Category: Economy

The world’s largest automaker reports a 21% profit drop as tariffs take a toll
Toyota Motor forecast a 21% profit decline for the current financial year on Thursday, as the strain from US President Donald Trump’s tariffs and an appreciating yen take some of the shine off strong demand for hybrid vehicles.
The world’s top-selling automaker expects operating income to total 3.8 trillion yen ($26 billion) in the year to March 2026, versus 4.8 trillion yen in the financial year that just ended. That was roughly in line with the 4.75 trillion yen average of 25 analysts surveyed by LSEG.
Toyota faces the risk of being hit by widespread fallout from Trump’s tariffs, not only from the impact on its US-bound exports but also because of the potential for a downturn in consumer sentiment in the US and elsewhere. Price rises can lead to a decline in consumer sentiment.
The lower profit for the coming year was due to the negative impact from a stronger yen, as well as higher material prices and the impact of tariffs, Toyota said in a presentation.
Like other global automakers doing business in the world’s top economy, Toyota could face high labor costs and be forced to spend more on investment, if it decides to expand its US production base further.
While Toyota has seen its vehicle sales in China fall less than other Japanese automakers, it has still struggled to halt a sales decline in the world’s biggest auto market amid heavy competition from Chinese brands.
May 11, 2025
The Bank of England has lowered interest rates in response to the threat that tariffs present to global economic growth
The Bank of England has cut its main interest rate by a quarter of a percentage point, citing lower UK inflation.
The move, which had been widely expected, brings the main cost of borrowing in Britain to 4.25%. It is the fourth cut the central bank has made since it started reducing rates in August last year.
The central bank said in a statement that “substantial progress” on reducing inflation over the past two years has allowed it to gradually cut rates.
But it also said that “uncertainty surrounding global trade policies has intensified” since US President Donald Trump’s tariffs have ignited a trade war in recent weeks.
“Prospects for global growth have weakened as a result of this uncertainty and new tariff announcements, although the negative impacts on UK growth and inflation are likely to be smaller,” the central bank said.
Bank officials thought the global trade war was likely to drag on the UK economy, according to the minutes of the bank’s Wednesday policy meeting.
Speaking to reporters Thursday, Bank of England Governor Andrew Bailey said he welcomes reports that the United Kingdom and the United States are set to announce a trade deal later in the day.
“It will help to reduce uncertainty,” he said, adding that the UK is “a very open economy” that is affected by the consequences of Trump’s tariffs and trade policies applied to other countries.
“I hope the UK agreement, if it is indeed announced this afternoon, will be the first of many,” Bailey added.
Last month, he said he was concerned about the potential “growth shock” to the UK from Trump’s tariffs.
In an interview with CNBC, Bailey said the “sheer level of uncertainty” Trump’s trade policy injected into the global economy means that businesses are more likely to hold off making investments and consumers will be less willing to spend.
In April, a closely watched survey of UK businesses already showed a contraction in output. The PMI index based on the survey registered its lowest level since November 2022.
Also in April, the International Monetary Fund downgraded its economic growth forecasts for numerous countries, including the United Kingdom, and joined a chorus of warnings from economists and business leaders about economic damage from US tariffs.
Bailey, in his interview with CNBC, said the higher US tariffs could also lower UK inflation. That would give the Bank of England more room to cut rates if the economy needed a boost.
Bailey cited the potential for goods to be redirected from the United States to Britain. One way this could happen is if the UK sees an influx of low-priced Chinese exports, diverted from the US. More goods on the market mean more competition, which tends to lower prices.
May 10, 2025
Trump announces trade agreement with the United Kingdom, marking his first deal since imposing tariffs
President Donald Trump on Thursday announced a new trade pact with the United Kingdom that he touted as likely just the first of many agreements with countries around the world, as the administration races to mitigate the damage from its global trade war.
Joined in the Oval Office by several of his top advisers and the new British ambassador to Washington, Trump praised the deal and said it would lower trade restrictions for U.S. exporters while bringing the two countries into closer economic alignment.
Commerce Secretary Howard Lutnick and other administration officials said the deal would create $5 billion in economic opportunities for U.S. exports, saying Britain had agreed to step up purchases of ethanol, beef, planes and other products while lowering tariffs and other domestic restrictions. Trump said the 10 percent minimum tariff he applied to all countries would remain in effect on the United Kingdom, but that certain British exports — such as automobiles — would be spared higher tariffs on those products. Jet engines and plane parts will also be subject to reduced tariffs, and the countries will also agree to lower tariffs on steel and aluminum as they work to parry cheap Chinese imports.
“Things are going to move very quickly both ways,” Trump said. “It’s so good for both countries.”
The announcement came as Trump officials face intense pressure to assure investors unnerved by fluctuations in the stock market, driven by uncertainty about U.S. trade policy. In early April, Trump announced tariffs on more than 70 countries worldwide, but he then implemented a 90-day pause to allow for negotiations before they went into effect. That pause provided some relief to investors, and markets have been buoyed by the prospect of deals to lower the import duties. All three stock indexes climbed on the news of the deal with the United Kingdom.
But experts say major headwinds remain. The U.S. currently has more than 145 percent tariffs on China, one of its biggest trading partners, and prospects for a quick resolution appear remote. Treasury Secretary Scott Bessent is expected to travel to Switzerland this weekend for talks with his Chinese counterparts, and experts have said the convulsions from the global trade shock are continuing to ripple through the economy.
