Shapiro – April 2025 Market Insights

Tariffs: A Price Too High?

Does anybody else feel like months of information pass by in days or even minutes? Before writing the Market Insights, I spend hours researching reliable sources like the Wall Street Journal, Bloomberg and Axios to name a few. All of the sources I choose are well researched and respected. It is important to inform you that by the time you receive this, it may all have drastically changed.

And… it just did as Trump announced late Wednesday a 90 day pause on all tariffs except China.

Trump believes that the world has been taking advantage of the U.S. through their unfair tariffs, and he wants to level the playing field. He is right that plenty of countries engage in unfair trade practices, and that globalization has hurt key parts of the U.S. industrial base.

• China, the world’s second-largest economy, has a long record of trade abuses: IP theft, forced technology transfers, state subsidies and market access restrictions for foreign companies.

• The European Union doesn’t cheat the way China does. But it protects its own economies through generous agricultural subsidies and strict regulatory standards that often double as trade barriers.

On April 2, a day Trump has coined as Liberation Day, his correction for unfair trade was to impose massive and greater than expected tariffs on over 60 countries. The tariffs were scheduled to go into effect on April 9. He believes that tariffs will reduce our trade deficits, protect American jobs, encourage domestic manufacturing, and increase our national security.

Trump has acknowledged privately and publicly that, in the short run, implementation of his plan is going to be disruptive—higher inflation, at least temporarily, and an elevated risk of recession. In early February on social media, Trump said: “Will there be some pain? Yes, maybe (and maybe not!). But we will make America great again, and it will all be worth the price that must be paid.”

Inflation will soon change with the tariffs

• The Consumer Price Index (CPI) for March fell 0.1% for the first time in nearly 5 years. Year over year it increased 2.4%

• Core inflation for March rose only 0.1%. Year over year it was up 2.8%.

• Normally this would be very positive news. Even with the 90 day pause in tariffs on everyone except China, inflation will start showing up in the next 30 days.

• Personal Consumption Expenditures, PCE, the Fed’s preferred inflation measure, was up in March to 0.3% and up 2.5% year over year. Core prices, which exclude the ever volatile food and energy categories were up 0.4% and 2.8% year over year. No matter how you measure the PCE, it is not falling and is above the 2.0% target.

• The Producer Price Index for February was up 0.3%, the same as January.

MANUFACTURING

Early signs of manufacturing cracks before tariffs take effect

The Manufacturing PMI® [ISM] fell into contraction in March to 49 from 50.3 in February. All major indices moved lower. The New Orders Index 45.2% down 2.6%, the Production Index is 48.3%, down 2.4%, the Backlog of Orders Index 44.5% down 2.3% and the Employment Index 44.7% down 2.9%. Prices rose to 69.4%, up 7.0%, and this was not reflected in the Producer Price Index but is another sign of inflation going higher.

• Industrial production for non-auto manufacturing (which we think of as a “core” version of industrial production) increased a healthy 0.3% in February. This core measure has also risen three months in a row and is up at a 6.2% annualized rate over that same period, the fastest three-month pace since the COVID re-opening in 2022.  Another notable gain in this core measure came from the production in high-tech equipment which rose 1.4% in February, likely the result of investment in AI as well as the reshoring of semiconductor production. High-tech manufacturing is up 12.7% in the past year, the fastest pace of any major category. The mining sector was also a source of strength in February, rising 2.8%.  A faster pace of oil and gas production, metal and mineral extraction, and drilling for new wells all contributed. Look for an upward trend in activity in this sector in 2025 as the Trump Administration takes a more aggressive stance with permitting.

• U.S. non-defense capital goods new orders, excluding aircraft, rose a healthy 0.7% in February and were expected to be down 1.0%.

• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, rose 0.9% in February.

• Orders placed for business equipment fell 0.3% for the first time since October last year. This reflects the continuous confusion over tariffs and the direction of the economy.

• New home sales were up slightly in February partially recovering from bad weather and fires. The 30-year mortgage rates have dropped below 7% but housing costs are still high. Existing home sales also rose 4.2%.

• Car and light truck sales jumped almost 13% over January/February as buyers rushed to get ahead of the expected tariffs.

