💥 Trump Nukes China Trade Talks

Trump Just Tanked China Trade Talks

Whatever it is that mainstream media are smoking this morning — I definitely don’t want some.

• “China Mulls U.S. Overtures on Trade Talks…” (NPR)
• “China Open to Talks With Trump Admin on Lowering Tariffs…” (Fox News)
• “China Says It’s Evaluating Possible Trade Talks With the U.S.…” (CNN)

To be sure, there are caveats. The New York Times points out that Beijing “will only engage in negotiations if Washington cancels its tariffs on Chinese goods first.”

Even so, Bloomberg issued this alert shortly after the opening bell: “Stocks rise on jobs data and signs of a thaw in U.S.-China relations.”

Wow. The mystery mind-altering substance is so strong, it blinds corporate media to something else that happened in the previous 24 hours…

The reality is that Donald Trump dropped a bomb yesterday on any hopes for “China trade talks.” And almost no one has figured it out.

Perhaps it was understandable. Trump shaking up his national security/foreign policy team was a big story. It was from Trump’s social-media feed that the world learned not only that Mike Waltz was out as national security adviser, but that he was getting a consolation prize as United Nations ambassador.

But the Trump post immediately following that announcement was far more important…

Gee, who imports the lion’s share of Iran’s oil — 90% by most estimates?

China.

So China “will not be allowed to do business with the United States of America in any way, shape or form”? Really?

As the military analyst William Schryver points out…

Of course, a plethora of U.S. sanctions already applies to Iranian oil.

And they’re just as ineffective as the sanctions on Russian oil — which also finds its way to China in mass quantities.

Trump stepped up existing Iran sanctions as soon as he took office this winter. But as the Oil Price website reported in March, Iranian crude exports to China carried on as usual — “as traders and middlemen rearrange tanker flows and increase ship-to-ship transfers, especially offshore Malaysia, vessel-tracking analysts say.”

Beijing and Tehran signed a deal in 2021 — China prepays for Iranian oil by investing in Iran’s energy, manufacturing and transportation infrastructure. Neither side is going to walk away from that just because Trump tells them to.

So exactly how Trump intends to enforce his new wishes is a mystery.

That said, today is Friday — and in recent years, major U.S. military action in the Middle East tends to happen when U.S. markets are closed for the weekend.

Last year, U.S. forces launched airstrikes against “Iran-linked” targets in Iraq and Syria literally the moment the market closed at 4:00 p.m. Eastern. Nor is that the only example.

As it happens, Washington and Tehran were supposed to have another round of talks this weekend over Iran’s nuclear program — but now those talks have been postponed.

We don’t know why. Perhaps Iranian negotiators view the new sanctions as a demonstration of bad faith on Trump’s part. Or the U.S. negotiators were told to walk away because Trump is giving up on negotiations and giving in to his most warmongering advisers like Marco Rubio (who now holds the portfolio of both national security adviser and secretary of state)..

Only yesterday, Defense Secretary Pete Hegseth tweeted out another threat directed at Tehran: “You will pay the CONSEQUENCE at the time and place of our choosing.”

That said, if military action is imminent, the oil market isn’t sniffing it out.

Often when the war drums are beating, the oil price rises on a Friday because traders don’t want to be “short” crude going into the weekend — only to have their faces ripped off when the market reopens Sunday night and the price jumps 4-5%.

But as we write, crude is down nearly 1% on the day to $58.67.

“Economic COVID”

“It’s like an economic COVID. It all happens [in China] first,” tweets Molson Hart, CEO of Viahart, a Texas-based maker of educational toys.

Here’s an additional reality check on the prospect of China trade talks — starting with a reminder that West Coast ports continue to grind to a halt.

Indeed, three more terminals at the ports of Los Angeles and Long Beach closed yesterday for lack of business. “No, that isn’t normal,” tweets Nathan Strang of the logistics firm Flexport.

Back to Mr. Hart, CEO of the Texas toy business: “China is feeling the pain now that we will be feeling in 10 days.

“Layoffs at Chinese factories and trucking companies happen before layoffs at U.S. trucking companies and warehouses because of the time lag in sea shipping.”

