Gold, Wall Street waved amid Trump tariff web series

·       As was highly expected, megalomaniac Trump’s vibrant Truth handle is now controlling the market volatility rather than the Fed’s boring jawboning

·       Trump blinked in the last moment and paused Mexico and Canada tariffs temporarily for 30 days against assurances to stop drug and human trafficking

·       Tariff King Trump in pressure as he may have realized it's not going to be good for Wall Street as well as Real Street; prices will surge

·       Trump called Canada and Mexico to make a temporary deal, followed by a permanent one

·       Trump’s Truth handle is now controlling the market rather than Fed/Powell

·       China is showing more patience, preparing for tit-for-tat trade war measures against US/Trump

·       But Trump may also soon call his Chinese counterpart Xi and announce another 30-day pause

The market focus is now on Trump's policy rather than Fed/Powell. Trump is using tariffs on US imports as leverage on exporting countries for various issues ranging from illegal immigration, drug trafficking, US trade deficit, the Make in America theme, the MAGA narrative, and also diplomatic/geopolitical issues. Trump may be using ‘tariffs’ rhetoric too much and may soon lose its importance/relevance. No exporters will pay additional tariffs on US exports; it is US importers, who have to pay these tariffs, which will push up the cost of imported goods despite stronger USD as a trade war currency.

Although Trump sounded less hawkish on Chinese tariffs as China is a critical supply chain for the US, helping price ability, Trump’s suspense and the intention to use them as a deal-making weapon may add more uncertainty together with immigration policies, which may affect inflation and the labor market and Fed’s task more difficult. Fed may be on hold in Q1CY25 to see & assess actual Trump policies.

Also, Trump can’t make the US a major manufacturing hub overnight replacing China and other vital exporters simply by threatening or even putting additional tariffs on those exporting nations as the US lacks China's massive industrial and logistic ecosystem. Also, being a developed economy, labor costs are much higher in the US than in China and other EMs.

The US middle class still now afford a moderate cost of living because of cheaper imports from EMs; otherwise, it can’t afford costly consumer durable products if those were completely manufactured in the US. The US needs cheaper imported goods and also services to maintain price stability and the Goldilocks nature of the economy. Trump can’t manage inflation by simply imposing additional tariffs on imported goods & services and cutting taxes to encourage the ‘Make in America’ policy.

The US price stability and Goldilocks nature of the economy may be at stake and Trump is also risking Global trade isolation of the US; it’s the US which needs cheaper, but quality products from China and other developing countries/exporters, not the other way. In reality, both the US and China need each other for prosperity and development. Thus two superpowers and the largest economies in the world, controlling almost 50% of global GDP fairly compete with each other to coexist; trade and tech war are not the solution.

Realizing that too much dependency on the US, EU, or any other nation for exports is not sustainable and risky for various reasons, China is already expanding its trade and geopolitical/global influence in various other untapped countries through direct/indirect investments and BRI. The same is not true for the US and thus despite various election rhetorics, Trump imposed only 10% additional tariffs on China instead promised 60%.

In any way, Trump’s bellicose comments and trade, tariffs, the Gaza war, and others are now moving the market. Fed’s monopoly in controlling the market may be now in jeopardy under Trump 2.0 as we have seen during Trump 1.0. But Fed/Chair Powell may not be influenced easily by Trump’s narrative of lower inflation and lower rates. Megalomaniac Trump may be causing more harm to America through its tariffs and anti-immigration policies. In his latest bellicose tariff policy, Trump is trying to leverage huge US consumption power for issues like illegal immigration and drug trafficking against Mexico, Canada, and also China; i.e. alleged suppliers rather than punishing US border security forces without whose active support, it is almost impossible for such illegal drugs and immigrants to enter into the US.

Trump tariffs ‘web series’ has led to significant market volatility, with global stock markets experiencing notable declines. Economists predict that the tariffs might lead to higher consumer prices, potentially increasing the cost of living by 0.7% and resulting in a typical household losing $1,200 in buying power as a result of likely increases in prices and inflation.

On Saturday, after signing his EO about tariffs on Canada, Mexico, and China, Trump wrote in Truth:

“Anybody that’s against Tariffs, including the Fake News Wall Street Journal, and Hedge Funds, is only against them because these people or entities are controlled by China or other foreign or domestic companies. Anybody who loves and believes in the United States of America is in favor of Tariffs. They should have never ended, in favor of the Income Tax System, in 1913. The response to Tariffs has been FANTASTIC!”

“Today, I have implemented a 25% Tariff on Imports from Mexico and Canada (10% on Canadian Energy), and a 10% additional Tariff on China. This was done through the International Emergency Economic Powers Act (IEEPA) because of the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl. We need to protect Americans, and it is my duty as President to ensure the safety of all. I made a promise on my Campaign to stop the flood of illegal aliens and drugs from pouring across our Borders, and Americans overwhelmingly voted in favor of it.”

