Weekly Research Briefing: Madagascar

Of all the countries that expected to be immune to President Trump’s tariffs, Switzerland was at the top of the list.

The tiny Alpine nation, famous for its political neutrality, fine chocolates and precision watches, had eliminated industrial tariffs recently on all imports, including American goods. It has kept the European Union at arm’s length to avoid entanglement in trans-Atlantic trade fights. Swiss companies generate half a million jobs in the United States.

So when Mr. Trump imposed double-digit tariffs on Wednesday, no one was more surprised than the Swiss. Compounding the situation was that no one knew the exact amount: 31 percent or 32 percent. The White House and the U.S. Trade Representative published different numbers, and even the government in Bern was not clear.

“The U.S.A. has relied on its own calculations, which Switzerland cannot comprehend,” Karin Keller-Sutter, the Swiss president, told reporters on Thursday. She said that although Switzerland would not retaliate with tariffs of its own, officials would seek talks with Washington in hopes of bringing the rate down...

Switzerland’s levy is higher than that of the European Union, which was hit with a 20 percent tariff. And Britain is subject to a minimum tariff of 10 percent. That means that a Swiss chocolate bar or medical device exported to the United States would face a duty more than 20 percent higher than similar British-made products, a logic that the Swiss called “incomprehensible.”

“The levy is completely arbitrary, precisely because our tax on imports, including American ones, are zero,” said Jean-Philippe Kohl, the deputy director of Swissmem, which represents 1,400 Swiss technology manufacturers. “Based on this, Donald Trump’s arguments make no sense.”

Switzerland ranks sixth among foreign investors in the United States and first for investments in research and development, mainly because of investments by Swiss pharmaceutical giants including Roche and Novartis. Switzerland’s goods trade surplus with the United States is mainly attributable to exports of chemicals and pharmaceuticals also made in Switzerland and the gold trade. So far, all of those items are exempt from the tariffs, although Mr. Trump has been saying for weeks that he may yet include pharmaceuticals.

"Likewise to all of the foreign presidents, prime ministers, kings, queens, ambassadors & everyone else who will soon be calling to ask for exemptions from these tariffs, I say terminate your own tariffs, drop your barriers.." — President Donald Trump

Dimon: "There are many uncertainties surrounding the new tariff policy: the potential retaliatory actions, including on services, by other countries, the effect on confidence, the impact on investments & capital flows, the effect on corporate profits & the possible effect on the U.S. dollar"

@johnauthers: "The US services sector could be a problem, as the focus on goods trade obscures the fact that the US enjoys a big surplus in services. If EU companies eschew US firms, Americans have much to lose."

“A Minecraft Movie” opened to an estimated $301 million worldwide, delivering a much-needed hit to Hollywood after a dismal start to the year at the box office.

The Warner Bros. Discovery movie based on a Microsoft videogame grossed $157 million in the U.S. and Canada, the strongest domestic opening of the year and the biggest since Marvel’s “Deadpool & Wolverine” last July. “Minecraft” pulled in another $144 million overseas.

The adaptation of the globally popular videogame topped expectations and is the latest proof that well-known intellectual property makes it much easier to draw audiences to theaters.

BERLIN, April 7 - Volkswagen's Audi is holding its cars which arrived after April 2, when Donald Trump announced a 25% tariff on autos imports, in U.S. ports, it said on Monday, as companies scramble to work out how they will be affected by the duties.

The Volkswagen brand has around 37,000 vehicles, sufficient for approximately two months of sales, in its U.S. inventory, the spokesperson added.

April 4 - Howmet Aerospace which supplies parts for planes built by Airbus and Boeing may halt some shipments if they are impacted by tariffs announced by U.S. President Donald Trump, according to a letter seen by Reuters.

Pittsburgh-based Howmet said in the letter to customers that it has declared a force majeure event, a legal practice that allows parties to a contract to avoid their obligations if hit by unavoidable and unpredictable external circumstances.

"Howmet will be excused from supplying any products or services that are impacted by this declared national emergency and/or the tariff executive order," Howmet wrote in the letter...

Howmet is a supplier of critical metal components used across the $150 billion jetliner industry.

Nintendo will not take preorders for its new game console next week, the company said Friday, as it evaluates the impact of President Donald Trump's new, far-reaching tariffs.

The Japanese electronics giant had been set to accept Switch 2 advance orders in the United States on Wednesday, but that's now been pulled off the table — though Nintendo insisted that its June 5 launch date "is unchanged."

"Pre-orders for Nintendo Switch 2 in the U.S. will not start April 9, 2025 in order to assess the potential impact of tariffs and evolving market conditions," according to a company statement. "Nintendo will update timing at a later date. "

The company just revealed details of the hotly anticipated Switch 2 two days ago, saying it would sell for $449.99. That same day, Trump revealed he would hit Japanese imports with a 24% tariff. Nintendo also has strong manufacturing ties to Vietnam, which was hit with a 46% tariff.

