Subject: World’s Trade Map, Minus the U.S
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The arbitrary and unpredictable imposition of very high tariffs on U.S. trading partners is forcing them to react.

nytimes.com
American Allies Want to Redraw the World’s Trade Map, Minus the U.S. Facing growing chaos, the European Union and numerous other countries are seeking to forge a global trading nexus that is less vulnerable to American tariffs. American Allies Want to Redraw the World’s Trade Map, Minus the U.S. Facing growing chaos, the European Union and numerous other countries are seeking to forge a global trading nexus that is less vulnerable to American tariffs. By Jeanna Smialek, The New York Times, July 13, 2025 Trade chaos is forcing America’s allies closer together, and further from the United States. And as that happens, the European Union is trying to position itself at the center of a new global trade map. The bloc learned this weekend that Washington would subject it to 30 percent tariffs starting Aug. 1… Mr. Trump simultaneously announced that he would place a similar tariff on goods from Mexico. Canada’s rate is slightly higher, at 35 percent. The likes of Thailand (35 percent), Bangladesh (35 percent) and Brazil (50 percent), along with dozens of other U.S. trading partners, appear to be headed for a similar fate… Mr. Trump has backed down from threatened tariffs before, and he has indicated a willingness to negotiate these tariffs down before their Aug. 1 effective date — and the European Union and other economies are poised to continue with negotiations. But the atmosphere is increasingly hostile… On one side, the United States sows uncertainty as it blows up weeks of painstaking negotiations and escalates tariff threats. On the other, the 27-nation European Union and other American trading partners are forging closer ties, laying the groundwork for a global trading system that revolves less and less around an increasingly fickle United States…[end quote]

The rest of the article describes possible combinations that exclude the U.S. and China. The U.S. because of unpredictability and China because of dumping.

Last week, Trump imposed a 50% tariff on copper in addition to his 25%-50% tariff on steel and aluminum products. So-called “Dr. Copper” is a key industrial and construction commodity whose price usually indicates the activity in an economy. But the upcoming tariff has caused a price spike due to anticipatory hoarding. The U.S. could increase domestic production but that would take years (as well as dropping environmental regulations). The higher price of copper will provoke inflation. Silver is also rising.

The stock market is ignoring the trade war and Federal Reserve intransigence and is enthusiastically melting up. I guess that is the “TACO” trade that expects Trump to drop the tariffs and also front-running the Fed.

The trade is risk-on as SPX and junk bonds are rising faster than the 10 year Treasury. The Greed & Risk Index is in Extreme Greed. The SPX is in a historic bubble with the Cyclically Adjusted P/E Ratio more than double its historic median.

Treasury yields are stable with a little noise. The yield curve is positive. The 10 year Treasury real yield has been hovering just under 2% since November 2022.

The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, is loose and getting looser. There’s plenty of liquidity sloshing around the system. The M2 money supply is rising despite the contraction in 2022-2023 due to the Fed’s QT and higher interest rates.

The high money supply is driving asset prices higher and encouraging a silly season where stocks of companies running a loss are rising, SPACs are opening and crypto currencies are selling.

Oil is rising but natgas is stable. USD continued its drop since January 2025.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 was 2.6 percent on July 9. This is a nice, sustainable rate of growth.

https://www.wsj.com/economy/ec...
Economists See Lower Recession Risk and Stronger Job Growth: WSJ Survey Forecasters nudge up growth, trim inflation estimates as tariffs prove lower, less costly than expected in April. By Paul Kiernan and Anthony DeBarros, The Wall Street Journal, July 12, 2025 … The improved outlook follows three months of generally encouraging economic data. Job growth averaged 150,000 in the past three months, better than projected in April, and the unemployment rate dipped to 4.1% in June from 4.2% in May, staying within its range of the past year…[end quote]

Of course, the inflation outlook isn’t really applicable since the latest survey doesn’t include the tariffs which will supposedly hit on August 1.

The Cleveland Fed’s inflation Nowcast shows rising inflation which is well above the Fed’s goal of 2%.

Quarterly annualized percent change

Quarter 	CPI 	Core CPI 	PCE 	Core PCE 	Updated
2025:Q2 	1.60 	2.07 	        1.76 	2.22 	        07/11
2025:Q3 	2.37 	2.74 	        2.31 	2.64 	        07/11

The Fed did not drop the fed funds rate in July. The options market expects a quarter percent cut in September and definitely by October. But the numbers don’t support a change. The fed funds rate is neutral since it isn’t changing either GDP growth or unemployment.

Will Fed Chair Powell hang tough despite President Trump’s pressure to decrease the fed funds rate? Time will tell..but I think he will because his legacy depends on it.

The METAR, which is a short-term forecast, is sunny.

The longer-term forecast is completely uncertain because U.S. trade policy may impel the world to create an anti-U.S. trading system.

Wendy
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