This Is Ground Zero in Trump’s Trade War
The nation’s largest ports, in Los Angeles County, are a bellwether for the economy. They are being whipsawed as President Trump reorders global trade.
By Ana Swanson, The New York Times, June 19, 2025
The Port of Los Angeles, along with a nearby facility in Long Beach, makes up a shipping complex that stretches across nearly 75 miles of Southern California shoreline. The ports are a bellwether for trade and the U.S. economy. Together, they move an astonishing 40 percent of the goods that come into the United States via containers. They also account for 30 percent of what the country exports…
The surges and crashes [in shipping volumes due to swings in tariff policy] are lowering the supply of certain goods. They are also pushing up the costs for companies to import goods. The cost of shipping a container to Southern California from China has doubled since the start of March…
While inflation this year has stayed relatively steady so far, economists say the higher cost for imports could filter more noticeably into prices in stores later this year. Consumer demand could also weaken, a reaction in part to rash purchasing in the early months of 2025 before tariffs took effect…
For every four containers that arrive stuffed with foreign cars, textiles and toys, only one is sent out filled with corn, soybeans and other American exports. … Only 8 percent of Americans work in manufacturing…[end quote]
The purpose of the tariffs is to encourage manufacturing in the U.S. There are many problems with this concept. The first is that tariffs raise prices and cause inflation which will show up later this year. That’s an immediate impact. Even if manufacturers decide to build factories in the U.S. during this unpredictable policy environment it takes years to design and build a factory. Meanwhile, many jobs that depend on imports will be endangered.
The Federal Reserve is very aware of the inflationary impact of tariffs and also their potential to slow the economy.
The Fed Waits Out the Tariff Economy
Powell’s balancing act: projecting confidence while admitting ‘we don’t know’ what comes next
By Nick Timiraos, The Wall Street Journal, June 18, 2025
Key Points
-
Powell acknowledges uncertainty around economic forecasts, especially regarding tariff impacts.
-
Fed policymakers are split on future rate cuts this year.
-
Powell defends the Fed’s independence amid pressure from Trump for rate cuts.
…
Most economists expect tariffs to lift prices over the coming months, and that is a worry for the Fed because officials still don’t feel as if they completely vanquished inflation after a three-year-long fight.
“We haven’t been through a situation like this, and I think we have to be humble about our ability to forecast it,” Powell said…
Rate projections released Wednesday revealed a widening divergence among the 19 policymakers who gather roughly every six weeks to set rates. While 10 of them—a narrow majority—penciled in at least two rate cuts this year, the cohort of officials who think the Fed won’t cut at all this year saw its ranks rise, to seven from four in March…
Chief among those uncertainties is whether businesses will succeed in passing tariff increases along to customers or whether inflation-weary households and businesses will resist, leading to demand destruction… [end quote]
When the choice is between inflation and demand destruction (economic stagnation) there could be a repeat of stagflation, the bane of the 1970s.
This wouldn’t be good for the stock market. It also wouldn’t be good for the bond market since investors will push up long term yields to compensate for the risk of long-term inflation.
President Trump, who called Fed Chair Powell “stupid,” doesn’t seem to realize that the Fed controls the overnight fed funds rate but the bond market controls long-term rates. If the fed funds rate is cut prematurely and inflation results the cost of financing the federal deficit will rise.
Wendy