Stocks surged as Trump blinks on China and Powell; Gold slips

·       USD recovered on fading concern of Fed independence and an all-out US-China trade war; The US and China may soon cut reciprocal tariffs on each other

·       China believes in protocol based diplomacy and trade talks; both US and China need each other for prosperity and development

·       U.S. and China are both largest customers of each other’s merchandise exports and thus bound to reconcile after satisfying respective domestic political compulsion

On Monday, April 21, 2025, Wall Street Futures plunged on Trump’s Powell and China tariff tantrum; Gold zoomed as Trump’s repeated attempt to influence the Fed and Powell to cut rates undermined the Fed’s independence; USD, and UST slumped. Although, Trump’s Powell bashing is not new and both Powell as-well-as the market is habituated with it since Trump 1.0, this time Trump 2.0 is looking like more autocratic and running the administration with a totalitarian attitude bypassing Congress, Senate, his own colleagues and even the US DOJ.

On Apr 21, 2025, Trump warned Fed Chair Powell to cut rates and help him continue the Trade war as it may result in an economic slowdown. Trump also asked Powell to follow the path of ECB, which cut interest rates by seven times in the last one year. And Trump also blamed Powell of political partisanship towards Biden-Harris admin (Democrats) as he cut 75 bps rate just cumulatively just before US Presidential Election in November’25.

“Preemptive Cuts” in Interest Rates are being called for by many. With Energy Costs way down, food prices (including Biden’s egg disaster!) substantially lower, and most other “things” trending down, there is virtually No Inflation. With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW. Europe has already “lowered” seven times. Powell has always been “Too Late,” except when it came to the Election period when he lowered in order to help Sleepy Joe Biden, later Kamala, get elected. How did that work out?

As per reports, Trump is internally discussing about options to fire Fed Chair Powell bypassing the US Congress. The market is concerned that if megalomaniac Trump indeed fires Powell or force him to resign prematurely, it will affect the institutional pillar of the US financial system. The erosion of Fed’s independence, credibility as a result of Trump’s political influence and repeated attack on Federal Reserve like institution is affecting also the credibility of USD and UST as a safe haven asset in any financial turmoil.

Thus investors are shifting from the erstwhile safe haven US Treasury Bonds (USTs) to Gold and also Yen/JGBs, EUR/German bonds, GBP/UK bonds, CHF/Swiss bonds and even INR/Indian bonds. Trump called Fed Chair Powell a ‘major looser’ and ‘Mr. Too Late’ in cutting interest rates. In his first term, Trump appointed Powell in 2018 after a deluge of interviewing circus in the White House, involving several other potential candidates including the then exiting Fed Chairwoman Yellen.

Trump blinks on Powell's removal thought after seeing Wall Street meltdown

On late Tuesday, April 22, 2025, President Trump stated in the Oval Office that he had "no intention" of firing Federal Reserve Chair Jerome Powell, saying, "None whatsoever. Never did." He added, "I would like to see him be a little more active in terms of his idea to lower interest rates. This is the perfect time to lower interest rates." These remarks marked a de-escalation from his earlier criticisms, where he had called Powell a "major loser" and suggested his "termination cannot come fast enough."

The comments followed a period of market volatility driven by Trump's attacks on Powell for not cutting interest rates quickly enough amid concerns over inflation risks from Trump's tariff policies. Wall Street futures rose sharply late Tuesday after Trump’s less dovish comments about Fed Chair Powell and the ease of Trump’s Powell firing tension. Trump blamed media for misinterpreting his comments about Powell, clarifying that it was never his intention to fire him. Trump also pointed out Fed Chair Powell will eventually cut rates later in 2025, but it will be then too late to prevent any high potential recession. Trump is now trying to make Fed/Powell as scapegoat for any recession down the line because of his unconventional tariff policies and its uncertainties.