Critics have also expressed skepticism of the significance of the “deals” the White House is attempting to negotiate in strikingly little time. Agriculture Secretary Brooke Rollins on Fox Business Thursday morning referred to the deal as one “in concept” and said she would be traveling to Britain soon to hammer out further details.
The White House distributed a three-page fact sheet that included some high-level areas of agreement but few details of how the agreements would work in practice. Free trade agreements can run into the thousands of pages and are usually the product of months or even years of painstaking negotiations among technical experts who fight over regulations around issues such as the precise placement of the brake lights on cars.
Economists say the deal will make little difference to the U.S. economy, with many continuing to forecast a recession later this year. Although lower auto, steel and aluminum tariffs on trade with the U.K. may offer “limited relief” for Americans, those measures are unlikely to make much of a dent as long as the United States’ 10 percent blanket tariff remains in place, said Michael Pearce, deputy chief economist at Oxford Economics.
Total trade between the United States and Britain amounts to less than $150 billion per year.
“The average U.S. tariff is still set to remain in double digits, which will deliver a big hit to real incomes in the U.S. which will cause growth to slow sharply in the second half of the year,” Pearce wrote in an email. “As a result, we are not minded to change our forecasts based on this deal, or likely future deals.”
Still, the agreement marked a major breakthrough for British Prime Minister Keir Starmer, who has tried to stay on Trump’s good side even as the president has infuriated European allies with new tariffs and a tilt toward Russia.
Starmer visited the White House in February armed with charm and a signed invitation to a royal audience with King Charles III, and repeatedly lavished praise on Trump and his top officials in a call he made to the White House during Trump’s announcement. British leaders have long sought to bolster economic ties to the U.S. to make up for the trade losses of their 2020 departure from the European Union. Starmer, the leader of the Labour Party, made the bet he could cross political lines to build a partnership with Trump. (Trump referred to Britain as the U.S.’s “oldest” ally, a claim France might object to.)
“You’ve done what you said you would do,” Peter Mandelson, the British ambassador to the U.S., said while standing beside Trump. “You have been true to your word.”
Trump also said he personally intervened in talks to lower tariffs on British automobile firms such as Rolls-Royce and Bentley, which he called some “very special cars.” “I said yeah let’s help them out with that one,” Trump said. Trump said tariffs should be higher on cars that a larger number of Americans purchase.
Other U.S. trade partners have struggled to gain traction with Trump’s team in recent weeks, noting the disparate views about the purpose of the tariffs among different officials. Come up with an offer that would satisfy Treasury Secretary Scott Bessent, one senior diplomat noted, and it was likely to be a nonstarter for trade adviser Peter Navarro, for instance. A different diplomat said the tone changed about two weeks ago, with the team of U.S. Trade Representative Jamieson Greer taking a clearer lead in the talks and the administration seeming to become more serious about hammering out agreements.
May 9, 2025
Why the Fed Might Keep Interest Rates Steady Until September
More than 20 times during a roughly 45-minute news conference on Wednesday, Jerome H. Powell, the chair of the Federal Reserve, referenced the idea of waiting to see how President Trump’s policies would ripple through the economy before taking any action on interest rates.
Mr. Powell, who spoke after the Fed opted to extend a pause on interest rate cuts, said the central bank had the flexibility to do so because the economy overall was still on solid footing. He also stressed that it was the most prudent decision at a time when there was so much uncertainty about how much tariffs would raise inflation and slow growth.
“It’s really not at all clear what it is we should do,” he told reporters.
Forecasts for when the Fed will restart interest rate cuts have been in a constant state of flux, whipsawing on every twist and turn in the global trade war or on any new data point that sheds a sliver more light on the state of the economy. But what is starting to set in is that the Fed may in fact be on hold for quite a bit longer than initially expected — and far longer than Mr. Trump would like. The president on Thursday again pressed Mr. Powell to lower interest rates, calling him a “fool.”
Economists are increasingly coalescing around September as the most plausible time for the Fed to restart interest rate cuts. Some have penciled in an even later start date. The longer the Fed waits, the higher the odds that officials may have to lower borrowing costs more aggressively to shore up the economy.
“The likelihood of them moving doesn’t really start to increase until you get to the September meeting,” said Tiffany Wilding, an economist at asset manager Pimco. She said a larger-than-usual half-point cut would be firmly on the table at that point and that she expects the Fed to keep lowering rates into the next year.
“I don’t think that using the playbook of 25 basis point increments per meeting for cuts is the right one to use here,” Ms. Wilding said, pointing to the possibility that the economy could weaken abruptly.
Mr. Powell on Wednesday was clear that the current backdrop was not one in which the Fed could be pre-emptive with interest rate cuts — unlike during Mr. Trump’s first-term trade war when inflation was subdued and the economy was at risk of stagnating.
That is primarily because inflation has been running above the central bank’s 2 percent target for four years, but also “because we actually don’t know what the right response to the data will be until we see more data,” Mr. Powell said.
What that means in practice is that the Fed will need to have concrete evidence in hand that the economy is languishing before feeling confident that it can lower interest rates without having to worry about stoking inflation. That could take time to show up.
