I’ve learned over time to distinguish between “knowing that” and “knowing”. When you are young, you think you know everything, but in reality you “know that” about lots of things. You’ve heard about them, read about them, studied them, been told them. But to know something is to experience it.
In early March of 2020, we all knew that Covid was a risk and could really change things. We knew that because we saw it in the news, the market was plunging, and everyone was talking about it. But we really knew it when we went to a grocery store around March 13th. The shelves were half empty, and we suddenly understood, “oh wow, this is going to affect my family and me.”
We are in another one of those moments now with global trade. We all know what’s happening is going to impact us, but most of us have not felt an immediate effect. First, if you need a refresher, check out this remarkably succinct timeline of US tariff policy changes from the India Times.
Since January 20th, there has been a consistent ratcheting up of tough trade talk and tariffs - with the occasional step back intermingled. As with the onset of Covid, economic indicators have started to blink red with markets at one point down as much as 15 to 20%. Even as of early April, however, this was driven by fear and uncertainty, not yet feedback from the actual economy.
We are now entering phase two, where there are measurable changes in the economy, even if those have not yet impacted most of us. For example, the Asia to North America freight price index - Freighto’s FBX01 - is down nearly 50%. In April, oil prices had their steepest decline in four years. Perhaps more tangibly, many of our companies are seeing decision making on purchases slowed or suspended as potential customers paralyze with uncertainty/fear or experience tangible changes in their own customers’ demand and behavior.
Yet we still only know that this is going to hurt. The final phase will be the Target shopping trip or Amazon browsing session in a month or so when we see stockouts and rising prices. We won’t have to wear masks, but it will still be rough. We will know about tariffs then.
Given the oscillations of the past month, the malicious shadow of the bond market and other pressures being applied to the administration, it is likely that many of the tariffs will ultimately be walked back. There will be plenty of “trade deals” announced, hands shaken and signature pens gifted. With a higher tolerance for pain than we have, however, China may have the perfect opportunity to teach us a lesson. They appear to be the least likely to seek a resolution quickly. China accounts for 13% of our imports. While that doesn’t seem like a huge number, it accounts for large parts of certain categories including electronics, machinery, furniture, toys, and clothing. Almost every American will experience the pain.
In short, things will likely get worse before they get better.
