Weekly Research Briefing: May Flowers

Facts continue to change — there is indication that the “detox period” may be over and the latest messaging from the Trump Administration seems to be shifting from tariffs to tax cuts and deregulation. However, the damage to the business cycle still remains unclear. On tariffs, the Administration is indicating progress on potential deals with Japan, Korea, and India, which could serve as templates for other trading partners. Of most importance is China, where the Administration has signaled some willingness to find a common ground and possibly get a deal done soon (the increasing risk of a small business default cycle kicking off is gaining attention). While tariff rates are expected to come down from current extreme levels, they are unlikely to be fully removed (China has been benefiting significantly from transshipment substitution). These are encouraging developments, but clarity and closure are still needed to solidify a more positive outlook and avoid further damage to the business cycle.

Citadel founder Ken Griffin extended his criticism of the Trump administration’s trade policy, saying that tariffs won’t bring back American manufacturing jobs the way that the president anticipates and the country should play to its strengths instead.

“He dreams of giving people their dignity back, and I have to applaud him for having that dream,” Griffin, speaking Friday at Stanford University’s Graduate School of Business, said of President Donald Trump. The dream of creating more manufacturing jobs, however, “is not going to come true.”

“These jobs are not coming back to America,” Griffin said. “And to be clear, with an unemployment rate of 4%, America has moved on.”

The Citadel billionaire, who earlier this week said the trade war has devolved into a “nonsensical” place, has warned that the US is putting its global brand at risk as a result of the tariff policies. On Friday, he said the administration has embraced a transactional mindset that runs contrary to the best interests of the country.

Speaking as part of Stanford’s “View From the Top” series in Silicon Valley, Griffin argued the US should try to play to its strengths, such as creating intellectual property and content, rather than bringing back jobs in factories that are rapidly automating their production anyway.

“These are jobs that pay a stunning amount of money as compared to working in a factory, making zippers or making home appliances or making flat-screen TVs,” he said.

Griffin said that while at a recent conference in Beijing he had spoken with a senior Chinese government official who questioned why US trade policy would be to foster low-paying factory jobs and become more like China, instead of being the world power that China is trying to emulate.

More executives, from Goldman Sachs CEO David Solomon to Virgin Group founder Richard Branson, warned Wall Street and the Trump administration of the damage to the economy that tariffs will cause.

Branson said Trump could do lasting harm with his unpredictable trade policies that took a booming economy and shook it to its core. “It’s just such a pity because everything was going so bloody well up to about three months ago,” Branson said...

“The level of uncertainty is too high,” Solomon said. “It’s not healthy and it’s affecting investment, spending and planning, and that will have an effect on growth and the economy.”

@wallstengine: Big-box CEOs from Walmart, Target, & Home Depot told Trump in a recent meeting that while prices are holding steady for now, they won’t for long—and warned shelves could go empty. An admin official told Axios the meeting wasn’t about food, but the supply chain concerns were made clear.

“It’s probable that much of the recent upside surprises in hard data reflect pulling forward activity in the anticipation of tariffs,” Dutta wrote. “Consumers pulled forward auto sales and consumption on other household durables, as an example. Firms likely pulled forward some orders too. That likely gives the veneer of strength in the recent high-frequency dataflow.”

“Recent hard data in the U.S., mostly for March, are overstating activity and it’s worth noting that conditions were not especially strong to begin with,” Dutta added. “The collapse across a range of survey-based measures of activity suggest that actual activity will continue to slowdown, in a potentially abrupt manner. Recession may already be here.”

@KevRGordon: Pretty bad internals for the April Dallas Fed Manufacturing survey... new orders, employment, shipments all contracting; prices paid up; outlook contracting

In the three weeks since the tariffs took effect, ocean-container bookings from China to the U.S. are down by more than 60 percent, said Ryan Petersen, founder and CEO of Flexport, a global shipping company. Cargo carriers that bring Asian goods to the Port of Los Angeles, the nation’s main Pacific gateway, have canceled 20 port calls next month, more than three times as many as last month, according to port data.