“In their view, they can’t really make policy on the basis of a forecast,” said Dean Maki, chief economist for Point72, a hedge fund. “Right now, there is just too much uncertainty about where policy is going to go, about how that policy is going to ripple through the economy and about what the timing of that is.”
So far, the data the Fed has points to low layoffs and an overall solid labor market. Spending has slowed but not stalled completely. The question is how long that lasts if consumers have already turned much more downbeat about the outlook, and businesses are seeing early signs of sluggish sales and have begun to retrench.
Mr. Maki is still forecasting a July cut, but said he could envision the Fed pushing that back to September if there are not yet “significant signs” that the labor market is deteriorating. That would include rising unemployment claims and a couple of soft monthly jobs reports.
Traders in federal funds futures markets are still holding out some hope for a downshift in borrowing costs in July, after scaling back their bets for a June move on Wednesday. But there are reasons to think that the data will not have turned decisively enough in time for that.
The Trump administration is working against a July 9 deadline to mint trade deals with countries after pausing more onerous tariffs initially announced in April. On Thursday, it is set to announce its first agreement with the United Kingdom.
Top officials will also meet with their counterparts in China in Geneva, Switzerland this weekend to work toward a deal to reduce the minimum 145 percent tariffs Mr. Trump put in place on imports from the country.
White House officials are also wrangling with lawmakers to pull together a multi-trillion-dollar tax cut package by July 4.
With trade policy particularly fluid, Christopher J. Waller, a Fed governor, acknowledged last month that it was unlikely that “anything dramatic” would happen in the economic data before there was more clarity on that front.
“I don’t think you’re going to see enough happen in the real data in the next couple of months, until you get past July,” he said. The Fed will have only two more job reports in hand by the time it meets at the end of that month in addition to three inflation reports.
Much will depend on how significantly tariffs, which are a tax on imports, stoke inflation. If protectionism leads to persistently higher prices, that would have much more far-reaching consequences for the economy than a one-off spike. A lot will also depend on how consumers respond to the increase.
Ms. Wilding expects the pop in inflation from tariffs to come before any notable rise in the unemployment rate. One theory is that higher prices will cause consumers to cut back on spending, further weighing on companies’ already-strained margins. Layoffs may follow if the downshift is big enough, but they may not be the first way in which businesses try to reduce costs given the acute labor shortages most faced in the aftermath of the pandemic.
Michael Feroli, the chief economist at JPMorgan, expects the labor market to weaken enough by late summer to prompt the Fed to cut in September. Kathy Bostjancic, the chief economist at Nationwide, has also penciled in a cut then, but thinks the Fed will have to go big with a half-point reduction.
Other economists see the Fed on hold for even longer. Deutsche Bank’s team has the first cut coming in December. Larry Meyer, a former Fed governor who is now an economist at research firm LHMeyer, expects no rate cuts until 2026.
“The first thing the Fed has to do is contain inflation expectations in word or deed,” he said. “I think that means not easing this year.”
Market-based measures of inflation expectations, to which the Fed pays closest attention, suggest that inflation will indeed remain contained after jumping this year. Survey-based gauges paint a more worrying picture, a divergence that some economists say is a sign that expectations about future inflation are not as under control as officials would like.
Mr. Powell on Wednesday said there was “no cost” to the Fed waiting for now to make a policy move. The central bank was “well positioned to respond in a timely way to potential economic developments,” he said, suggesting the central bank would quickly adjust course if the circumstances changed. If the Fed saw a “significant deterioration,” Mr. Powell said, in the labor market, it would “look to be able to support that.”
He added one caveat, however: “You’d hope it wasn’t also coming at a time when inflation was getting very bad.”
May 8, 2025
L.A. Finance Gathering Marked by Hope and Anxiety
Beneath the grand chandeliers of the International Ballroom at the Beverly Hilton Hotel, at rooftop bars and at private parties at billionaires’ mansions, there was a mix of emotions among the financial titans gathered in Los Angeles this week.
Many of the thousands of attendees at the Milken Institute Global Conference — a who’s who of finance and corporate America — remained anxious amid volatile markets, continuing trade tensions and deep cuts to the federal government.
“I’m a C.E.O., I talk to a lot of C.E.O.s, and there is nervousness there,” Kamal Bhatia, president and chief executive of Principal Asset Management, said while he sat on the same stage that hosts the Golden Globes.
But there was also a palpable sense of growing optimism after a rocky three-month start to President Trump’s second term: “I’m optimistic about technology, I’m optimistic about the direction of the economy, I’m optimistic about cutting costs,” said Tony Minella, co-founder and president of Eldridge Industries, an asset management firm. “I think there is a lot of excitement in the world right now, and it’s a fantastic time to live.”
The Milken Institute Global Conference was held at the Beverly Hilton Hotel in Los Angeles. (Eric Thayer/Bloomberg)
The mood at the annual West Coast confab echoed the mood in financial markets.
After Mr. Trump’s unexpectedly high tariffs sent stocks tumbling, there has been some relief from the initial panic as the administration has offered concessions and promoted deal talks that it says will lower tariffs.
The S&P 500 dropped almost 20 percent below its peak in February, but it has since rebounded, recovering roughly two-thirds of its losses.
But despite the recovery, uncertainty remains. Skeptics on the sidelines of the conference suggested that some fund managers were simply painting a rosier outlook to avoid spooking the investors in their funds. Others described it as more hope than conviction.
