The word most used today is uncertainty, as Washington’s actions are unpredictable and have an enormous effect on all the world’s nations. I am writing this letter the day before the official announcement of the tariffs, initially scheduled for April 1st. However, as that day is April Fool’s Day, President Trump said he didn’t want anyone to think it was a joke.
The international crises that were supposed to be resolved in a day are still ongoing. On the one hand, Putin’s intransigence in signing a real ceasefire with Ukraine and Hamas’s refusal to return the hostages brought an end to the attempt at peace in the Middle East. Cracks are already beginning to appear in Hamas’s strength, as there have been many demonstrations against them by the inhabitants of Gaza, including demonstrators shot dead by the terrorists.
United States.
The impact of the tariffs cannot yet be measured, because one day they are called selective taxes, the next they are called compensatory, 25% on all cars, but not on components for cars assembled in the United States, etc., but I hope that tomorrow’s announcement will define the situation a little better. The tariffs are a product of the need to find revenue to compensate for the loss of revenue from the promised tax cuts. Undoubtedly, as prices rise, demand will lower, and less inflationary pressure will occur. Let’s remember that inflation is measured month by month and year by year. The initial impact will be very strong, but there will be no noticeable changes afterward, especially if demand goes down.
President Trump has warned car manufacturers that he expects them not to increase consumer prices. According to industry estimates, the cost increase will be between $9,000 and $14,000 per unit, and manufacturers do not have the margins to absorb that increase, which will definitely make the price more expensive for the buyer. The total market value of public shares is 63 trillion dollars, more or less double the GDP of the United States, and the loss of value so far under the current administration already amounts to 5 trillion dollars, almost 3 times the GDP of Mexico.
Washington is still waiting for Trump’s primary proposal to eliminate many taxes and make many cuts to public spending. The fight between Democrats and Republicans, both in Congress and in the Senate, is expected to be harsh and unpleasant, as the Republican advantage is minimal, and several members of the Republican Party are fiscally conservative and oppose a budget with a very high projected deficit. Trump has already won the first vote on postponing the government shutdown, extending it to September 30th. This was achieved thanks to a group of Democratic senators deciding to delay the crisis. At the same time, it led to many protests within the party, with calls for the resignation of the minority leader. The Democratic Party is in such a bad state that the only two “leaders” who attract crowds are 83-year-old Bernie Sanders and Alejandra Ocacio Cortes, both far-left progressives who do not represent the values of the Democratic majority.
Unemployment in the United States remains stable, with a small increase from 4.0% to 4.1%, although the number of layoffs announced during the month was more than double that of March 2024. The part that doesn’t look good is that consumer confidence has fallen to its lowest level for three months since September 2022. Additionally, in the quarterly reports given by retailers, they warn that sales are falling and that the market does not expect good results in the near future. Homebuilders made similar comments, announcing acceptable results but pessimistic forecasts. A curious fact is that the money of the wealthiest 1% of the American people would be enough to buy 98% of the country’s homes.
Some of the measures announced do not make much sense since charging a 25% tariff on products transported on Chinese ships affects not only the American consumer but also manufacturers in countries with which the United States has no conflict. This is especially true if one considers that China manufactures 34.3% of all the ships in the world and the United States only 0.4%.
Another illogical measure is to impose a 25% tariff on anyone who buys from Venezuela, pushing countries like India to trade with Russia, when the intention was to punish, not reward, the Russians. One positive thing that has emerged in Trump’s first months is the announcement of a lot of foreign investment, such as $1.4 trillion from the Emirates, $1 trillion from Saudi Arabia, billions from car manufacturers, billions in artificial intelligence, and billions in semiconductors. The total announced already exceeds 5 trillion dollars.
In the latest “beige” book, the FED communiqué that explains what leads them to rate decisions, the word uncertainty appears 47 times in multiple areas: China, inflation, and the impact on employment due to the increased cost of components. Curiously, it also mentions for the first time the impact that artificial intelligence may have on unemployment, especially in the best-paid technological positions. The Fed announced that it would cut its bond purchases from $25 billion to $5 billion a month, but it would have to continue issuing a lot of T-Bills to pay the government deficit. The US government debt in foreign hands has changed a lot in recent years, with holdings falling 31%, moving from bonds to T-Bills, fortunately not leaving the United States. The latter is worrying, as it would be much quicker to leave in the event of a deterioration in international relations. The top five international creditors are Japan, which has $1 trillion; China, $759 billion; the United Kingdom, $723 billion; Luxembourg, $479 billion; and the Cayman Islands, $419 billion. Mexico is in 19th place with $103 billion.