The consequence will be “empty shelves in U.S. stores in a few weeks and covid-like shortages for consumers and for firms using Chinese products as intermediate goods,” said Torsten Slok, chief economist for Apollo Global Management. Fewer goods reaching American shores will mean higher prices on the goods that are in stores — as well as less work for dockworkers and truck drivers. “Significant” layoffs in trucking, logistics and retail are likely as soon as May, Slok said.

“It feels like this slow-motion wave that’s coming toward us, but not here yet,” said Jason Furman, a Harvard University professor who served as a senior economist in the Obama administration.

Manufacturers that rely on Chinese imports to make goods domestically are also showing signs of strain. The Philadelphia Fed’s manufacturing survey showed one of the biggest monthly drops on record, surpassed only by the start of the 2020 pandemic and the 2008 Great Recession. Business investment is also cratering in response to the uncertainty caused by the tariffs, say Furman and other economists.

Imports at the Port of Los Angeles are expected to plunge in the next two weeks, even as negotiations over the final tariffs that China and other countries must pay are still being negotiated by President Trump.

That was the sobering message that port Executive Director Gene Seroka had Thursday for the Los Angeles Board of Harbor Commissioners during an update on port activity.

“It’s my prediction that in two weeks’ time, arrivals will drop by 35% as essentially all shipments out of China for major retailers and manufacturers have ceased, and cargo coming out of Southeast Asia locations is much softer than normal,” Seroka told the board.

Figures from Wabtec Corp., which tracks port cargo, predict the slowdown in container volume hitting as soon as next week. That’s when 17 vessels are scheduled to arrive with 85,486 20-foot-equivalents (TEUs) of goods, down 28.6% from this week and 10.5% from last year.

The decline will continue the following week, when 16 vessels are supposed to arrive carrying 74,925 TEUs, down nearly 33% from last year, according to Wabtec...

“If you’re a trucker and you’re hauling four or five containers today, you may haul two or three in the future. If you’re a dock worker who’s been getting OT... or getting a full workweek, that may be dialed back as well,” he said, with casual workers being hit the hardest.

@mchinn.bsky.social‬: Envisaging a 40% Decline in Long Beach Container Traffic

Data from the Marine Exchange of Puget Sound, an industry association, shows the number of arriving container ships berthing at Seattle and Tacoma terminals from April 1 to April 24 was down 12% compared with the same period in 2024. Arrivals of ships carrying automobiles in April was down 36%.

Similarly, the number of container vessels arriving or departing from Seattle and Tacoma between April 1 and April 15 was down around 27% compared with the first half of March and by around 24% from April 1-15, 2024, according to a Seattle-area marine services industry insider, who asked to remain anonymous because they weren’t authorized to speak for the company. And Smith, the amateur ship-spotter, says the drop is pretty clear to anyone actually looking at Elliott Bay.

“Give me a break,” he said, laughing. “There’s no container ships. … What more do you need?”...

Exporters are also feeling the chill of tariffs.

Seattle-Tacoma is one of the largest gateways for exports of hay and the largest for apples and frozen french fries. All are vulnerable to China’s retaliatory tariffs, which have made Chinese buyers less interested in U.S. goods.

“We’ve had exporters actually coming to our terminals to pick up containers of product that they’d already delivered to be exported to China and they’re not going to ship them” due to the Chinese tariffs, Balaski said. ”They’re just picking them up and taking them back and trying to find another home for them.”

SAIA CEO: “Primarily resulting from an uncertain macroeconomic environment, we did not see the typical sequential growth in shipments through the quarter, with March shipments flat to February, causing our first quarter revenues to fall well below our expectations."

Airfreight volumes have also fallen sharply, according to US industry association the Airforwarders Association, with its members’ bookings from China falling roughly 30 per cent.

“A lot of members have just stopped receiving orders from China,” said executive director Brandon Fried. “It’s also creating a whipsaw effect on prices and booking rates as traders reacted to each piece of news from the White House.”

The industry is expected to be further hit by a US decision to close its ‘de minimis’ scheme that allowed goods valued at under $800 to be imported tariff-free, an important route for e-commerce retailers such as Shein and Temu. Chinese goods are set to lose the exemption from May 2.

Lavinia Lau, chief commercial officer at Hong Kong’s Cathay Pacific, whose air cargo business contributes about a quarter of its revenue, said it expected a “softening” of demand between China and the US because of the tariffs and de minimis rule changes.

