Tariff Wins and Losses in Action

As the stock market teeters on collapse, we got an example today of tariffs doing their intended good for the US and wreaking their destruction.

On the positive side, Apple announced it will be committing half a trillion dollars toward building production facilities inside the US, largely to offset tariff risks. They estimated this will create 20,000 new jobs, which is enough offset 9% of the jobs slated to be stripped away by all the government firings. These new are high-tech jobs, of course, manufacturing AI servers. So, Apple’s decision will put major AI development and manufacturing in new factories inside the US borders.

The investment will occur over the course of four years and will include an AI server factory in Texas and a “supplier” academy in Michigan.

Earlier this month, Trump imposed a 10% US levy on Chinese imports, where Apple manufactures most of its iPhones, iPads, Macs, and other products. In a tit-for-tat effort, Beijing announced retaliatory tariffs on US goods shortly after.

There is a downside, of course, and that is the retaliatory tariffs mean fewer other things will be manufactured in the US for export to China, and the positives will take a few years to actually materialize; but on the upside, CEO Tim Cook said,

We are bullish on the future of American innovation, and we're proud to build on our long-standing US investments with this $500 billion commitment to our country's future. We'll keep working with people and companies across this country to help write an extraordinary new chapter in the history of American innovation.

Tariff troubles

Those same tariffs were said to be pushing the stock market over the edge on which it was precariously perched when the Dow dropped ~1200 points in two days from which it failed to recover any today. I covered the significance of those two days in my last Deeper Dive, and today’s manufacturing news adds solid support to that analysis about the meaning of those moves.

This morning has seen two disappointing signals for US growth as The Chicago Fed's National Activity Index dropped to 0.03 (thanks to a plunge in Personal Consumption & Housing.…

and The Dallas Fed Manufacturing survey clumped into contraction (from its highest level since Oct 2021), dramatically worse than expected, as tariff fears loom large for many. The general business activity index tumbled 22 points to -8.3

That puts the survey solidly in recession territory, and the main reason respondents gave for their concern was fear of the damages tariffs will do or are doing to their businesses. This was the survey’s largest month-on-month decline since the Covid lockdowns hit in the last year of Trump’s first term. Having finally risen from recessionary territory in its January report, the survey fell right back into recession in its February report:

The production index, a key measure of state manufacturing conditions, fell 21 points to -9.1. Other measures of manufacturing activity also declined this month.

And, this was not just moves in sentiment about the outlook:

The new orders index fell 11 points to -3.5, and the capacity utilization index slid 14 points to -8.7….

In fact across the entire spectrum, every indicator is a disastrous stagflationary signal:

Input costs also ramped up as inflationary pressures continue to build on the producer side of the economy. Costs of raw materials, in fact, hit a multi-year high; and this is before tariffs.

The outlook “uncertainty” index rose from zero to 29.2 due to all the chaos in how major economic changes are being decreed with surprise shock-and-awe. Respondents gave the following feedback:

• Tariff threats and uncertainty are extremely disruptive.

• With some of the new Buy America changes and tariffs incoming, we are looking at closing the business.

• The back-and-forth tariff talk has been very stressful, but it has not been disruptive so far.

• It is very hard to plan. Interest rates? Tariffs? Wow.

• I'm very worried about the possible tariffs affecting some of our material costs, which we will have no choice but to pass along to our customers. This is a terrible policy decision and hopefully will not be very long lived.

• The new tariffs will have a big impact on the demand for our products.

• The Trump tariff situation is creating uncertainty about our future material costs later this year.

   

So, while Apple is making big pro-US changes, many other businesses are seeing red.

Some businesses, of course, are expected to directly benefit while others falter. Steel smelting and steel components manufacturing should gain from the tariffs choking out foreign competition. Those who use lots of steel, however, such as building contractors or auto manufacturers, are expected to do worse because their costs will rise as they shift toward using more expensive US steel.

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