Trump Makes Trade Deal Between U.S. And European Union—How Will This Affect Your Portfolio? | WMYM

Key Concepts

• US-EU Trade Deal: 15% tariffs on European imports to the US, US claims EU will buy $250 billion/year in US energy products.
• Tariff Impact: Distribution of tariff costs among American companies, consumers, and foreign producers.
• Corporate Profit Margins: Impact of tariffs on corporate profitability and potential consequences like layoffs.
• Fed Dissent: Potential dissent at the upcoming Federal Reserve meeting due to political motivations.
• Monetary Policy: Trend towards partisan influence on Federal Reserve decisions.

US-EU Trade Deal Details

The United States and the European Union have reached an agreement in principle on a trade deal. The core component of this deal is the imposition of 15% tariffs on all imports from Europe into the United States. The US also claims that the EU has agreed to purchase $250 billion worth of energy products annually from the United States.

Europe did not agree to any retaliatory tariffs. While some view this as a sign of weakness, the speaker argues that it's a rational decision for Europe, as imposing tariffs on US goods would only raise prices for European consumers and businesses, mirroring the negative effects already being felt in the US due to existing tariffs.

The speaker highlights a potential benefit for Europe, specifically Germany's auto industry. With the US and Japan agreeing to a 15% auto tariff, Germany avoids a potentially higher 25% tariff that would have disadvantaged companies like Mercedes, Volkswagen, Porsche, and Audi. The German auto sector is crucial to Germany's economy, GDP, and global influence.

Tariff Impact Analysis

Deutsch Bank and City Bank released separate studies that reached the same conclusion regarding who is paying the tariffs.

• American Companies (60%): American companies are absorbing 60% of the tariff costs, primarily through reduced profit margins. This is a recent development as companies have depleted their pre-tariff inventory and are now replacing it with tariffed goods.
• American Consumers (30%): 30% of the tariff costs are being passed on directly to American consumers. Examples include price increases at retailers like Walmart and Amazon, and even itemized tariff costs on receipts at local businesses.
• Foreign Producers (10%): Foreign producers are absorbing the remaining 10% of the tariff costs. This is particularly challenging for manufacturers in countries like Vietnam, where profit margins are already low.

Consequences for Corporate America and Workers

The speaker emphasizes that while consumers may not be bearing the brunt of the tariffs yet, the impact is still being felt by Americans. Reduced corporate profit margins can lead to layoffs as companies prioritize shareholder value. Companies are publicly owned and executives are incentivized to maintain stock prices, which are directly tied to profitability. Laying off workers is a common strategy to protect profit margins. The speaker argues that most Americans have a vested interest in corporate America, whether through 401ks, employment, or vendor relationships.

Federal Reserve and Potential Dissent

The Federal Reserve is expected to hold interest rates steady at its upcoming meeting. However, the speaker predicts that Chris Waller, potentially auditioning for the Fed chair position, may dissent and advocate for an interest rate cut. This is likely a strategic move to position himself as an "Uber Dove" in the eyes of Donald Trump, who is expected to appoint a dovish Fed chair in May. The speaker believes this dissent is symbolic of a broader trend towards partisan influence on the Federal Reserve, where members prioritize the president's agenda over independent monetary policy.

Conclusion

The speaker highlights the complexities of the US-EU trade deal and its impact on various stakeholders. While the deal may offer some benefits, the speaker emphasizes that the costs of tariffs are ultimately being borne by Americans, either through reduced corporate profits, higher consumer prices, or potential job losses. The speaker also raises concerns about the increasing politicization of the Federal Reserve and the potential long-term consequences for monetary policy.