Tariffs impact trade and the Fed

Investment Analysis Clubs Macro Economic Trends and Risks
1

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.

https://www.wsj.com/economy/central-banking/the-fed-waits-out-the-tariff-economy-fb1b794a?mod=hp_lead_pos1

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

7 Likes
2

With absolute certainty, the aluminum and steel tariffs are working. First hand data:

A window and door company using aluminum in their product supply has 90% drop in volume against prior period. Company is based in Colombia.

Imports from Vietnam, Mexico and Canada have effectively ceased for 5 other suppliers. One of these suppliers is only selling net zero carbon products only, and is the exception. (green features)

Overall, net market volume is down by more than 5% for this commodity, but USA share is up 18% with pricing and gross margin up substantially.

I cannot go into more specifics, but this is all aluminum content in products which are sold B2B. Consumer prices MUST be higher OR margins at wholesale or retail must be heavily impacted.

7 Likes
3

Well that’s fine, but does it mean that USian window manufacturers are going to increase employment and open factories, or will they simply raise their prices and take extra profits as a result?

The idea of tariffs isn’t to stop imports, it’s to create American jobs. That remains to be seen.

6 Likes
4

Goof,

Yes and maybe… reread my post above. The market is flat to down, but individual suppliers are up more than 15%. There is significant dislocation going through the system, some of it is experienced negative to the customer, supplier. Some of it is $$$$$ positive to suppliers.

Short and long term effects. Since the long term effects are the big ones, everybody focuses on them.

For the short term: (immediate to 18 months)

  1. higher prices cascade through the economy
  2. available capacity moves to new economic locus
  3. product quality, logistics and value add processes get shuffled
  4. Supply chains coil with excess inventory, alternate node warehousing and supply channels
  5. supply/customer delay as we “wait it out”. (TACO concerns)
  6. Local supply favored by tariff lands additional margins for same supply
  7. free capacity in the system provides additional volume with incremental jobs (add a 3rd crew, add a 4th crew to same equipment)

Longer term: (18 months to 4 years post tariff)

  1. Shuffling continues between suppliers as capacity is added or moved in the system. (out of china to US, then US to mexico, then mexico to vietnam, then vietnam to … etc etc)
  2. customers find non price related concerns which jostle supply between vendors (quality, delivery, coating, etc.)
  3. existing supply base is incrementally upgraded (new machine replaces 50 year old equipment, but at a higher capacity and lower fixed cost)
  4. existing supply base is expanded with new sites and brown field expansions.
1 Like
5

Well that’s a swell list, the only flaw with it is that’s not how it’s worked in the past:

Steel manufacturers and the Trump administration [argue] that higher tariffs are necessary to protect the industries from “unfair foreign competition” and to spur investment in new and existing mills. But can manufacturers and food and beverage companies say the new tariffs will raise prices and make it more difficult for them to compete against foreign suppliers.

Previous tariffs didn’t encourage steel and aluminum manufacturers to expand U.S. production of the metal used to make cans. Instead, they reduced it.

In 2018, Mr. Trump put tariffs of 25 percent on steel and 10 percent on aluminum, with some exclusions. In the following years, steel producers shut down nine production lines making the specialized tin-plated steel across the country, leaving only three, according to the Can Manufacturers Institute.

How’s it working for the aluminum industry? Again, let’s go to the tape:

In the last two decades, the number of aluminum smelters in the United States has dropped to four from 24, according to the Aluminum Association.

The high tariffs on imported aluminum won’t bring back primary aluminum production, the association said. Rather, the industry needs a change in energy policy to provide the vast amount of electricity that is needed to produce aluminum at a reasonable price

Trump’s aluminum tariffs were done almost 8 years ago. So far: nada. Bringing jobs to America is more complicated than just artificially jiggering prices.

Speaking of which, the tariffs will raise the price of a can - for beer, for soda, for food, about 10¢ per can. Not life crippling, maybe, but I suspect it will be noticed in the supermarket and especially the package store.

8 Likes
6

Goof,

I appreciate you providing public information. I hope you can read between the lines.
Your facts are without question. For the most part they are irrelevant (either talking to book or addressing unneeded capacity).

I’ll not address specifics as I am not at liberty to share, however, I will reiterate a couple of points that I’ve made in the past (check my post history, if you like).

(Please note, nothing in my posts have ANYTHING to do with steel). I have no background in practice and no relevant information that is not publicly available.

  1. Smelters (primary aluminum) - The US doesn’t need capacity here. NOT AT ALL. In addition, the regulatory space around Smelters is not favorable. No Tariff will address this. Aluminum alloy production rides and grows on recycling industrial and consumer metals. All aspects of our economy around aluminum are supported by recycling/remelting (including considerable capacity available for growth).
  • The consumer market is flat to down. Trends with individual segments in this space are offsetting.
  1. Capacity in billet or finished goods is excessive. As a result, most consumption in aluminum alloys rides on price. Where technology/IP drives, premium is available AND IS CURRENTLY BEING ONSHORED.

The above points present no large investment opportunity for businesses to expand capacity. Regulations and Economics do not provide sufficient incentive to do so.

PROFITS are available to investors and shareholders as margins are rising for onshore US locations.

JOBS are available for employees who desire to get into this industry. (no, there will not be 500,000 jobs available in this space - ever)

7 Likes