“Nobody, myself included, can say how this is going to end,” said Ron O’Hanley, chairman and chief executive of State Street. “There may be wishful thinking in all that.”
Evan Spiegel, chief executive of Snap, speaking at the Milken Institute. Mayor Karen Bass of Los Angeles, right, and Cinny Kennard, executive director of the Annenberg Foundation, sat beside him. (Patrick T. Fallon/Agence France-Presse/Getty Images)
Scott Bessent, the Treasury secretary, set the tone on Monday morning, as he tried to soothe the financiers’ concerns. He had started his mission the night before, hosting a private dinner for a handful of investors, according to some of the attendees.
Many in the audience on Monday were left hopeful that tariffs would ease as trade deals were made, buffeted by more pro-growth, pro-business policies like tax cuts and deregulation to come later in the year. But there was also an awareness that the reality may still look very different. Business is on hold, corporate deal making is dormant, and the longer that continues, the worse the consequences could be.
With that doubt, many speakers at the conference noted that they were looking more closely at investing in Europe and other parts of the world, diversifying away from the United States’ uncertain future.
Pension funds, university endowments and insurance companies, which have been heavily invested in the United States in recent years, are beginning the slow process of reassessing where they put their money going forward.
Kim Lew, president of the Columbia Investment Management Company, the endowment for Columbia University, noted that while there was good reason so many fund managers became heavily exposed to the U.S. economy, “I think we all wish we had invested in the world more globally.”
Investors souring on U.S. markets fed into another widely discussed concern: the role of the dollar as the world’s reserve currency, and its importance in supporting the government’s $36 trillion of debt.
The corollary of trade deficits is when international investors hold more dollars that have been reinvested in U.S. assets like the government’s debt. If investors begin to back away, either because of tariffs or geopolitics or declining confidence in the stability of the dollar, then the government’s ability to continue financing its debt could be called into question.
“I believe the underlying foundation of the dollar and the Treasury market has been eroding over the last number of years, and we better pay attention to it soon,” said Alan Schwartz, executive chairman of Guggenheim Partners.
Late on Tuesday afternoon, Michael Milken took the stage for a rare keynote speech. Since the conference began in 1998, he has given just two speeches — in 2000 and 2017.
Mr. Milken is widely credited as the father of the high-yield bond market, having devised a way in the 1980s to lend to risky companies that banks and other financial institutions had typically shunned.
In 1990, he pleaded guilty to securities fraud and conspiracy. He served just under two years of a 10-year prison sentence and was barred from the securities industry for life. He was pardoned by Mr. Trump in 2020.
In his keynote speech, Mr. Milken made a case for the American dream and the importance of economic freedom, equality of opportunity, public health and broad access to education.
“One of the things that has differentiated America from almost every other country in the world is that you have a chance to try, and if you fail, you have a chance to try again,” he said. He added that “quite often, people in our own country have forgotten how lives are changed by freedom.”
Immigration — nor the aggressive detention and deportations that are upending immigrant communities in cities like Los Angeles — was not a big focus of the official discussions at the Milken Institute gathering.
But Mr. Milken chose to conclude his own remarks by celebrating immigrants and referring to the words in President Ronald Reagan’s final speech from the White House in 1989.
“When people think about this speech, they often think about it as an ode to our immigrants in this country and how they have come to this country for the hope of a better life, and they renew each of our focus on the importance of freedom,” Mr. Milken said. “And they make significant contributions to us.”
May 8, 2025
While a U.S. trade agreement could boost the U.K. economy, it’s unlikely to be a game-changer
The British government made faster economic growth its No. 1 mission. But efforts to kick-start it have been repeatedly knocked off course by a global economy lurching from one crisis to another.
On Thursday, British officials secured a win. They announced a trade agreement with the United States, which would lower tariffs on British imports of cars, steel and aluminum.
They emphasized that the two countries would continue to work closely together on “economic security.” The deal was not final, and other issues would be discussed in coming weeks.
“We’ve agreed the basis of a historic economic prosperity deal,” said Keir Starmer, the British prime minister, adding that it would protect thousands of jobs.
The agreement, hailed as the first that the Trump administration has reached since imposing higher tariffs on its trading partners, is limited in scope. While it would reduce tariffs on certain British and American goods, a 10 percent tariff would remain on most other British products. Economists have cautioned that a deal was likely to generate only a small boost for Britain, which is still vulnerable to global economic uncertainty.
“A still-uncertain global backdrop will continue to act as a drag on U.K. activity,” said Zara Nokes, an analyst at J.P. Morgan Asset Management.
British officials have been negotiating in Washington for months as they have sought to insulate their country from Mr. Trump’s desire to reshape the global trade order. They also wanted to protect an economy that barely avoided a recession at the end of last year and was on course for a relatively strong recovery later this year.
However, officials failed to secure exemptions last month when Britain was hit with the 10 percent “base line” tariffs that Mr. Trump imposed on America’s trading partners. Britain was also subject to 25 percent tariffs on cars and steel, and its leaders are concerned about threatened tariffs on pharmaceuticals and films, two important exports. Like other countries, Britain slashed its economic growth forecast because of the trade uncertainty.
For Mr. Starmer, the deal has helped vindicate overtures he made to the president (including an invitation from King Charles for a state visit) and might overshadow a setback in local elections last week.