“We pay hundreds of Billions of Dollars to SUBSIDIZE Canada. Why? There is no reason. We don’t need anything they have. We have unlimited Energy, should make our Cars, and have more Lumber than we can ever use. Without this massive subsidy, Canada ceases to exist as a viable Country. Harsh but true! Therefore, Canada should become our Cherished 51st State. Much lower taxes, and far better military protection for the people of Canada — AND NO TARIFFS!”

“The “Tariff Lobby,” headed by the Globalist, and always wrong, Wall Street Journal is working hard to justify Countries like Canada, Mexico, China, and too many others to name, continue the decades-long RIPOFF OF AMERICA, both with regard to TRADE, CRIME, AND POISONOUS DRUGS that are allowed to so freely flow into AMERICA. THOSE DAYS ARE OVER! The USA has major deficits with Canada, Mexico, and China (and almost all countries!), owes 36 Trillion Dollars, and we’re not going to be the “Stupid Country” any longer.

MAKE YOUR PRODUCT IN THE USA AND THERE ARE NO TARIFFS! Why should the United States lose TRILLIONS OF DOLLARS IN SUBSIDIZING OTHER COUNTRIES, and why should these other countries pay a small fraction of the cost of what USA citizens pay for Drugs and Pharmaceuticals, as an example? THIS WILL BE THE GOLDEN AGE OF AMERICA! WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID. WE ARE A COUNTRY THAT IS NOW BEING RUN WITH COMMON SENSE — AND THE RESULTS WILL BE SPECTACULAR!!!”

But despite all the tariffs rhetorics, Trump is visibly under pressure as unlike Columbia, Canada and Mexico didn’t bow and put reciprocal tariffs on US exports and other tit-for-tat actions. Overall, tariffs on Mexico and Canada are set to increase prices for Cars for US consumers by at least $3000. Thus Trump may be now beginning to blink and call Canadian PM Trudeau on Monday, after seeing negative reactions in Wall Street as well as Real Street. Trump wrote in Truths early Monday that he is in touch with Trudeau over tariffs implementations:

“Canada doesn’t even allow U.S. Banks to open or do business there. What’s that all about? Many such things, but it’s also a DRUG WAR, and hundreds of thousands of people have died in the U.S. from drugs pouring through the Borders of Mexico and Canada. Just spoke to Justin Trudeau. Will be speaking to him again at 3:00 P.M—“

Earlier Monday, Canada’s Ontario Premier Ford said: “US companies are banned from provincial contracts, the ban begins today and is in effect until US tariffs are removed.”

On Monday, Trump also called Mexico and made a temporary deal, pausing the trade war for a month, until the final deal:

“I just spoke with President Claudia Sheinbaum of Mexico. It was a very friendly conversation wherein she agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States. These soldiers will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country. We further agreed to immediately pause the anticipated tariffs for one month during which we will have negotiations headed by Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, Secretary of Commerce Howard Lutnick, and high-level Representatives of Mexico. I look forward to participating in those negotiations, with President Sheinbaum, as we attempt to achieve a “deal” between our two Countries.”

On early Monday, Mexico's President Claudia Sheinbaum announced that the US has agreed to pause tariffs on Mexican goods for a month following discussions with President Trump. In a post in X, Sheinbaum said that as part of the deal, Mexico will deploy 10,000 National Guard troops to its northern border to curb drug trafficking, particularly fentanyl. In return, the United States pledged to take steps to limit the flow of high-powered weapons into Mexico. Like the US, Mexico also wants to stop illegal smuggling of sophisticated weapons from the US.

On early Monday, Mexico’s President Sheinbaum said:

·       Our teams will start working today on two areas: security and trade

·       After negotiations, Trump was the one who asked her how long she wanted the tariffs to be paused

·       The conversation was friendly and lasted around 45 minutes

·       As part of the deal, Mexico will deploy 10,000 National Guard troops to its northern border to curb drug trafficking, particularly fentanyl.

·       In return, the United States pledged to take steps to limit the flow of high-powered weapons into Mexico.

