Daily Commentary

MarketMinder’s View: Here is a great follow-up on the feared economic fallout—or more like the lack thereof—from President Donald Trump’s Liberation Day tariffs. America’s protectionist policies were supposed to roil growth worldwide, especially those nations that are particularly dependent on US commerce. See America’s neighbors to the north and south. “You’d be forgiven for thinking that Canada and Mexico, uniquely dependent on trade with the US, must be principal victims of the new order. Not so much. Goods deemed compliant with the earlier US-Mexico-Canada agreement are mostly exempt from new tariffs — and ‘compliance’ turns out to be an impressively accommodating concept. In 2024, less than 40% of US imports from Canada crossed the border under USMCA terms. But roughly 85% can qualify for USMCA treatment if traders ask to be certified and the certifiers decide to be flexible. They asked, and the US said fine. Canada’s effective tariff rate — revenue divided by the value of exports to the US — was just 3% as of July. Mexico’s was only a little higher, at 4.7%. By this measure, the first and most shocking targets in the administration’s multi-front trade war are almost unscathed.” The rest of the article explores other ways reality has exceeded dire expectations, from carve-outs for certain goods (e.g., smartphones and laptops) to tax relief. Now, to be clear, tariffs are an economic negative, in our view—they add friction and costs, and they hurt small businesses (which lack clout to negotiate) disproportionately. But while these levies hurt the tariff imposer more than the targets, they also haven’t hamstrung business—and that better-than-anticipated reality has boosted stocks. For more, see our August commentary, “Why Headline Tariff Rates Tell You So Little.” 

MarketMinder’s View: The main argument here: The government shutdown has robbed the Fed (and everyone else) of the latest official economic data, meaning policymakers are flying blind at a particularly tumultuous time, with issues ranging from “… an ongoing housing affordability crisis that the Fed doesn’t have all the tools to fix, the potential effects of AI, persistent inflation, uncertainty around tariffs and a slowdown in the job market.” First, the data concern is overwrought—Fed governors have plenty of information at their fingertips, whether it be from the private sector or their business contacts in their respective districts. As for the Fed’s ability to manage housing affordability, AI’s implications for jobs and economic uncertainty, we can point to specific reasons why these fears are overblown. As 2023 demonstrated, the Fed’s influence over the housing market is vastly overrated, as rate hikes didn’t lead to lower home prices, and mortgage rates aren’t assured to follow fed-funds rates down. Ditto for the central bank’s sway over businesses’ hiring decisions. But more broadly speaking, the article’s fatal flaw is presuming central bankers can control or fine tune the economy’s growth with any sense of precision. Newsflash: They can’t. Monetary policy hits the economy at an undetermined lag, so any action Fed chair Jerome Powell and friends take next week won’t address housing, jobs or any other part of the economy right away. Please, dear reader, don’t overrate monetary policy’s macroeconomic importance—it is but one variable markets care about.        

MarketMinder’s View: Slowing Chinese household spending is worrying public officials, experts and regular citizens alike. For the government, stronger domestic spending is part of its long-term economic aim of transitioning from export- and production-led growth to a consumption- and services-driven model—similar to most major developed economies. However, other issues are complicating that transition. “The challenges at home include youth unemployment, a threadbare social welfare system and an aging population. But the government has failed to take on these problems aggressively, instead tinkering with incremental policy changes and doubling down on investing in the factories that generate goods for export.” The rest of the article highlights some China-specific headwinds (e.g., the long-struggling real estate sector, where many people park their savings) and shares some anecdotal examples of individuals facing issues. We don’t dismiss those headwinds, but they don’t mean the economy at large is contracting. Rather, growth is slowing, and while high-profile soft patches grab attention, spending hasn’t stopped. As one interviewee noted here, subsidies are helpful for planned or needed purchases, but she isn’t going out of her way to buy something solely because of the government program. Handwringing over frugal spending indicates sentiment remains pretty dour toward China—a bullish development. For more, see yesterday’s commentary, “China’s Great Wall of Worry Extends.”