"This is the biggest change in the environment that I've seen probably in my career. You know, we’ve gone from free trade and world trade and globalization to this system, which implies significant restrictions on trade in every direction and a step toward isolation for the United States... I believe that the last 80 years since World War Two have been the best economic period in the history of mankind. And one of the major reasons was the growth of trade." (Oaktree Capital Co-Chairman Howard Marks)

BofA Hartnett: DeepSeek + DOGE + Liberation Day…new secular bear market in US$ + end of US equity market leadership.

‬‪Why do economists worry so much about the economic impact associated with tariffs?

Putting this out there so there is some clarity on why most economist worry about tariffs, which are at best a blunt tool, to cure what ails us. When used to cure so many problems at once, beware of law of unintended consequences.

A top 10 list:
1) Regressive
2) Stoke uncertainty
3) Higher inflation
4) Higher job losses than job creation
5) Spurs bureaucratic waste
6) Undermines productivity growth
7) Poor revenue generators
8) Reduces competitiveness of exports
9) Much worse at removing trade barriers across our trading partners than trade pacts
10) Stokes nationalism or worse

@bespokeinvest: Trump tariffs hit Technology and Energy stocks the hardest last week, with the average Energy stock falling 19.7% and the average Tech stock down 14.4% in the two days after Liberation Day (4/2).

@RenMacLLC: Stocks are not the economy, but they are not, not the economy either. Stocks often take on the role of an "active informant," predicting investment because they provide business managers with useful information about the future. Price often leads data.

Just how much do Americans want to pay for Italian cheese?

Tariffs on the Parmigiano Reggiano cheese that Americans grate over their pasta will boost the price of the Northern Italian specialty to around $59 a kilogram, up from $50, according to Consorzio Parmigiano Reggiano, a trade organization.

Italy is part of the European Union, which faces a 20% so-called reciprocal tariff.

Trump’s tariff announcement threw a wrench into factory builders’ plans—and complicates a years long government effort to reinvigorate U.S. manufacturing. Companies are double-checking the numbers on planned factories, or halting them altogether.

Tariff-swollen building costs helped to kill a $300 million plastics recycling plant in Erie, Pa., that had been in the works for four years. International Recycling Group, helmed by CEO Mitch Hecht, said Thursday it was canceling the factory partly because new duties on material and imported machinery had created “expectations of substantially higher project development costs than anticipated.”

The company said the plant, which had been expected to generate 200 jobs, was also hampered by delays in securing a $182 million loan guarantee the federal government conditionally granted last year...

After Trump announced tariffs on steel and aluminum in February, construction firm Skanska estimated that the cost of metal panels, metal studs and structural steel would rise around 20% to 30% over the next year. Plumbing equipment prices could rise as much as 10% and drywall as much as 20%, alongside higher costs for electrical gear such as generators, HVAC equipment, roofing products and insulation. The new tariffs could add to the increases.

Tom Park, who runs Skanska’s supply-chain strategy, said that while some products compliant with the U.S.-Mexico-Canada Agreement will be exempt from the latest tariffs, even equipment manufactured in the U.S. often relies on imported parts.

An industrial chiller produced in a U.S. factory might contain wire from China, steel from Canada, pipes from India, harnesses and fan coils from Mexico, motors from Germany, copper from Peru and electronics from Korea—which could be subject to an array of tariffs, according to Skanska.

Over the medium to longer term, Trump’s tariff and trade policy will likely accelerate the move to diversify supply chains, emphasize regionalization over globalization, and invest in becoming more self-reliant. The trend began in Trump’s first term and was kicked into higher gear amid the supply-chain disruptions of Covid 19 and Russia’s attack on Ukraine.

But given the uncertainty and increasing costs of inputs, companies may rethink where they allocate long-term capital. “These tariffs plus associated uncertainties provide more incentives to build around the U.S., not in the U.S.,” says Mary Lovely, who focuses on U.S.-China relations at the Peterson Institute of International Economics.

Ironically, the uncertainties and “everything, everywhere” approach to tariffs could give China an edge, as countries where companies tried to diversify to—such as Vietnam and Thailand—face hefty tariffs. That could make these countries less desirable alternatives to China, with some companies possibly opting to stay put, given the uncertainty of where policy could head next.

“We will see a strengthening of Chinese trade with Europe, and China acting as the U.S. did post–World War II as the country with some money and ability likely to help the likes of Vietnam, Malaysia and Indonesia as we see a reordering of trade flows,” says Cheryl Smith, an economist at Trillium Asset Management.

