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Biden’s Staggering New Tariffs
The Economy’s Weekly Recap 5/10/24 - 5/17/24
The Economy’s Weekly Recap
5/10/24 - 5/17/24
Raymond Lin
This Week’s Prominent Events
Elizabeth Frantz/Reuters
Biden’s Staggering New Tariffs
Earlier this week, new tariffs were announced on Chinese EVs, semiconductors, batteries, medical equipment, and some natural sources, impacting $18 billion worth of trade. Some examples of these tariffs include…
EV tariffs going from 25% to 100%
Semiconductor tariffs going from 25% to 50%
Lithium-ion EV batteries going from 7.5% to 25%
photovoltaic cells used in solar panels going from 25% to 50%
syringes and needles going from 0% to 50%
This means that imports of these products from China will now have a much higher tax when imported and a higher price to American consumers and companies. However, the tariffs only impact a relatively small range of products and are rolling out over the next 2 years, so it is unlikely to have an immediate impact on the broader economy.
Nevertheless, these tariffs will help dissuade Americans and American companies from using these Chinese products, and its proponents believe this will help American companies compete by supporting American companies in the same industries. In this way, it builds on earlier actions by the government, such as the CHIPS Act, to strengthen American industry and reduce reliance on China.
These new tariffs are just the latest addition to the US-China trade saga of the last decade in which the US has increasingly challenged Chinese companies and prioritized American industry, possibly at the expense of consumers.
Paul Sancya/AP
A Union Failure
Following its victory against the Big 3 US automakers, the United Auto Workers(UAW) labor union announced it would be launching initiatives to expand to other car automakers, which have fewer unionized workers. Recently, a landslide victory in a Volkswagen factory in Chattanooga, Tennessee last month suggested that the UAW’s push towards greater unionization was succeeding.
However, the UAW’s efforts to unionize two Mercedes-Benz factories near Tuscaloosa, Alabama failed this week. Mercedes workers voted 56% to 44% for joining the UAW, due in part to efforts by Mercedes to persuade workers to vote against unionization. Some of these efforts include introducing a new chief executive for the US division of Mercedes who said “Give me a shot”, warnings about membership dues, loss of control, and the economic turmoil it could bring about.
The point about economic turmoil was compounded by local officials, such as Alabama Governor Kay Ivey saying “successful unionization drive will stop this growth in its tracks, to the detriment of American workers”
UAW has claimed that Mercedes engaged in “egregious, illegal behavior”, with its President Shawn Fain saying that Mercedes was being investigating for “intimidation and harassment that they inflicted on their own workers”
With this failure, it's unclear whether the UAW will be unable to maintain its victorious momentum of prior times, but the UAW is determined to continue its drive to unionize more factories.
Squarespace
Squarespace Acquisition
Squarespace, the website development company that competes with the likes of Wix and Shopify, has had a rocky time since going public in 2021. It has undergone considerable revenue growth but has so far struggled with profitability, contributing to the lack of interest in its stock that is around 12% from its IPO price.
In a bid to reverse its fortunes and prioritize efforts to improve its operations, Squarespace announced that it is being taken private by private equity firm Permira in a $6.9 billion all cash deal, a valuation around 30% higher than Squarespace’s valuation prior to the deal.
While the deal may be subject to shareholder voting and regulatory approval, it is expected to not face many hurdles and is expected to be completed in Q4 2024.
Jim Watson/AFP
GameStop Shenanigans
As if it were still 2021, GameStop has been in quite a few headlines this week thanks to a slew of retail investor interest. The impetus for these retail investors was “Roaring Kitty”, an internet user who was lauded for his 2021 predictions surrounding GameStop’s meteoric rise.
After 3 years of inactivity, Roaring Kitty returned to X and posted the meme pictured above last Sunday, sparking fervor in the process. On Monday, when the markets opened, GameStop’s stock rose 75%, with other associated “meme stocks” rising as well. AMC increased 78%. Hertz rose 12% while Reddit jumped 9%.
Despite this surge of activity though, nothing has fundamentally changed about these companies, a fact made evident as the week progressed. By Thursday, it became clear that the rally had fizzled as GameStop’s and AMC’s stock tumbled by 30% and 15.3%. GameStop’s fall was spurred by its decision to sell up to 45 million shares on the market and by its preliminary results showing a poor first quarter, both of which do not inspire confidence in the company’s financial position.