On late Tuesday, Trump also said prices have fallen across the board since he took office, except for interest rates. "It's all coming down. The only thing that hasn't come down—but hasn't gone up much—is the interest rate," he said. Trump pointed to falling gasoline prices, saying, "One of the big things was energy—energy was coming down." He also highlighted the drop in egg prices, recalling early fears of shortages. "They were up 2-3 times," he said, adding that this year's White House Easter celebration had no supply issues. Trump again urged the Federal Reserve to cut rates, calling it "a perfect time." He pushed for quicker action from Fed Chair Jerome Powell, saying he hopes the chairman can be "early or on time" rather than "late, late, late."

Trump is now also dialing back his hawkish China tariffs stance

On late April 21, 2025, U.S. Treasury Secretary Scott Bessent expressed his personal optimism about de-escalating the ongoing U.S.-China trade war during a private, closed-door investor summit hosted by JPMorgan Chase (JPM) in Washington. Bessent described the tit-for-tat tariff situation, with U.S. tariffs on Chinese goods at 145% and China’s retaliatory tariffs at 125%, as unsustainable, suggesting that negotiations would lead to a reduction in tensions, though formal talks had not yet started, but it may start within the next week.

Later on April 22, 2025, the  White House Press Secretary Karoline Leavitt reinforced this sentiment in a press briefing, stating that President Trump and the administration were “setting the stage for a deal” and that “the ball is moving in the right direction” regarding a potential trade agreement with China.

On the same day, President Trump, speaking to reporters, indicated that the 145% tariffs on China would not remain at such high levels long-term, saying, “145% is very high, and it won’t be that high. It will come down substantially. It won’t be zero. It used to be zero.”

Trump’s Tuesday comments about China tariffs almost aligned with Bessent’s off the camera private remarks signaling a willingness to negotiate a resolution with China. Trump also reiterated about his good relation with Chinese President Xi for a long time and he expects a good talk, mutually beneficial for both US and China. These statements, made on April 22, 2025, contributed to a positive market response, with U.S. stock indices, including the Dow Jones Industrial Average (up 2.7%), S&P 500 (up 2.5%), and Nasdaq Composite (up 2.7%), rebounding from the previous day’s losses.

Trump insisted on Wednesday that his administration will reach a "fair trade deal" with China, reaffirming a recent statement. Trump insisted that "we're going to make a lot of money" for the American people through his tariff policies. He also repeated his stance that China, EU and virtually all other countries are ripping off the US for long. His remarks came shortly after it was reported that the Trump administration is mulling reducing the tariffs on Chinese exports by half to ease tensions with China and bring it officially to the negotiation table.

Trump told reporters at the White House that the tariff on Chinese goods won't "be anywhere near" as high as 145%. The current tariff rate "will come down substantially but won't be zero," he explained.

Trump said he would not "play hardball" with China, adding: "we're gonna be very nice. They're gonna be very nice." Trump reiterated that Beijing will "ultimately have to make a deal" on trade, otherwise China will not be able to conduct business in the US. Other countries would also have to come to terms with Washington, Trump declared during the swearing in ceremony for the new US Securities and Exchange Commission (SEC) Chair Paul Atkins. "We're the ones that set the deal ... we're gonna be setting the deal and it'll be a fair deal for everybody ... I think it's a process [that] is gonna go quickly," Trump concluded.

In the meanwhile, the Wall Street Journal (WSJ) reported that the White House is considering slashing tariffs on Chinese imports from a baseline rate of 145% to a range of 50% to 65%, citing a senior White House official. This potential reduction aims to ease trade tensions amid concerns over inflation and economic stability. The administration is also exploring a "tiered approach," where non-critical items could face tariffs as low as 35%, while strategic items vital to national security might face levies starting at 100%.

On April 23, 2025, Trump said:

·       The EU and China are ripping the US off

·       We're going to make a lot of money for our people

·       We will have a fair trade deal with China

·       Crimea is not even a point of discussion

·       The situation in Ukraine is dire

·       We are very close to a Ukraine and Russia deal

·       Zelenskyy should finally get it done

Trump also Truthed about Ukraine:

Ukrainian President, Volodymyr Zelenskyy, is boasting on the front page of The Wall Street Journal that, “Ukraine will not legally recognize the occupation of Crimea. There’s nothing to talk about here.” This statement is very harmful to the Peace Negotiations with Russia in that Crimea was lost years ago under the auspices of President Barack Hussein Obama, and is not even a point of discussion. Nobody is asking Zelenskyy to recognize Crimea as Russian Territory but, if he wants Crimea, why didn’t they fight for it eleven years ago when it was handed over to Russia without a shot being fired?

