Import vehicle tariffs include parts

[PSUEng]

My Chinese made eBay parts!!! 😭😭
https://news.yahoo.com/finance/news/...182336387.html

I wonder if they were funneling them through Mexico along with their aluminum to exploit USMCA.

EDIT: N/M, the article is only referring to de minimus shipments. But, China is/was doing that; cheating, as usual.

[Stilt]

I think tariffs are being used to control long term interest rates.

The FED lowered their rate (overnight bank-to-bank) which usually results in lowering most interest rates. When the FED did that, long-term rates went up. Treasury auctions have been not going well since Q1 2024-ish. In fact, Yellin was retiring low rate long-term bonds and reissuing short term t-bills at a much higher rate (2% vs 4% to 5%). Anything 10 years or longer were selling at discounts at the auctions which equals higher yields and higher interest rates.

That is the past.

The government MUST keep interest rates low to keep the annual interest payments low enough so they don't start eating up a higher % of annual revenue. I think we are close to 16% right now. If long-term rates keep going up then the government has to use short-term rates which can far more volatile. So Yellin was screwing things up by converning L/T debt into T-bills which increased interest costs to prop up the banking sector for Biden...probably for the election.

Here is what I think the Trump bet is...

As you can see, the DXY and the dollar as a whole weakened today...by A LOT. Investors are pushing out the stock market into bonds - for the past 2 weeks or so - as indicated by falling yields which means bonds are more valuable. This will push long-term rates down. This saves businesses -especially in the real estate sectors. It could also be a way of reducing the budget deficit AND national debt - increase producivity through growth and more tax revenue...I think the gov't will also use inflation as well.

This could eventually enable to economy to grow through yet more financing and maybe bring back more production to the US. The problem is labor. If you bring back production then will it be cheaper? Let's say a factory worker makes $40/hr today. Re-shore hundreds of billions...maybe trillions in production...those factory workers will command $60/hr - 2022 labor market?

I'm not a Trump fan but I don't think it is an insane idea. Not many other options at this point. The problem is interest + Medicare + Social Security is growing faster than tax revenue. Eventually something will give. The question is will the US have any control? If we allow the world to start rejecting the idea of the US Dollar as the world reserve currency...it's gonna get ugly and fast.

The o/n repo rate is at 4.25 and the EFFR is at the same 4.25 (if you want to be pedantic, 4.25 - 4.5). I don't know what you mean when you say the fed cut rates, cutting rates in terms of what, in terms of a recent cut, e.g., 25 bps, or are we talking about a previous hiking and cutting cycle?

The long end of the curve does not directly go down when the fed lowers the EFFR per se, it depends on the reasoning for the fed to be cutting. If the market views the rate cut as stimulative enough to accelerate economic growth, the long end will go up. But if the cuts are perceived to be in response to serious economic weakness, the long end will go down, understanding the yield curve to its fullest extent it a discussion for another day and another place.

Please don't conflate debt management practices at the treasury with monetary policy at the federal. Yellen was (re)issuing short-term T-bills because that was the way to not ruin the term premium while also financing itself. Saying Yellin was screwing things up is a complete miss, what do you mean screwing up, screwing what up.

Investors rotating into bonds doesn't solely make the yield curve go down, or yields to go down, but yes that is an element of the broader dynamics.Anyhow, Bessent wants the 10 year to go lower, he wants a 10y of around 3%. Im not going to argue with you and explain the nuances of inflation and growth expectations, and a bunch of other things that the market is clearly pricing in and thus reacting to.

You are completely lost in thinking that lower rates are going to reshore production, lower rates will act as a form of QE, that's about it.
(Also, another element of tariffs is about usurping power from Congress and the power of the purse unto the executive branch, but that is a conversation for another place)

Ok, so onto globalization:
American complacency with China's exploitation of American companies stems from corporate America's insistence on remaining competitive. Executives argued that they must engage with China to maintain low input costs or risk losing market share to European counterparts. This arrangement delivered short-term profits that directly affected executive compensation packages. Moreover, this complacency developed from the assumption we could maintain technological superiority while shifting lower-value production to China. This calculus is changing as China climbs to the top rungs of the value chain, triggering American resistance.