‪We now expect real GDP to contract under the weight of the tariffs, and for the full year (4Q/4Q) we now look for real GDP growth of -0.3%, down from 1.3% previously. The recession in economic activity is projected to push the unemployment rate up to 5.3%. Even though we have lifted our full-year core PCE inflation forecast by 1.4%-points to 4.4% we continue to expect a first Fed easing in June. However, we now think the Committee cuts at every meeting through January, bringing the top of the funds rate target range down to 3.0%. We continue to perceive that the risk is tilted toward a later start to resumed easing rather than an earlier start.

‪We are lowering our 2025 Q4/Q4 GDP growth forecast to 0.5% and raising our 12-month recession probability from 35% to 45% following a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed. This baseline forecast still rests on our standing assumption that the effective US tariff rate will rise by 15pp in total, which would now require a large reduction in the tariffs scheduled to take effect on April 9.

If most of the April 9 tariffs do take effect, then the effective tariff rate will rise by an estimated 20pp once those increases and likely sectoral tariffs take effect, even allowing for some country-specific agreements at a later date. If so, we expect to change our forecast to a recession.

@wallstengine: BERNSTEIN DOWNGRADES $GM TO UNDERPERFORM FROM MARKET PERFORM, LOWERS PT TO $35 FROM $50

"It is time to confront some hard truths: vehicle tariffs have commenced, and parts tariffs are likely to follow within a month. Our updated forecast for General Motors shows a reduction of more than 20% in free cash flow and a decrease of over 50% in 2026E adjusted EPS. As tariff pressures intensify and consumer sentiment weakens, we expect GM's shares to remain under pressure, leading us to downgrade the stock to Underperform with a price target of $35.

For the past six months, we've been cautious as U.S. policy uncertainties started to mount. Now, with greater clarity, the outlook for GM is clearly unfavorable. Our revised numbers reflect the impact of tariffs, softening consumer sentiment, and the realization that GM's peak in this cycle may be behind it."

‪@mckonomy.bsky.social‬: Stellantis will temporarily close 5 plants in the US and furlough 900 workers as a result of the Trump administration's new tax on auto imports. So-much-winning.‬‬‬‬

DETROIT—If President Trump’s trade war has a physical battleground, it is Michigan, where companies and workers are already feeling the beginning of an onslaught that could blow a hole in the state’s economy.

Nearly 20% of the economy is tied to the auto industry, which has become increasingly dependent on parts and vehicles from Canada, Mexico and China—imports Trump hit with steep tariffs in recent weeks. This trade has grown so large that Michigan ranks fifth in the nation by the size of its imports and exports, even though its total economy ranks 14th...

One auto executive early last week darkly predicted “Chernobyl” if tariffs broadly hit imported parts, which they’re scheduled to do next month. Industry executives and analysts later said what the administration outlined Wednesday was worse than they expected...

Mary Buchzeiger, CEO of Lucerne International, another local auto supplier, is also talking with customers about her need to raise prices because of the new China tariffs. About 80% of the automotive hinges, brackets and other components Lucerne sells are made in China.

“There is no way we can absorb these tariffs. I don’t have 20% margin to give,” said Buchzeiger, who owns the company, which employs 25 people.

The new 25% tariff on imported aluminum is also scrambling her efforts to build a new factory in the U.S. to forge metal into pistons and other parts. She is trying to land outside funding for the project, and is close to picking a Midwestern site for the plant—ideally in Michigan. But the tariffs are delaying talks because no one is certain about the auto industry’s future, she said.

Some forecasts for the industry are dire. Anderson Economic Group, a Michigan consulting firm, estimates the tariffs will add $2,500 to $12,000 to the price of many new cars, and up to $20,000 for luxury imports. That will push new vehicles further beyond the reach of consumers already struggling with average prices of roughly $48,000.

“This is going to have a dramatic negative effect on car sales in the United States…and there will be production shutdowns,” said Patrick Anderson, the firm’s CEO. “The epicenter for job losses due to these tariffs is somewhere between Detroit, Michigan, and Windsor, Canada.”

The American Soybean Association noted in a statement that soybeans would face a 60 percent tariff in China starting next week, double what was levied in the 2018 trade war. The association estimates that American soybean farmers will lose $5.9 billion annually. Brazilian soybean farmers, who gained greater access to China during the 2018 trade war, will be the beneficiaries, the statement said.

“A.S.A. strongly encourages the administration to swiftly negotiate and address tariff and non-tariff barriers for U.S. agriculture exports,” the organization said.

China imported almost $13 billion worth of soybeans last year, along with more than $1 billion each worth of cotton, sorghum, beef, pork and seafood, according to the U.S.D.A...