·       Our teams will start working today on two areas: security and trade

·       The conversation with Trump was long and covered subjects of mutual interest

·       I proposed the tariffs pause to Trump

·       Trump insisted on addressing the trade deficit with Mexico, but I pushed back on that

·       I think it was a good agreement; the deal will also help Mexico boost border security

·       I asked Trump for a permanent tariff pause and agreed to 1 month

·       I told Trump that mutual trade helps them compete with China

·       I sent Trump Mexico's anti-fentanyl public health campaign

·       We will have negotiations headed by Rubio, Bessent, and Lutnick as well as Mexican officials

·       Mexico wants to maintain the USMCA trade agreement

·       Mexico will put Plan B against tariffs on hold

Overview of Trump Tariff War 2.0

On February 2, 2025, US President Trump announced the imposition of:

·       25% tariffs on imports from Canada and Mexico

·       10% tariffs on goods from China

Trump justified these tariffs by citing a "major threat" from illegal immigration and drug trafficking, claiming that these countries "owe us a lot of money" and emphasizing the need to protect American jobs and manufacturing. He acknowledged that these measures might cause "short-term pain" for American consumers but insisted they are necessary for long-term economic health.

Retaliatory Actions

In response to Trump tariffs:

Canada: PM Justin Trudeau announced retaliatory tariffs of 25% on $155 billion worth of U.S. imports, which includes various consumer goods such as alcohol and furniture. Trudeau encouraged Canadians to buy local products and avoid American goods. He emphasized that Canada would not yield to U.S. pressure and described the tariffs as a violation of USMCA trade agreements.

Mexico: President Sheinbaum indicated that Mexico would also retaliate but did not specify the details or rates of these tariffs. The Mexican government is prepared to implement both tariff and non-tariff measures to protect its interests.

China: While China initially expressed strong disapproval of Trump tariffs, it opted for a more restrained response, stating it would take "corresponding countermeasures" but refraining from immediate retaliatory tariffs on day one. Instead, China plans to contest the U.S. tariffs at the World Trade Organization (WTO), aiming to frame the issue within international trade principles.

Economic Implications: The imposition of these tariffs is expected to have several economic repercussions:

Increased prices for consumers in the US: particularly affecting goods such as cars, fruits, and pharmaceuticals. Analysts predict that the average price of a car could rise by approximately $3,000 due to these tariffs.

Potential economic crises in Canada and Mexico: with fears of rising unemployment and inflation in both countries. In Mexico, particularly, there are concerns about significant impacts on industries reliant on trade with the U.S.

Financial markets have reacted negatively, with declines in U.S. stock futures and rising oil prices following Trump's announcement.

Trump Tariff Drama on Mexico:

Implementation and Response: US President Trump imposed a 25% tariff on Mexican imports, citing concerns over illegal immigration and drug trafficking. In response, Mexican President Claudia Sheinbaum agreed to deploy a 10K National Guard to the border to curb drug trafficking. Consequently, the tariffs on Mexico have been paused for 30 days to assess the effectiveness of these measures.

Trump Tariff Drama on Canada:

Implementation and Misunderstanding: A 25% tariff was also imposed on Canadian imports. The White House stated that Canada appears to have misunderstood the executive order as a declaration of a trade war. In a recent phone call, Canadian Prime Minister Trudeau and President Trump discussed key commitments, including appointing a "Fentanyl Czar" and creating a joint strike force to combat organized crime. Following these discussions, tariffs on Canada have been postponed for 30 days.

Retaliatory Measures: In retaliation, Canada plans to implement a 25% levy on American imports and has begun removing U.S. alcohol from its stores. Mexico has also announced significant countermeasures, including tariffs on various U.S. goods. These developments indicate escalating trade tensions between the United States and its key trading partners, with potential long-term economic implications.

Trump Tariffs on China:

Implementation and Ongoing Status: A 10% tariff on Chinese imports remains in effect, with no current plans for postponement. President Trump has cited China's role in the flow of illegal drugs into the United States as the primary reason for these tariffs.

China's Response:

In retaliation, China hit back early Asian Tuesday (4th Feb’25) at Trump’s Tariffs, and launched an anti-trust probe into Google. China on Tuesday announced a package of tariffs on various US goods in immediate retaliation to a new 10% tariff on Chinese imports imposed by US President Donald Trump, which took effect today at 05:01 GMT. The Chinese finance ministry stated it would impose levies of 15% on US coal and LNG and 10% on crude oil, farm equipment, and certain autos, set to begin on February 10. Separately, China’s State Administration for Market Regulation opened an investigation into a major US technology company, Google, over alleged violations of the country’s anti-monopoly law.

Retaliatory Tariffs: In response, China has announced new tariffs on U.S. goods, including a 15% tariff on coal and liquefied natural gas (LNG), and a 10% tariff on crude oil, large-displacement vehicles, and agricultural machinery. These tariffs are set to take effect on February 10, 2025.

Regulatory Actions: Additionally, China has initiated an antitrust investigation into Google and has placed companies such as PVH Corp and Illumina on an "unreliable entities list," citing alleged discriminatory practices against Chinese firms.