From a Porter’s Five Forces perspective, ruthless competition among suppliers benefits companies higher in the value chain. Apple exemplifies this by facilitating IP ransfer to Chinese contractors despite knowing IP theft was likely. They secured NDAs, knowing enforcement in Chinese courts was problematic, allowing them to obtain near-identical components at a fraction of legitimate costs. Apple operated strategically in this environment until recently becoming a target itself. Their partial withdrawal from China toward countries like India and Vietnam represents a significant challenge, as these alternatives cannot match China’s manufacturing scale and efficiency.

Anyhow, back to the point:
Competing in lower-value manufacturing requires access to cheap inputs—primarily labor—while simultaneously implementing policies that remove those exact labor sources through deportation is asinine. Lower-value manufacturing segments operate on thin margins that depend on cost advantages. Developed economies with higher wage structures cannot compete effectively in these segments without either automation (requiring massive capital investment) or access to affordable labor. Successful re-shoring would require either accepting significantly higher consumer prices or finding alternative sources of competitive advantage that don’t rely on labor costs. Neither option is viable.


Oh, and on the dollar:
Your framing about "allowing" the world to reject the US dollar as the reserve currency misunderstands the fundamental nature of reserve currency status. Nations don't simply "allow" or "disallow" others to use their currency as a reserve - this status is through the trust in the United States and its institutions. This trust stems from the US's commitment to economic liberalism backed by military power, which connects to American support for democracy. While economic freedom and democratic principles aren't entirely inseparable, they share important connections through concepts of freedom, private property rights, and fair courts. Government interference in business decisions undermines both economic freedom and property rights.

De-dollarization would occur not because we "allowed" it, but because these fundamental pillars of trust have eroded. If de-dollarization accelerates, it won't be a sudden binary switch, but rather a gradual process where countries diversify away from dollar-denominated assets and transactions.

When presidential leadership shifts toward authoritarianism, anti-democratic policies, and excessive industrial policy intervention, it directly counters economic liberalism that has historically underpinned dollar primacy in the global financial system. Also, talking (not you per se but in general) about debt without acknowledging how dollar dominance enables our ability to manage it, monopolizing the debt (issuing new debt to pay existing debt with minimal sacrifice), and the larger picture of exorbitant privilege, shows how naive people are. Taking steps to manage the debt is necessary, but simultaneously undermining the core values that maintain dollar dominance is counterproductive. This contradiction threatens the very foundation of our economic system. The current approach accelerates de-dollarization, which represents an existential threat to national prosperity and power. While debt concerns are legitimate, the methods being employed to address them may ultimately prove more destructive than the problem itself.

[Stilt]

So you think the Mar-a-Lago accord is real? I think there are easier but almost certainly more painful ways to address spending and revenue.

It's real. Will it work? That's hard to say.

The Mar-a-Lago Accord's success is dependent on the administration being able to leverage its position - meaning the pain of not participating in the U.S. market is too great to bear, so countries ultimately comply. However, this approach could backfire and cause trade partners and global allies to withdraw and participate in other developing economic spheres, namely BRICS.

[Stilt]

Not sure. What I don’t like is we get I’m slapping tariffs on X country because they suck and it will be great. Then we need to guess on what the big picture move is. It makes it extremely hard to get on board with his moves.

Other countries have high tariffs on US goods. I’m not against this if it is to level the playing field. But to achieve what?

It's not leveling the playing field. It's an obsession with eliminating trade deficits. Tariffs aren't leveling any playing field - they're treating bilateral trade balances as the ultimate economic scoreboard, and saying "Hey, if you have a deficit, you abused us, and we don't like that, so now we are going to tariff you." Completely ignoring how deficits with one country can be offset by surpluses with others on the global scale.

Trade deficits don't prove exploitation. The administration's approach ignores basic economics. Bilateral statistics are not an end-all be all for determining how trade has benefited your country, or if it hasn't. Global value chains distribute production across borders. Capital flows often drive deficits more than trade practices do. Consumer benefits from imports never appear in these calculations ... why would they !! lol.

It's so asinine that sometimes I have to step away from the computer and go outside because it's so mindbogglingly imbecilic.

[Stilt]

Unfortunately sometimes even when a tariff is undone the goods affected will drop in price but not as low as they were before the tariff.

They likely won't drop in price; moreover, the prices you will see as a consumer will likely be higher than the tariff rate. Here's why:

Example: I am a pizza shop with input costs and consumers. My input costs adjust freely with dynamic pricing, but my consumer prices cannot be changed dynamically. As an intermediary facing risk from volatile input prices while maintaining fixed consumer prices (or prices that can be adjusted on a much slower scale), I need compensation for this uncertainty. Therefore, as a pizza shop, I must increase my prices above the tariff rate to account for this risk.