• The NFIB, National Federation of Independent Business, reports that small-business confidence in March fell 3.3 to 97.4, the most since 2022 as owners downgraded their outlook on tariff concerns. This report was prior to the April 2 tariff announcement.

• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across our nine locations and a diverse industrial base. Based on our twelve-month trailing average volumes were up 7%.

CHINA

U.S. worldwide tariffs are a gift to China

China’s economy has suffered since the start of COVID-19 and the lockdown. Four years ago, their real estate market collapsed and continues to be in a crisis and the population is in decline. China has not seriously addressed this situation. The corrective measures put forward so far have had little effect. Their solution has been to export its way out by selling goods to the world at discounted prices.

China continues to rapidly expand manufacturing and technology. This will cause a wave of exports that threatens the rest of the world and there is concern about factory closings around the globe. The other reason this is a problem is that while China is one-third of global manufacturing production, it accounts for only 13 percent of global consumption. This is not sustainable. Look out!

Trump rightfully believes that China has taken advantage of the U.S. China already controls one-third of all global manufacturing (up from 6 percent in 2000). Their cars, robots and phones, to name a few products, are cheaper, faster and smarter than virtually anything on the market. This manufacturing growth has been supercharged by China’s headlong rush to put artificial intelligence into everything it makes. The rise of China as a hypercompetitive trading power, one that heavily subsidizes its own companies, has hollowed out American manufacturing.

The US Congress passed the $280 billion CHIPS Act in 2022. This act provides funds to support the domestic production of semiconductors and authorizes various programs and activities of the federal science agencies. This also created over 115,000 jobs throughout the U.S.

To counteract China’s advantages, Trump slapped a 34% increase in tariffs on China, bringing it to 54%. China retaliated with its own 34% tariffs on the U.S. Trump then raised the tariff to 104%. President Xi said they are prepared to “fight to the end” if Trump imposes further tariffs.

The rest of the world has the same issues. If Trump had just targeted China, the rest of the world and the U.S. would have benefited and been a strong buffer to China’s power. However, by implementing tariffs on all of our friends and trading partners worldwide, we lost that advantage. Our friends are angry and no longer trust the U.S. This creates an awesome opportunity for China to increase its economic and political influence in the world.

China’s official PMI rose to 50.5 from 50. The non-government Caixin also rose to 51.2 from 50.3. Much of this increase is attributed to exports that are being sent early to avoid the new tariffs from Trump. We will see what happens in Q2.

METALS

Tariffs uncertainty

Since Liberation Day on April 2, prime aluminum, copper, and nickel have fallen hard and fast. As of April 8, aluminum is down 5%, copper is down almost 20% and nickel is down 10%. Steel is also down about 5%.

So far, China has put 34% tariffs on scrap going into China, effectively stopping exports there. We are waiting to hear what other countries will do. As long as the USMTA agreement stays in effect, there won’t be tariffs on scrap from Mexico and Canada.

Shapiro has had a long-term hedging policy on aluminum and copper. We keep inventories low which enables us to operate more efficiently and lessen our risk. This also helps me to sleep better.

With a very volatile tariff situation, it is hard to forecast what will happen next. I know that new steel, copper and aluminum prices have already risen in anticipation of the tariffs. Your purchasing teams have their hands full now.

CLOSING

Wall Street’s reaction to the tariffs was to start selling and not stop as of April 8. Many business leaders and Trump supporters are opposed to the size of the tariffs and its implementation.

JPMorgan Chief Executive Officer, Jamie Dimon, said tariff policy issues need to be resolved quickly.” Bill Ackman, an ally of the president, said “the levies are a mistake” and urged Trump to call a 90-day time out which Trump implemented on April 8 while I was writing the Market Insights. Even Elon Musk called for a zero-tariff system between the U.S. and Europe that would effectively create a free-trade zone.

VUCA, my favorite acronym, sums it all up. We are living through Volatility, Uncertainty, Complexity, and Ambiguity. This makes me think there must be a better way.

“If you are in a hole, stop digging.” – Will Rogers

“Life is good. Family and health are precious.” 

Bruce Shapiro

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