Ready, Set, Negotiate

MONETARY

• In the most recent release of the Fed’s Beige Book, multiple observations were made pertaining to the state of economic growth, labor markets, and inflation⁶
  • Regarding economic growth, survey data indicated that growth was mixed across various reporting reigons⁶
    • (Federal Reserve) “Economic activity was little changed since the previous report, but uncertainty around international trade policy was pervasive across reports. Just five Districts saw slight growth, three Districts noted activity was relatively unchanged, and the remaining four Districts reported slight to modest declines”⁶
  • Uncertainty regarding tariffs has clouded the outlook as tariff effects remain a mystery⁶
    • (Federal Reserve) “The outlook in several Districts worsened considerably as economic uncertainty, particularly surrounding tariffs, rose”⁶
  • The labor market remains solid with some degree of ‘pause’ happening as business uncertainty ramps up due to tariffs. Government headcount dropping⁶
    • (Federal Reserve) “Employment was little changed to up slightly in most Districts, with one District reporting a modest increase, four reporting a slight increase, four reporting no change, and three reporting a slight decline. This is a slight deterioration from the previous report with a few more Districts reporting declines. Hiring was generally slower for consumer-facing firms than for business-to-business firms. The most notable declines in headcount were in government roles or roles at organizations receiving government funding.”⁶
    • (Federal Reserve) “Several Districts reported that firms were taking a wait-and-see approach to employment, pausing or slowing hiring until there is more clarity on economic conditions”⁶
  • On inflation, qualitative assessments of tariff related inflation have diverged from economic data. Surveys of individuals report more present inflation effects from tariffs than what is actually showing up in formal data releases
    • (Federal Reserve) “Most Districts noted that firms expected elevated input cost growth resulting from tariffs. Many firms have already received notices from suppliers that costs would be increasing. Firms reported adding tariff surcharges or shortening pricing horizons to account for uncertain trade policy.”⁶
    • (Federal Reserve) “Most businesses expected to pass through additional costs to customers. However, there were reports about margin compression amid increased costs, as demand remained tepid in some sectors, especially for consumer-facing firms”⁶

 

GEOPOLITICS

• President Trump signs an executive order partially relaxing some of the previously implemented auto-industry tariffs to provide some temporary relief to domestic auto manufacturers¹
  • The new order makes it easier for domestic auto manufacturers to not face prohibitive tariffs when assembling cars in the United States with foreign procured parts¹
    • The amended order provides a rebate for one year of 3.75% relative to the sales prices of a domestically assembled vehicles. That figure was reached by putting the 25% import tax on parts that make up 15% of a vehicle’s sales price. For the second year, the rebate would equal 2.5% of a vehicle’s sales price, as it would apply to a smaller share of the vehicle’s parts¹
  • A senior Commerce Department official said automakers would announce additional shifts for workers, new hires and plans for new facilities over the next month. This executive order primarily serves as a temporary bridge to auto manufacturers while they work to adjust supply chains¹
    • (Jim Farley – CEO Ford) “As the right policies are put in place, it will be important for the major vehicle importers to match Ford’s commitment to building in America. If every company that sells vehicles in the U.S. matched Ford’s American manufacturing ratio, 4 million more vehicles would be assembled in America each year.”¹
• Post-Liberation Day announcement, trade negotiations have taken place between the U.S. and many major countries. See below for a breakdown of country-specific developments regarding trade talk developments²
  • India
    • Treasury Secretary Scott Bessent stated that it is likely India is the first major trading partner that will come to a formal agreement with the U.S., as talks have progressed substantially. Specific negotiation details are not yet know, however public optimism has been expressed pertaining to the confidence each side has in being able to strike a deal²
      • (Bessent) “I would guess that India would be one of the first trade deals we would sign”²
  • European Union
    • EU Economy Commissioner Valdis Dombrovskis stated that a negotiated trade solution between the EU and the Unted States is the preferred route³
      • (Dombrovskis) “Our first preference is clearly to come to the negotiated solution with the U.S.,”³
      • (Dombrovskis) “But at the same time, we have also fully indicated that if negotiations are not coming to solutions, we have also agreed to come with counter-tariffs.”³
  • Japan
    • Japan’s chief tariff negotiator Ryosei Akazawa said a second round of talks with the United States over its higher duties will be held this week in Washington⁴
    • S. stated that it has a desire for more U.S.-grown crops such as rice, beef and potatoes to be exported into Japan⁴
    • Japan is also weighing up cooperation in enhancing the United States’ shipbuilding capabilities⁴
  • United Kingdom
    • K. Finance Minister Rachel Reeves expressed optimism over the prospects of a trade deal, but reiterated that the U.K. is not looking to reduce its non-tariff trade barriers ahead of her meeting with U.S. Treasury Secretary Scott Bessent⁵
      • (Reeves) “We’re not going to rush a deal. We want to get the right deal that’s in our national interest and those talks are ongoing”⁵
      • (Reeves) “”I think that there is a deal to be done both on tariffs and also a wider deal beyond the immediate issue of tariffs around technology, a technology partnership building on the national security and defense partnership,”⁵
  • South Korea
    • Treasury Secretary Scott Bessent stated that progress has been made in trade talks with South Korea
      • (Bessent) “I have mentioned that the negotiations with the Republic of Korea have gone very well”²
    • A senior South Korean government official ruled out that Seoul would agree to a trade package with Washington by the time the country holds a presidential election on June 3, and flagged challenges to reaching a deal even before early July²

[See Below for Disclosures & Annotations]

 

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. “Trump offers automakers some relief on his 25% tariffs, after worries they could hurt US factories”. April 29, 2025
2. “One of first US trade deals may be with India, Treasury’s Bessent says”. April 28, 2025
3. “EU’s Dombrovskis says EU prefers negotiated solution on trade with US”. April 23, 2025
4. Kyodo News. “Japan to hold 2nd round of tariff talks with U.S. on Thurs.”. April 30, 2025
5. “UK won’t rush to reach trade deal with U.S., finance minister Reeves says”. April 23, 2025
6. Federal Reserve. “Beige Book”. April 21, 2025