Unless you are hedging your input costs with forwards, futures, and other derivative products, but Idk of many mom n pop pizza shops doing that lol. But even then, they will pass down the increase plus a margin.

[sapote]

Other countries have high tariffs on US goods. I’m not against this if it is to level the playing field. But to achieve what?

I'm not sure of other rich countries with high tariff on US goods, but for poor countries like Vietnam, Lao, I think their gov have high tariff on "luxury goods" such as big fancy cars SUV due to small roads and traffic congestion; It's not unfair competition issue. I mean 46% on VN, Cambodia with 49%, Lao with 48%, and 44% on Myanmar (yes over 3000 crushed to death last week). What sort of jobs he wanted to bring them back here from these poor countries? I'm laughing my * off.

[maw1124]

I'm not sure other countries have high tariffs on US goods at all. It's a complicated issue of computation for "tariffs" v "duties" v "other fees" but according to CNBC yesterday, the claimed tariffs v the actual tariffs shows a bit of a gap.

It was important enough for me to capture it. The "WH Tariff Rate" is what the current administration claims.

For giggles, also attached is one toy maker CEO's research on US manufacturing.

maw

[bigjae46]

It's not leveling the playing field. It's an obsession with eliminating trade deficits. Tariffs aren't leveling any playing field - they're treating bilateral trade balances as the ultimate economic scoreboard, and saying "Hey, if you have a deficit, you abused us, and we don't like that, so now we are going to tariff you." Completely ignoring how deficits with one country can be offset by surpluses with others on the global scale.

Trade deficits don't prove exploitation. The administration's approach ignores basic economics. Bilateral statistics are not an end-all be all for determining how trade has benefited your country, or if it hasn't. Global value chains distribute production across borders. Capital flows often drive deficits more than trade practices do. Consumer benefits from imports never appear in these calculations ... why would they !! lol.

It's so asinine that sometimes I have to step away from the computer and go outside because it's so mindbogglingly imbecilic.

What's happening is long-term rates are dropping and there are deflationary pressures on commodities. The only commodity I've seen that hasn't fallen significantly is bitcoin and crypto. Metals, food, energy - all falling.

Some are saying tariffs will actually cause asset deflation which is what is happening in real-time for non-discretionary items.

I will admit that I do love the tariffs on the eastern asian countries that have been stealing our IP for decades.

[sapote]

Some are saying tariffs will actually cause asset deflation which is what is happening in real-time for non-discretionary items.

Tariff causing prices going up, not down, so why deflation? Deflation will happen when we’re in recession.
”
Inflation could be here to stay: Federal Reserve Chair Jerome Powell warned Friday that inflation is likely to pick up because of President Donald Trump’s new tariffs — and those higher prices could be “persistent.”

[Stilt]

What's happening is long-term rates are dropping and there are deflationary pressures on commodities. The only commodity I've seen that hasn't fallen significantly is bitcoin and crypto. Metals, food, energy - all falling.

Some are saying tariffs will actually cause asset deflation which is what is happening in real-time for non-discretionary items.

I will admit that I do love the tariffs on the eastern asian countries that have been stealing our IP for decades.

On yields, not that simple:

Yields have dropped across the curve, there is a bull-flattening move. 2yr yields dropped 16bps to 3.50%, and have outpaced the 13.5bps decline in the 10 year yield to 3.27, this signals: (1) an increased probability of fed easing acceleration (I don't necessarily agree w/ the market and I'm kind of too lazy to explain why the fed won't cut rates and "ease" as soon and as much as the markets are pricing in) and (2) a deteriorating growth expectation (risk-off sentiment), so what does this mean? The market is interpreting that growth risks are gaining prominence in the Fed's policy calculus.