The area also houses, for many years before “the Obama handover,” major Russian submarine bases. It’s inflammatory statements like Zelenskyy’s that makes it so difficult to settle this War. He has nothing to boast about!

The situation for Ukraine is dire — He can have Peace or, he can fight for another three years before losing the whole Country. I have nothing to do with Russia, but have much to do with wanting to save, on average, five thousand Russian and Ukrainian soldiers a week, who are dying for no reason whatsoever.

The statement made by Zelenskyy today will do nothing but prolong the “killing field,” and nobody wants that! We are very close to a Deal, but the man with “no cards to play” should now, finally, GET IT DONE. I look forward to being able to help Ukraine, and Russia, get out of this Complete and Total MESS, that would have never started if I were President!”

On Wednesday, April 23, 2025, the US Treasury Secretary Bessent said:

·       No one who financed or supplied the Russian war machine will be eligible for funds earmarked for Ukraine’s reconstruction.

·       World Bank treating China, the second-largest economy in the world, as a 'developing country' is absurd.

·       IMF needs to call out nations like China that have pursued globally distortive policies and opaque currency practices

·       China's current economic model is built on exporting its way out of economic troubles, The Trump administration wants to help China, and the US rebalance

·       China can start reform by moving the economy away from export overcapacity and moving toward supporting its own consumers and domestic demand.

·       If China wants to play a role in the global economy commensurate with its actual importance, then the nation needs to graduate.

·       Trump administration wants to help China & U.S. rebalance

·       There is an opportunity for a big deal between the US and China

·       If China is serious about rebalancing its economy, the US can also rebalance

·       We continue to have a strong dollar policy and adjust to markets

·       Strong dollar policy is about having policies in place to attract capital flows and confidence

·       US growth will be much higher than the IMF's projection of 1.8% if we implement Trump's economic policies

·       Bessent notes substantial appreciation of the euro

·       I applaud Germany's decision to raise fiscal spending and drive the European economy

·       Private credit is an interesting addition to US capital

·       China and, the U.S. has an 'opportunity for a big deal' on trade

·       China needs to change

·       China's situation needs to be de-escalated for trade discussions to proceed.

·       I do not have a time frame for the start of the China talks, they will have to take place at lower levels than Trump and Xi.

·       Bessent Calls For 'Reforms' Among 'Bretton Woods Institutions' To Rein In Global Trade Imbalances

·       Tariff negotiations will not be an extended process at all

·       I am expecting the current tax policy to be extended and a great part of that to be permanent

·       Trump's reference to Powell's termination may refer to the expiration of his term

·       US-China tariffs will likely have to come down for trade negotiations to talk, rates are unsustainable

·       Both the US and China are waiting to speak to each other, both sides see the current tariff situation as unsustainable

·       No unilateral offer from Trump to cut China tariffs

·       US-Japan trade discussions do not have specific currency targets, I expect Japan to honor G7 agreements on FX

·       Bessent declines to comment on the WSJ story on lowering tariffs on China, but would not be surprised if they went down in a mutual way

·       There are no currency targets sought in Japanese trade discussions

Trump’s core team is divided among policy hawks and doves

The US Treasury Secretary Bessent is seen as a policy dove unlike some other members of Trump’s core team like Navarro, and Hassett, who are known policy hawks.  As per Politico reports, Bessent is advised Trump and also White House officials to take caution when considering firing Fed Chair Powell, claiming that the move could destabilize the financial markets.

On Wednesday, April 23, 2025, Bessent urged China to pivot its economy toward domestic consumption, noting the opportunity for a "big deal" between the two countries. "China needs to change, it knows it needs to change [...] and we want to help it change," he stated, urging Beijing to reduce its overreliance on exports and focus on serving its own consumer base. He noted that China's economic system would otherwise continue to create even more imbalance with its trade partners, hurting the global economy. Bessent also praised recent European Union efforts to strengthen both economic resilience and defense spending, calling them steps in the right direction.