One of key beneficiaries of the agreement is Britain’s auto industry, which was most at risk from high tariffs. The United States is the largest market for British cars, accounting for more than a quarter of Britain’s global car exports. Under Thursday’s agreement, British cars would be subject to a 10 percent tariff, up to a quota of 100,000 cars.
Many are luxury cars, like Jaguars, Aston Martins and Bentleys, that are made with custom details in Britain. These automakers have found it economically prohibitive to shift production to the United States and have paused shipments there. Mr. Starmer announced the deal and spoke to Mr. Trump from a Jaguar Land Rover factory in England, saying he wanted to be there to tell the workers about it.
“We were facing imminent announcements of very difficult news” in the automotive sector, said Jonathan Reynolds, the business and trade secretary.
The agreement would also cut U.S. tariffs on British steel and aluminum to zero. There would be “new reciprocal market access” on beef, though Britain would not lower its food safety standards to allow imported hormone-treated beef.
A trade deal could lift consumer and business sentiment, which has slumped recently. But there are limits to how much it would lift the overall British economy. Although the United States is an important trading partner, trade flows are heavily skewed toward services, which were not affected by higher tariffs. Britain exported 137 billion pounds’ worth of services to the United States last year, compared with £59.3 billion worth of goods.
More than 60 percent of businesses expect U.S. tariffs would have no impact in the next month, according to a recent survey by the Office for National Statistics.
Though Britain and the United States have been in trade negotiations for five years, this agreement is not a full-blown free-trade deal that lowers tariffs across a wide range of goods and increases access to many services, like the pact that Britain and India signed this week.
A bigger prize for Britain would be a closer relationship with the European Union, which represents about half of British trade. Some progress on an E.U. deal is expected this month at a summit in Britain.
Trade uncertainty is also weighing on the Bank of England, which cut interest rates a quarter point to 4.25 percent on Thursday.
British policymakers have cautiously cut rates since last year over concerns about lingering price pressures and a short-term bump in inflation expected this year. But some recently emphasized the risk to economic growth from trade uncertainty, which is expected to dampen business investment and consumer spending.
Policymakers were divided on Thursday’s rate cut. In an unusual split, five members, a majority, voted for the quarter-point cut, two voted to hold and two voted for a larger cut.
Economists have said the greater threat to Britain is the uncertainty that Mr. Trump’s trade policy has created globally, rather than tariffs on Britain. And it would take more than one trade deal with Britain to ease that.
Andrew Bailey, the governor of the Bank of England, said on Thursday, before details were announced, that he welcomed the agreement but added, “I very much hope it’s the first of many.”
“We need many trade deals” between the United States and other countries to address uncertainty, he said. “The U.K. is only a part of that.” He said there must be a closer look at how trade policy was decided and more confidence in the multilateral process.
Britain is vulnerable to external shocks, and its economy would suffer if its trading partners, like the European Union and the United States, fell into recession. But there are also homegrown economic issues holding back businesses, such as a concern that taxes might rise again, after an increase last month.
“The center of the U.K. story is not tariffs; it’s domestic factors,” said Benjamin Caswell, an economist at the National Institute of Economic and Social Research. It downgraded its forecast for Britain’s economic growth to 1.2 percent this year, predicting weak business confidence and higher cost pressures.
The sluggish outlook means the government could be faced with raising taxes or cutting public spending this year.
“Tariffs have engendered a lot of uncertainty, but I don’t think that should take the government off the hook,” Mr. Caswell said.
May 8, 2025
China and Trump’s team are now in talks, and the world’s economy is counting on a successful resolution
US President Donald Trump’s top trade officials will meet with their Chinese counterparts this week to discuss a de-escalation of their increasingly ugly and damaging trade war. The future of the global economy is riding on their success.
The trade talks, the first in-person meeting between Chinese and American officials since the tit-for-tat tariff escalation kicked off in earnest in March, are unlikely to result in a trade deal, Treasury Secretary Scott Bessent said Tuesday. But tariffs have reached such a high level that trade between the two countries has dropped off dramatically. Any thaw in the trade war could be a welcome sign for businesses and consumers in both countries and around the globe.
“The main objective of this meeting is to establish the conditions for a deal to be reached, including by defining what is feasible to be agreed upon and what isn’t,” said Alfredo Montufar-Helu, head of the Conference Board’s China Center. “There might be some quick wins, like a temporal pause of tariffs, which would bring much needed relief to businesses from both countries.”
The United States has placed at least a 145% tariff on most Chinese imports, and China has responded with a 125% tariff on some US imports. The last tariff-free ships — those on the water when the tariffs were announced — have almost all docked, and the first ships with goods that will be subject to tariffs are arriving at the ports.
That means businesses in China and the United States will soon face a difficult decision: pay a tariff that more than doubles the cost of the imported goods, or stop selling them altogether. That means consumers are weeks away from experiencing higher prices and some shortages.
The punishing tariffs have already damaged both economies. The US economy went into reverse in the first quarter, its first contraction in three years, as businesses stockpiled goods in anticipation of Trump’s “Liberation Day” tariffs, which began in the second quarter. Meanwhile, China’s factory activity contracted at its fastest pace in 16 months in April, and the government is expected to inject the economy with more stimulus measures.