“For those who are expecting a deal, why would China agree to one if they felt that this was unfairly forced upon them?” Mr. Hart continues.

“Especially when the party which initiated the tariffs hasn’t yet felt the consequences?

“Or when your national ethos is overcoming a century of humiliation that was perpetrated by foreigners?”

Asked yesterday about the disruptions to the supply chain and the potential for empty store shelves, Donald Trump had a curious response.

"Maybe the children will have two dolls instead of 30 dolls, you know? And maybe the two dolls will cost a couple of bucks more than they would normally."

Hmmm… As political messaging goes, I’m not really sure what word applies here — but “winning” isn’t the first one that comes to mind.

Jobs: Not All They’re Cracked up to Be

The April job numbers aren’t as good as the headline figure would lead you to believe.

“The U.S. economy added a stronger-than-expected 177,000 jobs in April despite swirling recession fears,” says CNN.

Right, but the wonks at the Bureau of Labor Statistics revised the March and February numbers lower by 58,000. The three-month average works out to 171,000 — down from 232,000 for the prior three months.

Also concerning: Weekly average hours worked declined in a host of industries and sectors — including leisure and hospitality, which suggests consumers are cutting back on travel and dining out.

The official unemployment rate held steady at 4.2% — low by historical standards, but higher compared with, say, most of 2022–23.

➢ DOGE update: The federal government’s payroll shrank last month by only 9,000, on top of last month’s figure of 4,000. In a federal workforce of 2.4 million, the impact of DOGE so far is negligible.

But when it comes to markets, perception matters more than reality. The perception that China trade talks are nigh and the job market remains strong is propelling stocks higher today.

The S&P 500 is up 1.25% at last check to 5,673. The index is on track to easily end the week above the midpoint between the Feb. 19 record close and the April 8 low. As we’ve mentioned more than once in recent days, that clears the way for a return to those all-time highs of 6,144.

And once that happens, colleague Alan Knuckman says basic chart work points to a sustained rally reaching as high as 7,500.

Today’s jump comes despite earnings disappointments from two more Magnificent 7 names.

Well, strictly speaking, the earnings were fine. But the Street doesn’t like Apple’s plans to shift production of U.S.-bound iPhones and iPads from China to India and Vietnam; AAPL is down 3.75% on the day.

Amazon is also in the red, albeit by only 0.25%, after issuing a cautious outlook for the current quarter amid tariff uncertainty.

Meanwhile, tension is returning to the bond market — prices falling, yields rising.

The yield on a 10-year Treasury note is up to 4.3% — up big from 4.17% on Tuesday. That might be because Japan’s finance minister says the country’s stash of U.S. Treasuries is “a card” for trade talks with Washington.

Note well: Japan is the biggest foreign holder of Uncle Sam’s debt.

Gold is settling into a nice consolidation pattern after running up too far, too fast in April: In the last 24 hours, it’s up $23 to $3,262. Alas, silver is down another quarter today to $32.13.

Bitcoin sits more or less where it did at this time yesterday, over $97,000.

Comic Relief

Only one chart in today’s edition, and it’s this…

Mailbag: Amazon, AI

We pick up today’s mailbag where yesterday’s left off — with Amazon’s aborted plan to list the impact of tariffs next to the prices of imported goods.

“Amazon (and others) need to be more transparent in their product listings regarding the manufacturer's country of origin,” a reader writes.

“It is not always readily apparent until you receive the product. I prefer to purchase products made in America, but it isn’t always specified.”

On the subject of AI and its demands on the power grid, one of our regulars writes in from the Great Plains…

“Thought you might like to know that our public power provider in Lincoln, Nebraska is asking citizens for input next Thursday at 6:00 p.m. CDT on ‘future power needs.’

“They plan to host an in-person meeting as well as on Zoom, should you care to tune in. Go to LES.com/Generation at that time on May 8, if interested. 

“I plan to ask about data centers, a couple of which are on the drawing board for Lincoln.”

Dave responds: Thanks for the heads-up. We see Pennsylvania’s Public Utility Commission held a hearing a few days ago with input from four of the state’s power providers as well as Amazon and Google.

The issue definitely isn’t going away…