The tariffs. The overall situation. I do not understand why Wall Street isn't yet in a freefall. Did they find good sources of bubble fuel then to keep on the heat?
1. If you take out AI-related companies, SP500 is down YTD
2. Even then, because the exchange rate is down 10-15% against most countries, that mechanically increases the SP500 by 5-7.5% (because half of SP500 firm profits are from abroad)
3. Many ppl expect lots of inflation in the medium term (look at 10yr-3m spreads). Firms are basically Equity+Debt, and because inflation wipes out the value of Debt, then the value of Equity mechanically increases
So, that's my pet story why the market is at an ATH (source: am an economist, can't say where, but I know lots of well-known economists)
I don’t think this holds water as an explanation. The equity risk premium is basically zero.
* Given the same profit margin, higher overall prices mean that firms will have higher profits.
* The value of an equity is the discounted sum of all future profits.
That is, stocks are a hedge against inflation. Investors are willing to pay "unreasonable" prices today because they expect that increased future cashflows will cause the price to become reasonable.
(source: I am also an economist who specializes in financial economics and corporate finance)
And of course people are still selling to the US. From our perspective nothing has changed. It's not costing us any more than it did before.
Markets remain up, bolstered partly by the AI stocks, but also because the market believes US consumers will continue to consume. Their appetite for consumption, and debt, remains unabated.
Am I building a factory in the US? No. The current administration makes that very unappealing. The US society is unstable right now, policy is fluid, enforcement of laws seems weak, the labor market is (justifiably) paranoid. As a foreigner I'm not even traveling to the US anytime soon. There are other, more appealing, opportunities to explore.
This suits large importers over small ones, they have the cash reserves to cope.
The other issue for importers is uncertainty. The tarifs might be high this week (when my stock arrives) but it might be low next week when my competitors stock arrives, putting me at a disadvantage.
So "shelves being bare" is primarily a business risk / cash flow issue. Partly handled with more frequent, smaller, orders (driving up consumer prices some more.)
And yes, I agree, most American consumers don't understand that fundamentally the goal of tarifs (good and bad) is to drive up the price. To that end though the administration is being very successful.
Access to the US market has other values. If the manufacturer is carrying USD denominated debt, they or someone else must obtain those dollars through trade. Access to a large market may unlock economies of scale for producers. Losing access may drive up their overall costs to serve other markets.
These are just two of the most obvious things which I can immediately think of. There are likely other factors as well.
> The exporters aren't impacted directly at all
This isn't true, at least if you believe in standard economic theory (not believing standard economic theory is what got us in this mess!).
The issue is that the tariff increases the effective price to the consumer, so it shifts the demand curve downward by the cost of the tariff (the price consumers are willing to pay the producer for a given quantity of goods).
Markets always find their equilibrium, and the resulting equilibrium point is a lower transaction price and lower quantity than before. Quantifying the shift requires knowing both the supply and demand elasticities.
In other words, both the producer and consumer share the burden of the tariffs. The producer receives less from the consumer, and the consumer pays a higher total cost than before. Who pays more of the tariff is question that we again need the elasticities to answer.
There will absolutely be some short term pain. But in the long run it makes the producer stronger.
Now it's easy to cherry pick products that are easier to move than others. There absolutely will be winners and losers on the production side. It'll certainly be interesting to see this play out.
But that's not what people think: People think the tarrifs work like a bill from the US government - like taxes, where they understand it's possible (though again, generally not how) to wind up owing the government more money in September.
What they imagine is very clearly something that looks like that - that companies directly pay some fee to access the US market and then sell things as normal. Or will be taxed some extra money after selling things to the US.
Yes it's all wildly inconsistent on the slightest inspection, but people are relating to this on a vibes level and then generally inventing the justification post facto because they certainly never thought about tarrifs till this president.
There’s already a market forming in trading the right to tariff refunds.
I'm not saying the bubble is about to burst, only that this is not a great indicator.
(article https://www.ft.com/content/6f549890-c2a6-4823-a095-c8ea73f7e...)
Here's an even handed approach and overview of some of the tariff related stats. The presenter is a critic of tariffs, but concedes that the results thus far are not as simple as some here would suggest.
6:22
> This is just a matter of acknowledging the data on the graph and saying this is quite a difference from the way it was a year ago. And so, people who said this wouldn't happen, that's wrong. It did happen. There it is. And I think it's important to acknowledge that. Um, not only that, but a lot of people said, "Well, this is going to lead to the price of goods, especially automobiles, coming into the United States, is going to skyrocket." Well, so far that hasn't been the case.
>In fact, prices have come down. And you can go to Google and you can look it up and there's many articles discussing the fact that the Chinese automakers have largely been eating the tariffs so far.
Everything in the video up until 20:30 is making supporting the claim that tariffs are higher now than they were in 2024 which I'd be surprised if anyone disagrees with.
After 20:30 is where I think the real meat of the video is:
"Um, now I know some people will say you can't win in a trade war. So even though Trump has gotten, you know, these good uh better levels than he had a year ago, it's basically attacks. It's going to lead to less efficiency and it's going to cause growth to fall and nobody wins a trade war. Now, if that's your argument, I tend to agree with you. But that's a different subject, right? If you want to say that nobody wins in a war and that's going to hurt everybody, fine. I'll go down that road. I think it's a relative game and if everybody falls but the United States falls the least, then on a relative basis, the United States has maintained its hegemony."
*As a redundant disclaimer for HN, that belief would put me in opposition to Trump's policies.
However when describing the outcome all things are not equal. We shouldn't fall into the trap of an appeal to utopia.
Selling into the US presents advantages on economies of scale. Overseas dollar denominated debt drives dollar demand. These factors affect decisions for producers selling into the US market.
The specific pricing data is subject to cherry picking and politicalization. Generally it is a bit strange to see the illiberal left taking exception with Trump's illiberal interventionism. You get the sense that if the interventions were rationalized by a different actor or for a different reason, the statistics would be spun in the other direction. This feels inconsistent and hypocritical.
The other key point is that the tariff doom prophesies haven't yet come to pass. Perhaps the doomsaying was merely more political bloviation? It would fit with the pattern of inconsistency.