China’s retaliatory tariffs, which are supposed to go into effect on Thursday, could be just the beginning of pain for the industry. American farmers already operate on slim margins, and the possibility of other retaliatory tariffs from the European Union and other major trading partners will make finding alternatives to China’s market challenging.

“We will lose more market share in China,” said Ian Sheldon, a professor of agricultural marketing, trade and policy at Ohio State University, “and the potential to divert that elsewhere in the world will be stymied by the fact that the tariffs implemented yesterday were so broad and across so many potential export markets.” He was referring to the global tariffs announced by President Trump on Wednesday.

“Farmers won’t just be losing market share,” Dr. Sheldon added. “Their revenue will fall because commodity prices will fall, and farmers are already facing a margin squeeze right now.”

"The dynamic macro environment has contributed to a more cautious consumer...Consumers are spending less due to increased concerns about inflation and the economy. This is manifesting itself into slower traffic across the industry in the U.S. in quarter 1, which we are experiencing in our business as well." — Lululemon Athletica CEO Calvin R. McDonald

"I think the U.S. consumer is weak... We anticipate that market dynamics in HHC will remain challenging and variable for the remainder of 2025 due to weak consumer demand." — H.B. Fuller CEO Celeste Mastin

"I think that we are in a cycle right now. I mean, you could say that the hesitation by our customers to take on larger projects probably has not been this frozen since the great financial crisis. Housing turnover, I'm not sure could be any lower. And so in that respect, it's fantastic. I'm not sure that conditions could get much worse and yet here we are winning every day." — The Home Depot CFO Richard McPhail

"The fact is, we've been operating in the worst housing market in almost 50 years. For context, in 1978, there were 4.09 million existing homes sold, when the U.S. had a population of 223 million. Contrast that to 2024, where 4.06 million existing homes sold with a population of 341 million, and it illuminates just how depressed the housing market has been this past year." — RH CEO Gary Friedman

"The IP readings across most of our top manufacturing end markets continue to contract and weigh on our performance against the overall index... For now though, there remains hesitancy and caution among our customer base around future production levels due to tariff uncertainty, potentially looming inflation, and sustained high interest rates." — MSC Industrial Direct CEO Erik Gershwind

"I hear it from nearly every client, nearly every leader—nearly every person—I talk to: They’re more anxious about the economy than any time in recent memory. I understand why." — BlackRock CEO Larry Fink

Donald Trump’s “liberation day” tariff blitz has sparked the biggest sell-off in the US junk bond market since 2020, signalling growing angst among investors that an economic slowdown will hit corporate America.

The premium investors demand to hold speculative-rated corporate debt compared to that offered by US government bonds — a proxy for default risk — has shot up by 1 percentage point to 4.45 percentage points since Wednesday, ICE BofA data shows. That is the biggest rise since coronavirus triggered widespread lockdowns in 2020.

The sell-off in corporate bonds since Wednesday, when Trump took US tariffs to their highest level in over a century, highlights investors’ worries that the move will hit economic output and raise unemployment, leaving weaker companies struggling to repay their debts, analysts said.

“Credit is obviously a canary in the coal mine,” said Brian Levitt, global market strategist at Invesco. “Credit tends to go first . . . if the economy’s going to roll over, the odds of a recession pick up and then you’re going to see spreads blow out.”

In a few days’ time, every desirable consumer good will be dramatically more expensive in the United States than on world markets. Flat-screen TVs, athletic shoes, video-game equipment, even household basics such as coffee, toilet paper, and soy sauce—all will soon cost 20, 25, 35 percent more than they cost on world markets...

As angry as Canadians, for example, are with the U.S. government, they have no quarrel with the American people. And what better way to show friendship to Americans in a time of hardship than helping them drive home with a brand-new set of tires or replacement car battery at everyday low prices? On the way home, the cross-border American could enjoy a free-trade chocolate bar at free-trade prices.

A border-town retail explosion could offset some of the economic pain inflicted on Canadian workers laid off thanks to the Trump tariffs. A job selling auto parts may not pay as well as a job making them, but it’s better than nothing. And every additional retail job has the consolation that it strikes a retaliatory blow at the hostile U.S. government that caused the layoffs.

Canada could stimulate the surge in the cross-border retail sector by offering tax relief to American visitors. Canada collects a federal value-added tax of 5 percent; in some provinces, that tax is combined with a local sales tax to make the rate as high as 15 percent. Even after a retail tax, Canadian prices (adjusted for currency) will soon be much lower than U.S. prices. But what if goods were sold tax-free altogether to shoppers who carry a U.S. passport?

Tariff- and tax-free shopping for Americans would stoke a Canadian retail bonanza that would cushion the shock to the rest of the Canadian economy.