Back from the brink

Tuesday 13th May 2025

Trade War Averted?

Whilst Donald Trump would never admit it, luckily markets brought him a heavy dose of reality recently. Whilst they couldn’t, like Liz Truss, see the back of him, it has made the new US government wake up to his policy mistakes which they are starting to push back against.

Markets calmed once Trump suspended his “reciprocal” tariffs and backed down in his threats against Federal Reserve independence. It is this latter point that we feel was most telling. Indeed, Jerome Powell and the Federal reserve kept the US interest rates on hold, feeling the risks are still too much for low growth and high inflation and unemployment, so want to watch and see before cutting rates. Trump is not happy calling Jerome Powell “a fool who doesn’t have a clue. Other than that, I like him very much”. What the president seems to be missing is that it’s his own policies that are stopping Powell from moving any earlier. The calm meant greater liquidity, which then stabilised shares. The narrative became that the White House would relent to market pressures and dial back tariffs. Ironically, the US/UK Trade deal announced last week still implies the 10% tariff rate is here to stay as the lowest country specific tariff that will be applied.

There’s been little impact on the UK stock market to the UK/US deal and indeed the cut in our interest rates. It is the negotiations between China and the US over the weekend and the agreement announced this morning to suspend most tariffs on each others goods, that has been so important. The US duties on Chinese imports relating to fentanyl will remain in place, meaning total tariffs on China are at 30%. It’s a move that shows a major thawing of trade tensions between the world’s two largest economies. Markets have reacted very favourably with the US Dow Jones stock market index opening over 1,000 points up (2.3%) this afternoon. Details are still emerging, but it appears that the US is cutting levies on Chinese goods to 30% from 145% for 90 days, while China is lowering its levies on US goods to 10% from 125% also for 90 days.

Considering Trump has the lowest net approval recorded for any US president at 100 days (including his own first term), it might not be a surprise this has happened as China stood up to him and there would have only been one loser in a trade war with China, and that’s the US. The port of Los Angeles is the largest entry point for Chinese goods, and as reported in the Washington Post at the weekend “The number of shipping containers that arrived at the nation’s top container port last week was roughly one-third lower than during the same period last year — a sharper decline than during the depths of the Great Recession. More than one-fifth of the giant ships that were scheduled to call in Los Angeles this month have already cancelled."

It raises the fundamental issue that the US can’t afford a trade war when they have a national debt of $36 trillion. Maybe the president’s declining popularity and reports such as that in the Washington Post makes it more likely, though obviously not certain, that some degree of sense and normality will resume. They also need to be careful - Europe, with no deal in sight is larger and as rich as the USA and potentially will divert much trade to China. In addition, an increasing share of global wealth resides in Southeast Asia. Expect the rest of the world to trade more between themselves.

There may be a lesson here for the US with Russia when the European Commission first pledged to quit Russian fossil fuels in 2022 as a response to Moscow's invasion of Ukraine. The imports won't completely end until 2027, but in the meantime, Czechia has achieved full independence from Russian oil for the first time in its history; the country now receives no supplies through Russia's Druzhba pipeline, ending a 60-year dependency. This is significant because Czechia previously received half its oil from Russia and had an EU exemption from the 2022 Russian oil ban. If at long last there is peace it appears Russia will have a much reduced or completely lost major market for its fossil fuels.

Fed Chair Jerome Powell was clear in his “wait and see” message last week – No Chance of Interest Rate Cuts until its clear how the US economy is reacting to the political uncertainty engendered by Trump’s policies. Luckily, a steady hand and, like China, not backing down to the bully boy tactics may at last have brought some common sense and a quicker deal with China than expected. It is fast paced and a lot happening this week so never a dull moment!

Charity Support

At Bailey Cook we have a strong belief in helping others that are less fortunate than ourselves, which is why every year we choose a charity to support. This year we have decided to support Dorothy House Hospice.

Dorothy House, based in Bradford-on-Avon, provides palliative and end of life care to adults with a progressive, treatable but not curable life-limiting illness or with severe frailty, and also their family (including children) and carers. They care for people across an 800sq mile catchment area which covers Bath & North East Somerset and parts of Wiltshire and Somerset. Their services provide physical, psychological and/or spiritual support, and are free of charge. They are available day and night to ensure that individuals have the right care, at the right time.

When someone is ill, it’s not just the patient who is affected. Life can be turned upside down for the family, friends and carers. Patient, family and carer resources can be accessed via their Information Hub. A 24hr Advice Line is also available for patients, their families/carers and healthcare professionals who need immediate medical advice on someone’s care. Dorothy House aim to make sure that anyone in their community who is facing a life-limiting illness can live well, and die well.

For more information please go to www.dorothyhouse.org.uk and if you would like to make a donation please visit our JustGiving page.