On April 22, 2025, Trump’s remarks about Federal Reserve Chair Jerome Powell were shaped by input from his economic team, particularly Bessent and Hassett, who have emphasized the need for monetary policy to support economic growth. Trump’s call for Powell to lower interest rates reflects the administration’s broader strategy to stimulate the economy amid tariff-driven inflation concerns. Bessent, as Treasury Secretary, likely influences Trump’s public stance on monetary policy, advocating for a cooperative relationship with the Fed to balance trade and economic objectives. The team’s focus on tax cuts (Hassett) and tariff negotiations (Lutnick, Navarro) aims to mitigate market volatility, which Trump referenced when calming markets after his Powell comments.

Loyalty and Alignment: Trump’s second-term team prioritizes loyalty, with many members having served in his first administration or contributed to his 2024 campaign. This is evident in selections like Miller, Navarro, and Vought, who align with his America First ideology.

Project 2025 Influence: While Trump distanced himself from Project 2025 during the campaign, several team members (Vought, Navarro) contributed to its policy blueprint, which aligns with Trump’s goals of reducing federal bureaucracy and advancing conservative economic policies.

Trade Policy Dynamics: The team’s approach to China trade, as seen in Bessent’s optimism and Lutnick’s tariff leadership, reflects a strategic shift toward negotiation, with a potential 50% tariff reduction under consideration, as reported by the WSJ on April 23, 2025.

A core group policy hawks and doves  drives Trump’s economic and trade agenda, with Bessent and Lutnick directly tied to the China trade deal optimism and Powell comments, while Miller and Vought provide broader policy support.

Susie Wiles (White House Chief of Staff): As the first female White House Chief of Staff, Wiles is a veteran Republican strategist who played a pivotal role in Trump’s 2016 and 2024 campaigns. She oversees the execution of Trump’s agenda and has been involved in managing responses to economic concerns, such as market reactions to tariff policies. Her influence extends to coordinating with business groups and allies to mitigate concerns about trade policies. Overall Wiles is on the policy dove side.

Stephen Miller (White House Deputy Chief of Staff for Policy): A long-time Trump advisor, Miller is central to shaping domestic and economic policy, including immigration and trade. His hardline stance on policy aligns with Trump’s America First agenda, and he is noted for influencing the administration’s broader economic strategies, including tariff plans. Overall, Miller is a known policy hawk.

Scott Bessent (Treasury Secretary): Bessent is a hedge fund manager and founder of Key Square Group. He advocates for tariffs as a tool to protect American industries and raise revenue, aligning with Trump’s trade vision. His role is critical in shaping monetary and fiscal policy, including interactions with the Federal Reserve. Bessent has been seen as Wall Street-friendly and a policy dove. His nomination soon after the US election in November’24 was instrumental in the epic Wall Street rally on hopes of a less hawkish Trump 2.0 trade war tantrum and another tax cut. Bessent was instrumental in so-called Trump trade and Trump put for the stimulus addicted Wall Street, leading to bubble like valuation PE above 30.

Howard Lutnick (Commerce Secretary): As CEO of Cantor Fitzgerald and co-chair of Trump’s transition team; Lutnick was confirmed as Commerce Secretary on February 18, 2025. Trump tasked him with leading the administration’s tariff and trade agenda. Lutnick has publicly supported tariffs, referencing their historical role in the U.S. economy, and is involved in negotiations to calm market and allied concerns about trade policies. He is seen as less hawkish on China and trade/tariffs, indirectly called Chinese President Xi or any other Senior Leader to ‘just call’ President Trump and get instant 20% discount of Chinese reciprocal tariffs of 34% first imposed by Trump admin on China (in addition of 20% Fentanyl tariffs).

