Trump signals willingness to accept short-term inflation to shield key industries, with semiconductor tariffs potentially hitting 300%.
Apple’s new chip deal with Intel on U.S. soil sent Intel shares surging over 10% and diversifies Apple’s supply away from TSMC.
Markets appear unfazed by Trade War 2.0 fears, with the S&P 500 rallying as oil prices fall and domestic chip production fuels AI optimism.
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There have been renewed talks about whether tariffs could send us into another phase of trade wars. And while it’s up for debate as to whether a trade war 2.0, so to speak, has already arrived, I do think that investors shouldn’t panic over concerns that further tariffs will further fan the flame that is inflation.
Undoubtedly, May’s inflation number came in at 4.2%. That’s quite hot. And while Fed chair Kevin Warsh sounded serious about bringing inflation back down, preferably back to 2%, it doesn’t look like the rate hikes are on the table quite yet.
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Add the limited guidance, and it’s a mystery as to whether the second half will see those rate hikes come in and how many. Of course, frequent FOMC meetings are a good thing, and as oil prices take a bit of a nosedive, the economic data is certainly moving quite fast.
Could new trade war jitters get to markets?
With President Trump recently posting that past Presidents “forgot to protect our Industries with TARIFFS,” while highlighting progress made in bringing back chip production to America, it certainly feels like Mr. Trump is more than willing to accept any near-term inflationary pressures as a result of additional tariffs if it means bringing back supply chains and protecting key industries, most notably tech, as the AI revolution intensifies.
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Time will tell if the tariff playbook pans out. And what it could mean for rates, Warsh, and the Fed moving into the second half of the year.
No dot plot, forward guidance, or anything of the sort might make it harder for investors to predict what happens next. But perhaps it’s right to keep an ear to the data rather than run the risk of unintentionally promising (a rate pause or hikes) something and then not delivering it later on.
Whether we’re talking about the uncertainties surrounding the USMCA (or CUSMA), 100% tariffs on French wine, or threats of 200%, maybe even 300% on semiconductors, such threats, at least in my humble opinion, are not to be taken lightly, even if parts of the market have already subscribed to a TACO (Trump Always Chickens Out) kind of trade.