Conclusions:

China announced a package of tariffs on a range of products imported from the US, raising concerns about a potential trade war between the world’s two largest economies. On Tuesday, China’s finance ministry said it would impose an additional 15% tariff on coal and LNG imports from the US, and 10% on crude oil, farm equipment, and certain cars, effective February 10. This move comes in retaliation for the additional 10% US tariffs on Chinese exports, effective today. Additionally, China’s commerce ministry and customs officials announced export controls on various rare earth materials such as tungsten, tellurium, ruthenium, molybdenum, and related materials.

Meanwhile, the US press secretary said that President Trump will have a conversation with Chinese leader Xi Jinping within the next 1-2 days. In a separate development, the leaders of Canada and Mexico have agreed with the US to delay the implementation of tariffs for at least one month, following successful negotiations to boost border enforcement and address his concerns over immigration and drug smuggling.

Previously Trump has indicated plans to discuss these tariffs with leaders from Canada and Mexico soon but has not shown any inclination to reverse his decisions. He warned that any retaliatory measures would likely lead to increased duties on U.S. exports.  

The imposition of these tariffs has led to significant market volatility, with global stock markets experiencing notable declines. Economists predict that the tariffs might lead to higher consumer prices, potentially increasing the cost of living or general inflation by 0.7% and resulting in a typical household losing $1,200 in buying power.

Potential for an all-out trade war escalation: This may be the beginning of a more extensive trade conflict aimed at rebalancing the U.S.-China trade relationship. Further tariff increases could be implemented based on assessments of trade deficits and national security concerns. Despite the US-China trade war 1.0 episode and the Trump trade agreement, this initial round of tariffs being imposed initially by Trump for his domestic political compulsions and non-trade (alleged drug/opioid smuggling) issues may backfire on the US economy more than China.

The US, under Trump, may be isolated in global trade as Trump is using ‘tariffs’ for non-economic issues and also after various trade agreements with the concerned countries (like China, Mexico and Canada). These developments indicate escalating trade tensions between the world's two largest economies, controlling almost 50% of the global GDP with potential long-term economic implications globally. We may see a synchronized global trade war led by China, South America and the EU against the US. Trump's tariffs are part of his administration's efforts to combat what he describes as unfair trade practices by China, particularly concerning fentanyl control and the substantial trade deficit the U.S. has with China and almost all other major trading partners.

Following the announcement of U.S. tariffs, China's Finance Ministry stated that these measures are a direct response to what they termed "unilateral tariff increases" by the U.S., which they argue disrupt normal economic relations. Amidst these tensions, Trump has engaged in discussions with leaders from Canada and Mexico to delay certain tariffs against them for 30 days, indicating a willingness to negotiate with China while maintaining pressure on China.

But China is not Mexico or Canada and may not bow down easily before Trump’s age-old tariffs pressure tactics. Trump is using tariffs as a negotiation tool to get certain advantages in a deal. But China is not so easy target and thus despite inviting many times to attend Trump's inauguration, China’s President Xi didn’t attend personally, but sent his deputy. Unlike during the initial phase of Trump 1.0, Xi will not visit Trump in the US and thus Trump will now visit Xi in China in the coming days.

While there may be room for diplomatic negotiations, the risk of prolonged trade conflict remains high unless both sides can reach a compromise. Trump has indicated that further tariffs could be imposed if China does not take appropriate actions regarding drug trafficking issues. This latest round of tariffs is a continuation of the complex and often contentious relationship between the U.S. and China, reflecting broader geopolitical tensions and economic strategies that could have lasting implications for global trade dynamics.

Market impact:

On early Monday, Wall Street Futures, UST, and Gold recovered from Friday’s Trump tariffs panic low as Trump is now beginning to relent on his tariffs and trade war narratives after seeing stress on both Wall Street and Real Street as it will eventually boost up prices of goods for US consumers and cause more inflation. As a trade war currency, USD stumbled. On early Tuesday, everything reversed as China imposed retaliatory tariffs on the US. The focus is now on whether there will be another 30-day pause for China also after Trump calls Xi in the next few days.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 44650) now has to sustain over 45300-45500 any further rally; otherwise sustaining below 45200, DJ-30 may again fall to 44500/44100-43700/43300 and 42800/41900 and further 41200/40600-40400/40000 in the coming days.

Similarly, NQ-100 Future (21900) has to sustain over 22200-22300 for a further rally to 22500/22700-23000/23300 in the coming days; otherwise, sustaining below 22100, NQ-100 may again fall to 21700/21300-21100/20700 and further 20500/20300-20100/19250 in the coming days.

Also, technically Gold (CMP: 2798) has to sustain over 2850 for a further rally; otherwise sustaining below 2840-2825 may again fall to 2770/2755-2725/2690 and further 2675/2655-2610/2560 in the coming days.