Hong Kong freight forwarder Easyway Air Freight said business from China to the US dropped roughly 50 per cent following the tariff increases.

E-commerce executives noted waning freight demand. Wang Xin, head of the Shenzhen Cross-Border E-Commerce Association, said: “We are seeing noticeably fewer price quotation requests in relation to air cargo shipments.”

Over decades, Beijing has spent billions to support the growth of China’s manufacturing industry. Today, the country makes nearly one of every three physical products in the world — more than the United States, Germany, Japan, South Korea and Britain combined.

@rwang07: REPORT: Walmart and Other U.S. Retailers Reportedly Notify Chinese Suppliers to Resume Shipments But Tariffs Cost Will be on U.S. Firms.

Several Chinese exporters said that major U.S. retailers, including Walmart, have informed some Chinese suppliers to resume shipments after communicating with the U.S. government, with the tariffs to be borne by the American buyers.

According to Hong Kong's Ming Pao, at the ongoing China Import and Export Fair (Canton Fair), multiple exporters mentioned that U.S. retail companies — including Walmart, home improvement retailer Home Depot, and Target — have notified Chinese suppliers to resume shipments that had been suspended due to the tariff battle that began earlier this month.

The report said these U.S. retailers informed Chinese suppliers of the decision after meeting with President Trump at the White House on Monday

Companies that sell Christmas ornaments, gifts, and toys tell WIRED that April is usually the time when retailers lock in their orders and manufacturing begins. If they can’t start making products soon, they will face a time crunch later in the year, higher shipping rates, and may potentially miss their sales window. As a result, US customers will likely see fewer options on store shelves and be forced to pay more for their usual Christmas purchases this year.

“Things will be more expensive and there will be fewer choices,” says Jim McCann, the founder of 1-800-Flowers, which sells a wide variety of holiday gifts, greeting cards, and food baskets. “Retailers won’t be forced to discount like they have in the past because there’ll be no reason to.”...

Rick Woldenberg, CEO of educational toy manufacturer Learning Resources, gave WIRED a breakdown of the timeline: Placing orders and having factories manufacture the products takes three months, and then shipping them from China to the US takes another two. That means, if a company is aiming to have its inventory begin arriving at US warehouses by mid-September to begin preparing for the December holiday season, they really need to start working now, in April...

Woldenberg predicts that toy store shelves won’t necessarily be empty come Christmas, because retailers may scramble to find discontinued products or other replacements to fill the gap, but they won’t necessarily be the items customers are looking for. “That is when Americans are really going to find out what a terrible idea this has been,” he says. “We had this once-in-a-millennium amazing supply chain, and it’s being torn apart for no reason.”

A 25% U.S. tariff on pharmaceutical imports would increase U.S. drug costs by nearly $51 billion annually, boosting U.S. prices by as much as 12.9% if passed on, a report commissioned by the industry's U.S. trade group and reviewed by Reuters shows.

The analysis, conducted by Ernst & Young, found the United States imported $203 billion in pharmaceutical products in 2023, with 73% coming from Europe -- primarily Ireland, Germany and Switzerland. Total U.S. sales of finished pharmaceuticals that year were $393 billion...

Approximately 30% of pharmaceutical imports in 2023 were ingredients used in U.S. manufacturing and then exported or sold in the United States. Tariffs on these would raise domestic production costs by 4.1% and reduce the global competitiveness of U.S.-made drugs, the report said.

Roughly 25% of U.S. pharmaceutical output is exported, which totalled $101 billion in 2023. EY said a portion of the 490,000 export-related jobs in the industry could be at risk if higher input costs weaken foreign demand for U.S. medicines.

"So what we're seeing, I think, is a logical response from the consumer to pause. And that pause is reflected in retail traffic being down. It's also reflected in somewhat of channel shifting in the search for the best value shifting into online, shifting into big box retailers and shifting into the club channel in the US specifically." – The Procter & Gamble CFO Andre Schulten

Colgate-Palmolive executives said consumers have been buying less toothpaste and soap as they brace for economic uncertainty, causing the company to lower its full-year earnings estimate.

“Uncertainty creates a pensive and anxious consumer,” Chief Executive Noel Wallace said during a Friday call. “You see consumers destock their pantries and not necessarily buy that extra toothpaste tube or that extra body wash.”...

