wall Street’s big losses overnight. Decoupling takes many forms. This could be the shape of things to come if Beijing is able to sustain growth through stimulus and focus on keeping things stable at home.”