Peter Navarro (Senior Counselor for Trade and Manufacturing): A staunch protectionist and former trade advisor during Trump’s first term, Navarro was appointed to this role to advance the America First trade agenda. He is a key architect of Trump’s tariff policies and has been vocal about addressing trade imbalances with China. Navarro’s economic nationalism shapes the administration’s approach to reducing tariffs strategically while protecting U.S. industries. Navarro is also a known India tariff hawk, often termed India as the ‘Maharaja (King) of Tariffs’.

Kevin Hassett (Director of the White House National Economic Council): Hassett is a key economic advisor with a focus on tax cuts and economic growth. He supports Trump’s tariff strategy as a means to reset trade relationships and has been involved in crafting policies to offset the economic impact of tariffs through tax reductions. Hassett is less hawkish than some of his colleagues on trade & tariffs.

Russell Vought (Director of the Office of Management and Budget): Vought is a co-author of Project 2025 and served as OMB Director in Trump’s first term. He plays a significant role in fiscal policy, including efforts to reduce federal spending and reshape the executive branch. Vought’s influence extends to economic policy, aligning with Trump’s goals of fiscal sanity and deregulation, which complement tariff and trade strategies. Vought is a known hawk.

Including Trump, there are eight members of his core policy decision committee; equally divided among policy hawks and doves (less hawkish). But Musk and most other corporate donors/leaders coupled with some of the influential Republican leaders and most of the general public are not supporting huge tariffs or import duties on US imports of merchandise goods (both consumer and industrial).

Trump is targeting trade deals with 90 countries in 90 days; is it possible?

In brief, both Wall Street and Main Street are not supporting Trump tariffs of even 10% universal basic rate, which is almost double than earlier average tariffs of 2.5%. And if Chinese goods are taxed (tariffed) at 145% along with various other sectoral Trump tariffs at 25% on steel & aluminum, automobiles & parts, and potentially on electronic items and pharmaceuticals in the future, the weighted average Trump tariffs would be higher than 27.5% vs earlier 2.5% on an average. This will invariably affect the US economy more than China as the US does not produce most of the merchandise goods and also has no adequate industrial and logistical infra to produce those goods of its own; it has to import almost 50% of its requirement of merchandise goods for daily use of Americans (consumer goods) and also industrial usage (raw materials etc).

Without resilient and efficient Chinese supply chain support, the US economy, including ordinary Americans, supermarkets, big and MSMEs industrial or corporate houses may not be able to survive at all.  China does not need US merchandise goods including agri items and has alternative supply source, thE same is nit true for the US; it’s very difficult to find an alternative efficient supply chain like China, which has huge scalability.

Although, China may divert US merchandise goods to other countries theoretically, practically it may also face various trade & geopolitical difficulties in finding various alternative sources of almost $500 billion worth of merchandise goods instead of its biggest customer USA, the largest economy and consumer in the world.

Thus, at the end of the day, after satisfying respective domestic political compulsions, both Trump and Xi may call each other to reconcile rather than engaging in protracted trade retaliations and absurd 125% tariffs on each other. The world’s largest producer China must shake hands with the world’s largest consumer America in the coming days. Trump may soon postpone his Chinese tariffs of 145% to 20% (Fentanyl tax) till at least July 9, 2025, in line with his earlier stance.

Trump wants to negotiate with the rest of the world including China, Vietnam, EU, Japan and India about a fair trade deal by imposing his bellicose reciprocal tariffs from 10% to 50% on most countries, except Russia as Putin is now his best friend and Russia is already under various sanctions. Trump also imposed 145% tariffs on China for its retaliation without heeding his warning not to retaliate.