Although the China-US trade standoff is by far the most aggressive, Trump has imposed large tariffs on most other countries around the world too: a 10% universal tariff on virtually all goods entering the United States, plus 25% tariffs on steel, aluminum, autos, auto parts and some goods from Mexico and Canada. So the world is watching the talks with anticipation.
Global economists at the International Monetary Fund, OECD and World Bank have all predicted that Trump’s trade war would have disastrous effects on the global economy, slowing growth dramatically in some countries, while reigniting inflation. The United States is expected to be among the hardest-hit economies as other nations, including China, retaliate against it with higher tariffs. Many US economists and large banks predict the United States could enter a recession this year.
A noticeable thaw
Bessent and US Trade Representative Jamieson Greer will both travel to Geneva, Switzerland, where they will meet the Chinese officials, authorities announced Tuesday.
In an interview with Fox News, Bessent Tuesday said the talks represent a first step, but he tried to downplay expectations for a deal.
“My sense is that this will be about de-escalation, not about the big trade deal … but we’ve got to de-escalate before we can move forward,” Bessent said.
Despite ongoing tensions, both countries have signaled for several weeks that the current standoff is unsustainable. Bessent and Trump have both acknowledged the tariffs are too high. In an interview with NBC News last week, Trump said he would lower tariffs on China “at some point.”
China has largely stood firm against Trump, denying his refrains that the countries were in active negotiations — a denial that Bessent concurred with under oath in congressional testimony Tuesday. China shifted its tone slightly last week, saying it was reviewing proposals by the United States to begin trade talks – but it has remained defiant in its criticism of Trump’s trade policies.
“We have also stated many times that China is open to dialogue, but any dialogue must be based on equality, respect, and mutual benefit,” said Lin Jian, spokesman for China’s foreign ministry on Wednesday. “Any form of pressure or coercion is unacceptable to China.”
Although Beijing has been projecting an aura of strength, its economy is starting to take a beating. On Wednesday, the People’s Bank of China, the central bank, said it would cut the amount of cash that banks must keep in reserve by half a percentage point, in an effort to promote economic growth by boosting liquidity. The bank’s governor, Pan Gongsheng, also announced a 0.1-percentage-point reduction to the seven-day reverse repurchase rate, which will result in a cut to an important interest rate that influences mortgages.
Wall Street welcomed the news: Markets rose on reports of the talks. Dow futures were up more than 300 points, or 0.8%. Futures for the broader S&P 500 rose 0.7% and Nasdaq futures were 0.7% higher. Asian markets were modestly higher on Wednesday.
Trade comes to a near-halt
As Chinese authorities frequently say in their statements about Trump’s tariffs: No one wins in a trade war. That has become evident in recent weeks as high tariffs imposed significant damage on both economies and effectively froze trade.
The number of cargo ships headed from China to the United States fell 60% in April, according to Flexport, a logistics and freight forwarding broker. JPMorgan estimates Chinese imports into the United States will plunge by as much as 80% by the second half of the year.
“A 60% decline in containers means 60% less stuff arriving,” Flexport CEO Ryan Petersen told CNN’s Pamela Brown Tuesday. “It’s only a matter of time before they sell through existing inventory, and then you’ll see shortages. And that’s when you see price hikes.”
The Port of Los Angeles had expected 80 ships to arrive in May, but 20% of those have been canceled, its executive director Gene Seroka told CNN Tuesday. Customers have already canceled 13 sailings for June.
“This week, we’re down about 35% compared to the same time last year, and these cargo ships coming in are the first ones to be attached to the tariffs that were levied against China and other locations last month,” Seroka said. “That’s why the cargo volume is so light.”
Despite the increasingly dire warnings and economic turmoil, the two countries remain quite far from a deal. Both sides have dug in, saying they’ll need major concessions at the outset to begin negotiations. Bessent has said it could take two to three years for trade to normalize with China.
So much is riding on the Switzerland talks. Even without a trade deal in hand, the face-to-face discussions are encouraging. With the two countries inflicting so much damage on themselves, they have left very little choice other than to start the thawing process.
“At some point, I’m going to lower them because otherwise you could never do business with them,” Trump said in an interview with NBC’s “Meet the Press with Kristen Welker,” which taped on Friday. “They want to do business very much … their economy is collapsing.”
May 7, 2025
Wall Street predict that tariffs could inflict more damage on a Hollywood already weakened by streaming and social media
Wall Street analysts are sounding alarms that escalating tariffs—particularly on goods imported from China and other key trading partners—could deal a further blow to Hollywood, an industry already destabilized by the dual disruption of streaming economics and social media fragmentation.
In a series of investor notes and earnings calls over the past two weeks, analysts from Morgan Stanley, JPMorgan Chase, and Bank of America warned that tariffs on audiovisual equipment, post-production software, and even branded merchandise could raise costs and compress margins for major studios and streaming platforms. This comes as the entertainment industry grapples with a structural reset following the end of the streaming boom and the dominance of TikTok-style user-generated content.
“Tariffs could be the straw that breaks the back of an industry already under financial duress,” said Jessica Reilly, senior media analyst at JPMorgan. “Hollywood is in the middle of an identity crisis—tariffs only exacerbate its existential threats.”
Tariffs Hit Production Costs and Global Strategy
The Biden administration’s May 2024 trade package included sweeping tariffs on over $380 billion in Chinese imports, including a 25% levy on audiovisual equipment, cameras, and lighting rigs—gear used widely in Hollywood productions and increasingly sourced from Chinese and South Korean manufacturers. Editing software packages and animation tools that rely on offshore support are also affected, with a 15% duty slapped on cloud-based services provided by firms with overseas infrastructure.
