Modern Tariffs Could Revive Economy

FINANCE
Modern Tariffs Could Revive Economy

The U.S. economy today differs significantly from the one impacted by 1930s tariffs, finance professor Michael Pettis argues. In a Foreign Affairs column, Pettis suggests tariffs could raise employment, wages, and living standards under current conditions. Unlike the Great Depression era, when excess savings and low consumption made tariffs harmful, today’s economy faces excessively high consumption and reduced domestic manufacturing.

Pettis explains that modern tariffs, if well-implemented, could redirect demand toward domestic production, boosting GDP, jobs, and wages. However, he cautions against overreliance on tariffs, emphasizing they are just one tool among many to address economic imbalances.

While President-elect Donald Trump promotes tariffs as a solution, economists warn of inflation and potential harm to growth. Pettis counters that tariffs should target systemic issues like declining manufacturing and excess consumption, ensuring they support long-term economic stability rather than serve as a quick fix.

FINANCE
Global Investments Propel U.S. Dominance

The U.S. dollar is expected to remain strong in 2025 as global investors continue pouring money into booming American stocks, says Societe Generale’s chief foreign exchange strategist, Kit Juckes. A higher neutral interest rate in the U.S. compared to Europe supports the dollar's strength, with fewer Federal Reserve rate cuts and solid economic performance adding upward pressure.

While the U.S. economy thrives, Europe faces faltering growth, aggressive ECB rate cuts, and China rolls out easing measures. Juckes notes that politics, particularly Trump’s pro-tariff stance and trade deals, could disrupt this dynamic, potentially impacting global growth and weighing on the dollar.

Ruchir Sharma of Rockefeller International calls the U.S. stock market a “mother of all bubbles,” attracting foreign capital at unprecedented levels. Allianz advisor Mohamed El-Erian predicts this trend will further solidify U.S. dominance in the global system, creating both opportunities and challenges worldwide.

TECH
Tesla Battles Rising Chinese Competition

Tesla achieved record sales in China in 2024, delivering over 657,000 cars, an 8.8% increase from the previous year. However, its market share dropped from 7.8% in 2023 to 6% in 2024, as domestic competitors like BYD and Li Auto surged ahead. Analysts highlight Tesla’s limited product lineup and aging models compared to innovative offerings from Chinese automakers, which now include advanced features like driver-assist systems and plug-in hybrids.

Aggressive price cuts, including discounts on the Model Y and Model 3, aim to combat a growing price war. Despite these challenges, Tesla remains resilient, likened to “the Apple of cars” by AutoForecast Solutions. However, trade barriers, intensified local competition, and reliance on a fully electric portfolio pose challenges for maintaining leadership in China’s evolving EV market. As domestic players expand, Tesla must innovate and adapt to retain its competitive edge in 2025.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.