On April 21, 2025, Trump Truthed/Tweeted:

“NON-TARIFF CHEATING:

1. Currency Manipulation

2. VATs which act as tariffs and export subsidies

3. Dumping Below Cost

4. Export Subsidies and Other Govt. Subsidies

5. Protective Agricultural Standards (e.g., no genetically engineered corn in EU)

6. Protective Technical Standards (Japan’s bowling ball test)

7. Counterfeiting, Piracy, and IP Theft (Over $1 trillion a year)

8. Transshipping to EVADE Tariffs!!!”

Trump wants not only tariff cuts but also local sales taxes and other internal policies and regulations of all other countries. Trump now wants a free & fair trade deal with the rest of the world in the form of universal:

·       0% to 10% global tariffs

·       0% local sales & other taxes (GST/VAT etc)

·       No state subsidy for exports and other activities directly/indirectly promoted dumping

·       No targeted regulation on agri/farm items and automobiles

·       No currency manipulation and devaluation strategy for export advantage

·       No IP theft and counterfeiting (targeting China)

·       No transshipping (like Chinese export proxy Mexico, Vietnam, etc)

In brief, rather than a plain & simple tariff deal, Trump wants to change the internal system of a country, and virtually the rest of the world. Trump also wants to abolish income taxes in the US and virtually in the rest of the world and to rely public revenue only on tariffs, and that too be paid by exporters, not importers (as during 1920s!).

But this may not be possible for other countries to abandon local sales taxes, income taxes completely and rely on only tariffs even if paid by importers. Trump can’t dictate and is forced to change the internal policies of other countries. But most of the other countries including India, Japan and also China are open for further deregulation and liberalization of trade & tariff policies in favor of Trump’s call for free & fair access of US merchandise goods in rest of the world. All countries do provide subsidies for export and agri sectors including the US.

The US/Trump needs higher revenue to cover surging public/social welfare spending and interest expenses on the huge public debt of over $42 trillion (including state debts of around $6 trillion). Trump is cutting income taxes on Americans and businesses on one hand, while imposing tariffs taxes on another hand. The US HAS NO Federal sales tax on goods & services; some states have.

Trump could have levied 5% or 10% GST/VAT on all goods & services directly on Americans and another 5% to 10% tariffs on all US merchandise imports with provision to anti-dumping import duties. This dual approach of GSTs and tariffs (5% + 5%) might be more appropriate for Trump to ‘Make America Great Again’ rather than his disruptive reciprocal tariffs policies to ‘Make America Worst Further’.

Trump could have demanded level playing tariffs of universal 5% to 10% by all countries along with similar VAT/GST including the US ensuring proper deregulation for the free & fare global trade policy including the issue of state subsidies. But Trump can’t negotiate with different 90 countries in 90 days for such a free & fair trade deal to be signed individually in line with US geopolitical and other policy priorities. There is a need to convene a G20 or global trade summit to resolve these issues.

On April 23, 2025, the White House Press Secretary Leavitt said:

·       There will be a fair trade deal with China. There will be no unilateral reduction in China's tariff

·       It's up to President Trump what the China tariff rate will be

·       Leavitt asked about China: Have some patience, you'll see

·       Leavitt on Ukraine, Russia negotiations: Both sides need to walk away a little unhappy

·       Zelenskyy seems to be moving in the wrong direction

China's Foreign Ministry said on Trump's comment regarding the trade deal with China:

·       The US can't say it wants to reach an agreement with China, and on the other hand, keeps exerting extreme pressure

·       China is maintaining communication with all parties on tariff issues

·       China's action plan will reduce trade costs

·       China's action plan is to better strengthen the financial sector

·       China supports Iran’s nuclear talks with the US

Chinese embassy in the US posts statement from an official saying: “Our doors are open, if the US wants to talk. If a negotiated solution is truly what the U.S. wants, it should stop threatening and blackmailing China and seek dialogue based on equality, respect, and mutual benefit. To keep asking for a deal while exerting extreme pressure is not the right way to deal with China and simply will not work.”

Conclusions: The US and China may soon cut retaliatory tariffs on each other to start Trade Deal 2.0

China believes in protocol-based diplomacy and trade talks, especially after Trump trade & Cold War 1.0. Trump basically humiliated Chinese President Xi despite the proactive outreach to meet Trump first by Xi. Trump tarnished the image of Xi by prompting to arrest Huawei CEO’s daughter in Canada for Iran sanction violation related ‘crime’ despite engaging trade negotiations with Xi at the G20 event. Thus Xi is now cautious and exploiting Trump trade war tantrum 2.0 as an Golden opportunity to strengthen bilateral trade relations with other countries including EU.