Studios, already slimming down production budgets in response to streaming losses, now face higher input costs at a time when the return on content investment is under intense scrutiny.
“When you’re cutting back on original programming and trying to squeeze value from IP libraries, the last thing you need is a 25% jump in equipment and software expenses,” said David Knox, managing partner at media consultancy Horizon Works.
Netflix and Warner Bros. Discovery have both signaled cost pressures in their Q1 2025 earnings calls. Warner Bros. cited “increased friction from global sourcing and regulatory complexity,” while Netflix executives mentioned “material cost inflation tied to international production logistics.”
Streaming Disruption and Social Media Fragmentation
The tariff wave lands as Hollywood’s traditional power centers are being hollowed out. Legacy studios, once flush with cable bundle revenues and global theatrical runs, are now adapting to an environment where streaming returns are slowing and subscriber growth is plateauing.
Meanwhile, platforms like TikTok, YouTube, and Instagram have diverted both audiences and advertisers. Short-form content is rapidly becoming the dominant global viewing format, especially among the under-30 demographic. According to a March 2025 Nielsen report, viewers aged 18–34 now spend 62% of their video time on social or user-generated platforms—up from just 37% in 2020.
“Hollywood used to compete with other studios. Now it’s competing with teenagers with ring lights,” quipped Goldman Sachs entertainment analyst Ray Wu. “And that competition is real—and brutal.”
The rise of AI-generated content, often built on low-cost foreign cloud infrastructure, further complicates Hollywood’s cost model. Tariffs on AI compute and licensing services—many of which are hosted abroad—could raise barriers for studios attempting to modernize workflows or outsource post-production.
Licensing and Merchandise in the Crosshairs
Studios also face headwinds in the lucrative merchandising and licensing sector. The new tariffs include 20% duties on imported toys, apparel, and collectibles—products that make up a key portion of franchise monetization. Disney, Universal, and Paramount rely heavily on Chinese and Southeast Asian manufacturers to produce branded merchandise tied to film and TV franchises.
“If you can’t move product profitably, you’re not just losing margin—you’re undermining the long-tail value of your IP,” noted Stephanie Chan, senior entertainment strategist at BofA Securities.
Retailers are already warning of delayed shipments and price hikes on character merchandise. According to internal Walmart sourcing data leaked last week, tariffs on children’s toys and branded apparel could increase average consumer prices by 12–18% this holiday season.
Wall Street is increasingly skeptical that major studios can absorb these shocks without further restructuring. Disney recently cut 7,000 jobs and announced a $5 billion cost-saving plan. Paramount Global has been exploring asset sales, and Warner Bros. Discovery is reportedly considering a partial spin-off of its streaming unit to shore up its balance sheet.
“Studios once thought they could outspend disruption. But that era is over,” said Ken Rooke, head of media equity research at Wells Fargo. “They’re now being asked to do more with less—and tariffs add another layer of less.”
Some see opportunity in adversity. A few independent producers are pivoting to domestic suppliers or doubling down on animation, which can be done entirely in-house. Others are lobbying for carve-outs or production credits to offset new tariff costs.
Yet the broader message is clear: the industry’s margin for error is shrinking fast. Tariffs—once viewed as marginal trade policy—are now a major financial variable in a global entertainment business struggling to redefine itself.
Hollywood is no stranger to reinvention. But this time, it must reinvent amid a trifecta of threats: a broken streaming model, an algorithm-driven attention economy, and now, rising trade barriers. For Wall Street, the question isn’t whether Hollywood can adapt—it’s whether it can do so fast enough, and profitably.
May 7, 2025
Trump’s proposed tariffs against Hollywood are showing signs of failure
President Trump’s trade war had, until Sunday night, centered on goods — cars, toys, food, clothes, the tangible stuff we put in and out of virtual and physical shopping carts.
But those goods make up less than a quarter of the American economy. The bigger chunk of our economic pie is known as services — think Google, Netflix, Facebook, the plumbing of the internet, banking, insurance. And, yes, Hollywood films, the industry Trump now thinks needs saving with — you guessed it — tariffs!
ICYMI: Trump wrote on Truth Social late Sunday that he was directing the government to “immediately begin the process of instituting a 100% Tariff on any and all Movies coming into our Country that are produced in Foreign Lands.” (Watch out, Hayao Miyazaki — your days of flooding the American market with mystical whimsy and childlike wonderment are over.)
Of course, Hollywood studios (and anyone thinking about it for more than a few seconds) were left scratching their heads over how such a tax would work.
As we’ve come to expect with Trump 2.0, it’s not clear whether the president is serious. Jon Voight, who serves as one of Trump’s Hollywood Ambassadors, said Monday that he met with Trump recently to discuss “certain tax provisions that can help the industry – some provisions that can be extended and others than could be revived or instituted.” But that sounds like mostly incentives, not tariffs. In other words, Voight recommended a carrot and Trump announced a stick.
California Governor Gavin Newsom on Monday appeared to prefer a gentler approach, calling on Trump to work with California to create a $7.5 billion federal tax credit for the movie and television industry. Currently, tax incentives are exclusively the realm of states and municipalities.