Revenue fell 3% to $4.91 billion. Analysts surveyed by FactSet forecast revenue of $4.87 billion.

Europe was the only region where Colgate-Palmolive said it saw sales growth in the quarter, up 2.5%. Latin America and Asia Pacific were down 8.7% and 5%, respectively, while North America sales dropped 3.6%.

"What I will emphasize, though, and I mentioned this in my earlier comments, following the April 2 announcement of tariffs, we have seen a significant slowdown in orders since that period. I think retailers for the most part are in latency mode. They're trying to understand where the trade discussions are going to go, how it's going to impact consumers. And so we saw some of this behavior during the pandemic." – Flexsteel Industries CEO Derek Schmidt

Industry analysts are scrambling to lower their S&P 500 earnings growth forecasts for the remaining three quarters of this year. They are anticipating that if the tariff war between the US and China doesn't end soon, the result might be a recession during the second half of this year.”

@neilksethi: Goldman's Mark Wilson: [It's] fair to argue that at possible “moments of medium-term inflection” valuation likely doesn’t matter all that much... However, the reset in large-cap tech valuations are meaningful–shown in the chart, and the table below for Mag-7 with consensus EPS & FCF multiples.

‪@carlquintanilla.bsky.social‬: GOLDMAN DESK: “.. the US exceptionalism trade was even more crowded than most of us had suspected. Foreign Investors own a very real amount US stocks (~18% of the entire US equity market) .. foreign investors have sold roughly $60 billion of US stocks since the start of March.”‬‬‬

@carlquintanilla.bsky.social‬: GOLDMAN: “.. I can’t recall a time when the dominant market narrative flipped so completely, so quickly. since 2009, US exceptionalism was THE defining theme in finance. .. you don’t need me to tell you this, but the past few months constitute the photographic negative.” [Pasquariello]

The gulf in performance underlines investors’ expectation that Trump’s tariff blitz will take a heavier toll on the US economy, by hurting growth and driving up inflation, than it will on economies elsewhere. The gap has been particularly marked with Europe, where US isolationism has prompted pledges of higher government spending — particularly on defence — which are expected to boost the local economy and support equity markets.

“A large part of this underperformance is the repricing of US assets due to increased policy uncertainty and the stagflationary shock from tariffs,” said Sameer Goel, head of emerging markets and Apac research at Deutsche Bank...

Investors started the year betting that US stocks would continue to outshine their peers elsewhere as Trump’s tax cuts buoyed corporate profits. But that view quickly unwound after the US president launched a trade war that was far more aggressive than most investors had anticipated.

The S&P 500 fell as much as 12 per cent in the week following Trump’s “liberation day” tariff announcement on April 2. Although it has since recouped much of those losses as Trump reversed or delayed some of his tariffs, it continues to lag far behind global rivals such as Hong Kong’s Hang Seng or the Stoxx Europe 600.

"Europe is an interesting market post-April 2. They’ve been less affected. They’re trading better. They don’t have some of the supply chain issues. So, I think transactions in Europe haven’t hiccupped as much. There are obviously less transactions to begin with, but they’re not directly in the line of fire right now, and there have been some indications that the economies in Europe are going to spend some capital and take some actions that I think could be actually positive for Europe. So, I’ll say, that’s a 3-week read. Remember, I’m reading the tea leaves while they’re still falling off the tree, I would say." – Moelis CEO Kenneth Moelis

"The first quarter marked an acceleration in funding commitments by European governments. What is new is the wake-up call for Europe, the German €1 trillion to €1.5 trillion investment plan and the €800 billion readiness program are just first steps...Europe is going to reinvest massively." – BNP Paribas SA CEO Jean-Laurent Bonnafe

"Waymo is now safely serving over a quarter of a million paid passenger trips each week. That's up 5x from a year ago. This past quarter, Waymo opened up paid service in Silicon Valley. Through our partnership with Uber, we expanded in Austin and are preparing for our public launch in Atlanta later this summer. We recently announced Washington, DC, as a future ride-hailing city, going live in 2026 alongside Miami. Waymo continues progressing on two important capabilities for riders, airport access and freeway driving." – Alphabet CEO Sundar Pichai