In Trump trade war 2.0, China holds a definitive strategic advantage due to its supply chain leverage, export diversification, and Xi’s domestic political buffer, which allow it to weather tariffs better than the U.S., where both Wall Street and Main Street are capitulating amid the plunge in the market and increasing public protest as Americans face immediate cost hikes.

Trump will gradually soften his hawkish China tariff narrative as he may be now realizing the reality that the US is still far away from becoming a viable alternative for the Chinese manufacturing hub; it’s not only the question of China’s relatively cheaper labor force, but China's extensive supply chain, infrastructure, and skilled workforce in supporting high tech industry. And China’s labor cost is now no longer cheap as China is also now a developed country at least urban China.

Also, the US is far behind in terms of China’s manufacturing and logistical infra. Apart from ordinary American consumers, various big US corporations and also MSMEs are largely dependent on China's supply chain for their requirements; it’s not easy to make the US or any other country a viable alternative to China to match their scale, efficacy, quality, and cost.

China will negotiate with the Trump admin in a mutually respectful environment; will never negotiate at gunpoint. But the question is why there is a requirement for another trade deal with China after a comprehensive trade deal in 2020 and that too after 2 years of marathon negotiations bet, why is there a need for another China trade deal? Trump should propose a 5-10% universal tariff and GST for every country, ensuring free & fair access for all.

Trump often blames the onus of the US merchandise trade deficit on China and other exporter nations including some of US allies. Trump also blamed China, Mexico, and even Canada for illegal drug and human trafficking into the US. But before blaming someone, Trump should have repaired their own house and introspected, why China is outpacing the US in trade, education, innovation, healthcare, infra development, techs, and even military jets.

The US has to reset now to compete with China rather than burning down in jealousy. Trump should also introspect why Americans are increasingly addicted to drugs and crimes. Drug addiction & supply chain is a global issue; no specific country can be blamed for this and it’s a collective responsibility also. Why the US is failing to prevent drug and human smuggling?

Trump needs higher revenue to fund his deficit spending like tax cuts and other planned infra stimulus. Thus he is eager to impose higher tariffs on Americans in the name of China & other exporters. Exporters will stop accepting orders from US importers rather than paying such Trump tariffs at gunpoint. China may even scrap the phase one trade deal with the US and even stop sending goods to the US.

In reality, the US and China are both dependent on each other for prosperity and development. Both the US and China have coexisted for decades in a win-win situation. Despite significant expansion & diversification in global trade, the US is China's number one client at around $500 billion annually.  For the US, China is also the largest market after the EU and many US MNCs are quite dependent on Chinese revenue.

The US may not find an alternative global or local supply chain instead of China and China may also face difficulties in finding a single alternative for America.  However, China is at an advantage due to its strategic expansion of trade globally for the last two decades rather than being too dependent on any single country or trade block like the US and EU. 

Thus we may soon see signs of reconciliations rather than engaging in protracted trade confrontations. Back channel talks may have already started between the US and China, which may take a definitive step towards a phase two trade deal by the next 90 days. China will negotiate from the position of strength, and mutual respect, not US bullying.

Trump Admin and its core advisory team are divided between China & tariff hawks and doves. Trump is also under pressure from his corporate donors & active advisors like Musk, various prominent Republican Leaders, and Wall Street along with Main Street. Thus Trump is now showing more compulsion for an immediate trade deal with China and blinking first.

America is not a manufacturing power hub; it has to import almost half of its domestic merchandise requirement. Cheaper imported goods help to maintain the overall lower cost of living and the Goldilocks nature of the US economy. If Trump's tariffs are implemented at face value, American families are -with estimates suggesting an average $1,300-$4000 increase per year for a person to a small typical family of three. This would be very difficult for a typical middle-class American family most of which live paycheck to paycheck.

Although Trump's logic about higher tariffs and targeted regulation on certain other countries is right, it does not apply to China, especially after the 2020 Phase One China trade deal. The US political and policy uncertainty is now a big headache for the rest of the world and also US investors.