These “meme stocks” remain in much the same position they did a week prior, as both GameStop and AMC remain far removed from their 2021 highs and remain companies with weak performance and poor futures.
Jason Lee/Reuters
China Supports Its Real Estate Market
Real estate, a major driver of China’s economy and of local government revenue, has been suffering in recent years, most evident through the collapse of massive real estate developers like the Evergrande Group or Country Garden.
However, it seems that the Chinese government is now stepping up its actions to actively support its real estate market. Vice Premier and China’s top economic official He Lifeng said that the Chinese central bank would loan $42 billion to commercial banks to fund local state owned enterprises buying unsold apartments and turn them into affordable social housing. This would increase demand and bring increased liquidity to the Chinese real estate sector, bolstering the health of the real estate sector.
Additionally, the Chinese government effectively ended its minimum mortgage rate and decreased the minimum down payment for first time buyers from 20% to just 15%. The minimum down payment for second homes was also lowered from 30% to 25%.
These measures are intended to stem the declining demand for and investment into China’s crucial real estate sector, and the developments of China’s real estate market will be important to watch over the next few years.
Future Events
Eric Thayer/Bloomberg
April’s Inflation Report
On Wednesday, the Bureau of Labor Statistics released its monthly report on inflation, and this month’s report was more positive than the last few months of 2024. While 2024 has mostly seen stubborn inflation, April saw slight moderation. Inflation, as measured by the CPI index, increased 0.3% from last month and 3.4% from last April. These figures are lower than March’s figures of 0.4% and 3.5%.
Additionally, Core CPI, which excludes volatile food and energy prices and is the preferred measure of inflation for the Federal reserve, rose just 0.3% from last month and 3.6% from last April. This marks the lowest annual increase in core inflation since 2021, a positive sign for weakening inflation.
However, this is just one month of data, so any expectations of normalcy should be moderated as we await the next few months of inflation data. This will be particularly important to watch due to the effect future inflation data will have on the Federal Reserve's decision to lower interest rates. If inflation continues to decrease, then the Federal Reserve may begin lowering interest rates, which would lower borrowing costs for things like car payments, mortgages, and loans and would increase economic growth.
Jason Lee/Reuters
Effects Of Economic Conflict
As seen through actions like Biden’s tariffs on China, the US and China have begun increasingly competing economically to secure their national security. Whether it be preventing Nvidia from selling its most advanced technology to Chinese customers or requesting ASML stop maintaining Chinese chip production equipment, companies and technology have been caught in the crosshairs of the US-China conflict.
One recent example of this has been Microsoft's offer to hundreds of Chinese employees involved in cloud-computing and AI to consider transferring to places like the U.S., Ireland, Australia and New Zealand. Microsoft has said that it normally does internal transfers, but this worker relocation nonetheless reveals the effects of US-China geopolitical competition as collateral damage is accrued by companies and ordinary people.
OpenAI
ChatGPT-4o’s Launch
Earlier this week, OpenAI unveiled ChatGPT-4o, an improved version of ChatGPT 4 that is able to better intake and respond to images, videos, and audio. In prior versions of ChatGPT, the models for images, videos, audio, etc were separated, leading to longer computing times and higher costs. However, ChatGPT-4o has unified these models, improvising speeds and lowering costs.
As a result, ChatGPT-4o is more conversational and acts more in real time. OpenAI had a demonstration where ChatGPT-4o was able to see a math question and teach how to solve the question instead of just solving it. Another demonstration was ChatGPT-4o’s powerful real time translation capabilities.
However, while impressive, these new additions to ChatGPT-4o are still considered unimpactful. They have augmented the abilities of ChatGPT but not to an especially unique extent, with ChatGPT-4o still having the problems of hallucination, ethics, and lack of human empathy preventing its widespread adoption.
Weekly Question
What record was recently set?
A: The US national debt hit $40 trillion
B: The first company to reach $6 trillion in market capitalization
C: The Dow Jones reached the 40,000 mark
D: GameStop hit a new record valuation, reaching $100 billion in market cap
Julienne Schaer
Answer: C. The Dow Jones Industrial Average, which started in 1896 at 40.94, closed above 40,000 on Friday, marking a new record and showcasing US investors resilience and hope in times of high interest rates and inflation.