One of the most serious problems I see coming is the antagonistic relationship between Trump and the judicial system. The fact that 4th-level judges in towns of 1,000 inhabitants can stop a presidential order sounds ridiculous and makes the president frantic. But this country has grown great because it respected the rule of law and the clear separation of the three branches of government: executive, legislative, and judicial. Many of the achievements of DOGE, the government efficiency department headed by Musk, have been postponed by legal action and will go to the Supreme Court. I hope the court will act impartially based on law and President Trump will accept the decisions, as the alternative would be terrible.
Interesting facts are that the Department of Health costs the government $200 billion a year; that Trump hung the painting of President Polk, the greatest territorial expansionist in the history of the United States, in his office; and finally the virulent reaction against Musk, who has been attacked for the good work he has done to the extent of burning TESLA agencies. The growth forecast for the US economy was reduced by the consensus of the big banks from 2.4% to 1.7% for this year, and inflation forecasts at 2.9% now have a huge variation, from 2.6% to 4.4%.
Mexico
Mexico is waiting for April 2nd, as it may be one of the countries most affected by the tariffs. President Sheinbaum has done her best to tackle the migration problems by putting soldiers on the northern and southern borders and for the fentanyl issue with a few drug busts. This is much more difficult to demonstrate to appease Trump, but I don’t think it will be the deciding factor in whether or not tariffs are applied.
As I do every month, I will analyze Mexico’s positives and negatives.
Positives:
· Sheinbaum’s measured response to Trump’s attacks.
· Many announcements of heavy investment such as Mercado Libre $3.5b, Walmart $1b, and Google $1b among others.
· New real investment from Europe for 700 million dollars
· In the happiness index in all the countries of the world, people in Mexico appear in 9th place.
· February retail sales grew 2.7%, above expectations
· Inflation remained at 3.4%, within the range expected by Banxico
· Tourism increased by 4.6% year-on-year
Negative:
· The country’s growth projections for 2025 have been reduced to 0.6%, and many economists expect an economic contraction of 1%
· Business confidence is at its lowest level in the last 2 years
· Announcements from Volvo and hybrid Honda that they are leaving Mexico
· Fixed investment in 2024 fell 4% when it was projected at 2.8%
· Car production fell 2.8% in February and exports 26.4%
· Worst start to the year in industrial production in the last 4, mainly due to uncertainty over tariffs
· The Chinese automotive company BYD announced that it was postponing the start of construction of a factory in Mexico for fear that its intellectual property would be stolen!
Special mention must be made of the terrible discovery in Teuchitlán of the fields where many peasants who in some way incurred the wrath of the cartels were incinerated. The country has not yet recovered from the Ayotzinapa case when the violence of the drug traffickers is revived. This image of Mexico defeats all efforts to present a progressive, dynamic country with a great future.
Israel
Israel ended the first phase of the ceasefire negotiations with Hamas without obtaining the release of all the hostages. It did not initiate phase 2, restarting the direct attack until the destruction of the terrorist group. The parliament approved the budget for the new fiscal year because otherwise, the government would have fallen, bringing the country to new elections. The budget is 620 billion shekels ($169.1B US), 20% higher than the previous year, and 110 billion for defense (17.75%).
Fitch affirmed the “A” investment grade with a GDP rebound of 3% in 2025 and 3.6% in 2026 after 0.9% in 2024. Moody’s commented that it was maintaining the negative outlook on Israel’s rating due to its high exposure to geopolitical risks, a polarized political system, an unresolved situation in the judicial system, and the resumption of fighting in Gaza.
Rest of the World
Speaking of other countries, the possible solution to the Panama Canal problem seems to be in doubt, as the Chinese government does not want to allow Li Ka, the owner of Hutchinson, to close the deal with the American buyers of the ports at both ends of the canal. The Chinese economy had a deficit of 4% of its GDP, the highest since 1994, and this year, it will be just as high due to all the incentives the government is using to counteract the impact of US tariffs. China is going through a period of deflation, -0.7% for consumers and -2.2% for producer prices, which are very damaging for promoting domestic investment.
Brazil’s budget passed by Lula exempts the poor from paying taxes and charges the rich much more, a classic formula for disinvestment. Brazil is the only industrial country that continues to raise interest rates as it is losing the war against inflation.
In Argentina, Milei is doing well, having reduced inflation to 2% per month and finally achieving positive growth and an imminent settlement with the IMF. However, the president took two steps backwards, introducing a failed cryptocurrency, resulting in many investor losses. In addition, his imposition of Judge Lijo on the Supreme Court, after having been rejected by those who made the selection and using his presidential power to put a dishonest individual with a long negative history.
The stock markets had a terrible month due to the uncertainty we discussed. Bonds made moderate progress as a refuge against uncertainty, and currencies remained quite volatile but without major changes from month to month. It is worth mentioning that the yield on corporate bonds over government bonds has compressed a lot, especially the so-called junk bonds, as there are fewer and fewer issues of these riskier credits, which prefer to turn to private debt markets rather than public ones. Bitcoin closed the month at $82,600, and gold reached an all-time high of $3,156.00 /oz.
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