Trump could have introduced Federal sales tax on goods & services like 10% GST or VAT along with a minimum basic universal tariffs of 5-10% globally coupled with no targeted non-tariff barriers by all countries. But this may not be the case and it's almost impossible to negotiate with 100-odd countries worldwide for a definitive bilateral trade deal within this short period of 90 days.

Thus eventually, Trump may scale back his reciprocal tariffs completely and may impose only a 5-10% universal basic tariff for all including China for the sake of the US economy. At the same time, Trump may provide fresh income tax cuts for American workers and businesses to undo the tariff damage on the US economy.

Trump will use reciprocal tariff threats on various countries like India to reduce its exorbitantly high tariffs and very stringent regulations against free & fair trade. India or even the US can't encourage inefficiencies by promoting higher tariffs and non-tariff barriers. Higher tariffs and local sales taxes cause higher cost of living and distort price stability. And without price stability, no economy can function properly as we have seen in the case of Tariff & GST King India.

Bottom line: The US and China are dependent on each other

Trump’s overall tone indicates back-channel negotiations between the two largest economies in the world, controlling almost 45% of global nominal GDP. The US and China may soon officially reach out to each other to resolve this trade issue. Trump may soon announce a 90-day pause for Chinese tariffs also, keeping only the 20% Fentanyl tariffs for the time being, which may be reduced to universal basic levels of 10% by the next few weeks after China takes some ‘bold steps’ in addressing the US concern of Fentanyl production & trafficking.

Trump and Xi both will move after satisfying their respective domestic political compulsion. Like Trump 1.0, Trump 2.0 now also wants to change China, but it’s not possible. After all, China is also the largest customer of the US after the EU. Thus Trump is blinking first and China is also signaling for negotiation rather than protracted meaningless trade retaliation. Trump will first cut tariffs on China and China will also follow suit within an hour as backdoor negotiation may be going on for a face-saving exit for Trump and Xi both.

Market impact: Wall Street surged, but eased slightly on hopes & hypes of Trump trade deal progress with China

On Wednesday, Wall Street Futures stumbled from China trade deal optimism after Trump admin said no unilateral tariff cuts on China. Earlier it surged on fading concern of Powell removal by Trump and a report that Trump is actively considering retaliatory tariff cuts on China to start trade negotiation. The S&P 500 rose 2% and the Nasdaq 100 rose 2.5%, while the Dow was 500 points higher.

On Wednesday, Wall Street was boosted by techs, consumer discretionary, communication services, banks & financials, healthcare, utilities, real estate, and materials, while dragged by energy and consumer staples. Dow Jones was boosted by Boeing, Amazon, NVIDIA, American Express, Salesforce and Apple, while dragged by J&J, P&G, Verizon, Travelers, Coca-Cola, Honeywell and Chevron. Tesla soared after CEO Elon Musk pledged to "significantly" scale back his government involvement amid criticism that he has neglected Tesla. The company posted disappointing Q1 results, with automotive revenue down 20% from a year earlier. Boeing zoomed after reporting a smaller-than-expected adjusted loss per share.

Gold slips on progress of US-China trade deal talks and fading concern of Powell removal by Trump. Oil slips on progress of Iran nuclear deal with the US and as OPEC may hike production again in May.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 40700) now has to sustain over 40100 for a further rally towards 41300/42300-43300/44600, and even 45200 in the coming days; otherwise sustaining below 40000, DJ-30 may again fall to 39700/38600-38000/37700-37300/37000 in the coming days.

Similarly, NQ-100 Future (19000) has to sustain over 19300 for a further rally to 196000/20000-20900/21400 and even 22000-22400 in the coming days; otherwise, sustaining below 19250, NQ-100 may again fall to 18600/18000-17600/16400 and 16200-15800 in the coming days.

Also, technically Gold (CMP: 3240) has to sustain over 3265-3275 for a further rally to 3305/3335*-3355/3375*-3400/3425, and even 3450/3505*-3525/3555 in the coming days; otherwise sustaining below 3255-3245, Gold may again fall to 3180/3130-3065/2990 and 2960/2900*-2800/2750 in the coming days.