FedWatch shows markets are pricing in a 69.4% probability of of a 325-350 bps rate by May 2025, implying approximately 50-75 bps of cuts from current levels, followed by another 50 bps of cumulative easing by June 2025 (66.1%) — which contradicts Powell's statement that "it is too soon to say what will be the appropriate path for monetary policy." Powell specifically warned that tariff effects "will include higher inflation and slower growth," while also mentioning the uncertainty around tariff impacts, ergo the market is overly confident in its easing expectations

On ICS (Interest Rate Futures Inter-Commodity Spreads, 1st image):
- The TYT spread (2yr-3yr) has moved from -0.8 to +0.9, indicating a shift in the front-end slope
- Steepening is evident across multiple points (TUT, NOB, BOB spreads), suggesting markets are pricing a transition from restrictive to accommodative policy
- The yield spread between 2yr and Ultra T-Bond (TUL) is particularly wide at 88.2 intraday, reflecting maximum curve steepening expectations

Front-End to Belly Dynamics (TUF: 2yr-5yr):
Yield spread widened intraday by 2.6bps to 7.6bps.
This steepening suggests market pricing increasingly aggressive near-term Fed cuts while maintaining longer-term rate expectations
The shift in TYT from negative to positive territory represents a fundamental reassessment of near-term policy trajectory.

Belly to Back-End Dynamics (FYT: 5yr-10yr):
Marginal narrowing of yield spread to 15.0bps (-0.3bps).
This flattening indicates concerns about long-term growth prospects
_____
Now, onto metals and commodities!!
To put it simply, there is no deflation in metals, if we are talking macro. If we are not, and we are talking about near term, or like one week ... if there is, I don't really care.

Bessent's agenda is something called the three arrows:
(1) 3% real economic growth through deregulation and forward guidance of confidence.
(2) 3% federal deficits by the end of 2028 through the freezing of non-defense spending.
(3) 3 million more oil barrels or equivalents a day of energy production and lower oil prices.

Under Trump's Three Arrows strategy, metals would experience inflationary rather than deflationary pressures despite lower oil prices. This apparent contradiction emerges because a deliberately weakened dollar would make metal imports more expensive while simultaneously supporting domestic metal prices. The strategy's reindustrialization focus, a "strategic decoupling," creates significant metal demand for manufacturing revival. The Three Arrows create this divergence by targeting energy independence through increased hydrocarbon production (3 million more barrels equivalent daily, pushing oil toward $50 ~ 40/barrel) while enabling monetary easing through fiscal discipline (3% federal deficits by 2028) and deregulation-driven growth (3% real economic growth). This policy combination creates the conditions for what Bessent calls "a proper easing cycle" to deliberately weaken the dollar, making U.S. exports more competitive globally (or so he surmises). The outcome is mercantilism on steroids through three channels: energy exports, industrial attraction via cheap energy, and currency manipulation—all supporting higher metal prices despite cheaper oil.


Anyhow, I don't care for the administration, but it's how I make my money, so I have to understand it.
___
The graphs below are for context on the yields bit.

[SQ13]

I don’t understand any of this economics talk. Someone just tell me if I’ll be able to buy a 997.1 GT3 for under $100k this year.

[maw1124]

I don’t understand any of this economics talk. Someone just tell me if I’ll be able to buy a 997.1 GT3 for under $100k this year.

😂🤣😅

Probably not… used car prices are headed through the roof. Sorry, but a great question nonetheless.

I think the end of this thread is, “Sorry, shit will cost more, and there will be no return to US manufacturing to show for it. Sometimes people are just wrong. Deal with it.”

maw

[SQ13]

😂🤣😅

Probably not… used car prices are headed through the roof. Sorry, but a great question nonetheless.

I think the end of this thread is, “Sorry, shit will cost more, and there will be no return to US manufacturing to show for it. Sometimes people are just wrong. Deal with it.”

maw

Well shit. Guess I’ll be paying $150k for one soon 😔

[sapote]

This will give you a good laugh:

”One of the highest tariff rates, 50 percent, was imposed on the African nation of Lesotho, whose average citizen earns less than $5 a day. Why? “

Lesotho is so poor that they couldn’t buy anything from US, but we imported some rough diamonds from their diggers, hence he slapped them with high tariffs so we can bring the manufacturing back here, whatever that is.

Just crazy stuff

[maw1124]

Well shit. Guess I’ll be paying $150k for one soon 😔

I suppose there is the slightest chance that the prices drop because people are no longer interested in a very low production car full of parts that now cost 20% to 45% more.

And I suppose there's an equal chance that Germany just comes and kisses the ring because this is all just a crude loan shark style shake down tactic anyway.

So I wouldn't make any conclusions just yet. Anything can happen. Just stay ready so you don't have to get ready. Something about crouching tigers and hidden dragons...

maw