“We’ve proven what strong state incentives can do. Now it’s time for a real federal partnership to Make America Film Again,” Newsom said in a post on X “@POTUS, let’s get it done.”
The White House said hours after he posted published that “no final decisions” had been made, and Trump later told reporters he wanted to run the idea by folks in the movie industry.
If he is serious about foreign movie tariffs, though, Trump would be opening a new front in a war he has no real plan to win. And he’d be admitting to the world that his love of tariffs is not, as he’s long claimed, tied to some deep concern about trade imbalances but rather a desire to wield an economic cudgel.
The Goods Place
Perhaps because Trump’s intellectual allegiance to opinions he formed 40-plus years ago is so strong, he may be imagining container ships full of VHS tapes and spools of Kodachrome crossing the oceans when he thinks of the global film industry.
But movies are not goods that travel in and out of ports — they are intellectual property that fall under the “services” economy. To tax a movie like a good, the administration would have to clearly define what a movie’s value is, and determine how much overseas production would classify a project as an “import.” (Plus, some poor writer’s room will have to start working on the next season of Emily in Paris under the new title Emily in Albuquerque.)
The goods/services distinction matters a great deal. Because for all of Trump’s outrage over the fact that America buys more goods from overseas than it sells, the US exports far more services than it imports. (It’s a “services surplus” — the “rural juror” of econ jargon.)
In fact, the US is the biggest exporter of services in the world. That gives our trade partners leverage they could use against us.
“If Trump is serious about tariffs on movies, it’s a very dangerous escalation,” economist Justin Wolfers noted on Bluesky. “We would be extremely vulnerable to any service-based retaliation.”
The good news is, the president may not be serious. In keeping with Trumpian tariff tradition, he announced the import tax with few details in a late-night social media post with the kind of dramatic capitalizations you might associate with a teen group chat (“The Movie Industry in America is DYING a very fast death,” it begins.)
Asked about the tariffs in a press briefing Monday afternoon, Trump was less definitive than he’d been Sunday night, saying: “We’re going to meet with the industry; I want to make sure they’re happy about it.”
Spoiler alert, Mr. President: They’re not happy. Several movie studio and streaming industry executives who spoke with CNN are downright apoplectic, my colleagues Brian Stelter and Jamie Gangel write.
Shares of Netflix, Disney and CNN parent company Warner Bros. Discovery fell on Monday.
To be fair, Trump has hit on a real issue dogging Hollywood known as “runaway production.” For years, foreign cities like Toronto and Dublin have offered large tax breaks to film and television studios. In response, California Governor Gavin Newsom has proposed a massive tax credit to bring back production to Hollywood.
But industry sources told Brian and Jamie the idea of using tariffs “would represent a virtually complete halt of production … But in reality, he has no jurisdiction to do this, and it’s too complex to enforce.”
May 7, 2025
Newsom seeks Trump’s partnership regarding a $7.5 billion Hollywood tax break
California Gov. Gavin Newsom (D) is offering to partner with the Trump administration to create a federal film tax credit program worth at least $7.5 billion to boost domestic film production, his office said late Monday. The proposal came after President Donald Trump set Hollywood on edge by calling for massive tariffs on foreign-made films to address what he described as the “DYING” American film industry.
If the proposal comes together, it would be the largest government tax initiative for the film industry in U.S. history and the first such program at the federal level, a spokesperson for Newsom’s office said.
“America continues to be a film powerhouse, and California is all in to bring more production here,” Newsom said in a statement.
He added that California is “eager to partner with the Trump administration to further strengthen domestic production and Make America Film Again.”
The White House did not immediately respond to a request for comment.
Newsom, a fierce Trump opponent, is making the request at a time when tariffs have upended the global economy and sowed uncertainty across many industries. Newsom sued the Trump administration last month to block the president’s sweeping tariffs, arguing they are causing irreparable harm to California’s economy.
Trump’s call Sunday night for 100 percent tariffs on films produced overseas, in which he described foreign films as a national security threat, puzzled insiders in the highly globalized industry as to its implications. It was not clear how such tariffs would be applied or how they might affect U.S. films shot overseas or involving production abroad, The Post reported.
Andrew deWaard, an assistant professor at the University of California at San Diego who studies the relationship between culture and commerce in the film industry, said the program proposed by Newsom on Monday is “highly unlikely” to go into effect.
“I can’t imagine in such a partisan atmosphere that Trump would want to be seen subsidizing California entertainment workers just as the tariffs are starting to negatively affect U.S. factory workers, farmers, truckers, etc.,” he said in an email.
“I think Newsom is calling Trump’s bluff,” he added. “… If Trump balks, which is likely, then Newsom can say he tried to be bipartisan.”
Newsom’s office described the proposed federal tax credit as a way to bolster American stories, create U.S. jobs and benefit the industry’s behind-the-scenes workers such as set builders and electricians.
The proposal would be modeled after California’s Film and Television Tax Credit Program that Newsom’s office said has generated more than $26 billion in economic activity and supported thousands of jobs across the state since its inception in 2009.
But there is debate over the effectiveness of such film tax credits. In testimony to the state’s Senate Revenue and Taxation Committee this year, Michael Thom, a professor at the University of Southern California who has researched tax incentives for film and television production, said such initiatives “fail to stimulate enough economic activity to justify their substantial cost.”
May 6, 2025