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June 9, 2025 – This week the focus will be on trade negotiations with China and the progress getting the Big Beautiful Bill on the President’s desk. The former is likely to be complicated and slow moving, but any movement in the right direction should keep investors happy. As for the legislation, it will be inflationary and worrisome long-term if one focuses on future debt service requirements. But this market has heard wolf cried too often to care until either interest rates spike higher or the dollar comes under renewed attack.

//  by Tower Bridge Advisors

If the Trump Presidency can be summed up in one word, perhaps that word is transactional. Every step is viewed as a transaction, not just monetary. But there is always a winner and a loser. Win-win isn’t normally in his playbook. Obviously, the Presidency is multi-faceted. And because of that fact, often various steps can be in conflict with each other. A simple example is the Ukraine war. In dollar and cents terms, Trump wants to either spend less or have Ukraine or its allies finance our support. But dollars and cents don’t address the implications to the world order of a truce, stalemate or ongoing war.

Last week, I talked about the need to focus on economic items of strategic importance. Keeping technological superiority. Not being beholden to China for rare earth materials key to the production of motors and everything powered by them, especially automobiles. Maintaining leadership in pharmaceutical research. Being energy self-sufficient. And, of course, keeping our military superiority. But, as noted last week and punctuated by steps taken or threatened over the past seven days, tariffs and export controls get in the way. Last week’s talk between Trump and Xi set the process in motion. Over the past couple of months, tariffs on Chinese goods of 30-145% have been threatened. But tariffs alone won’t be on the table this week or in future discussions. Two weeks ago, when Nvidia# reported earnings, it noted that export bans on chips to China would cut forecasted 2026 revenues of close to $50 billion. If you want to improve balance of payments, preventing your top manufacturer of semiconductors to withhold sales to China of that amount is clearly counterproductive. While a case can be made to withhold the most sophisticated and powerful chips, a total ban contradicts any strategy to elevate U.S. technological leadership.

Nor is the notion of banning all Chinese students from obtaining visas to matriculate at our universities. Putting Trump’s spat with Harvard aside, why would you want many of the world’s smartest minds to learn and work somewhere else? Studies show that over 80% of Chinese who obtain PhDs in the U.S. in science and/or engineering stay in this country at least 5 years after they graduate. Over three quarters of AI firms funded in the last decade have immigrant founders.

Thus, when China and the U.S. begin discussions, it won’t be simply about an agreed level of tariffs. Among the topics to be discussed are:

1. Fentanyl – This comes up every time as justification for higher tariffs. Not to mitigate the fentanyl issue, but other than getting China to take certain steps to stem the flow to the U.S., it will be hard to put what our administration wants into transactional terms. It’s an important issue but hardly the key one.
2. Rare Earths – China is not only the leading producer of rare earths but totally dominates their processing. It is critical that the U.S. find alternative sources and develop a domestic ability to process them. But that will take years. Thus, this is one trump card in China’s favor
3. Intellectual Property theft – This is important but less critical over time. China files as many patents as we do. Yes, it reverse engineers a lot of American products. But that doesn’t mean it straight up copies everything we create. As China builds upon its own long-term plan to achieve dominance in critical industries similar to what we should be doing, copying what we make will become less and less important.
4. Dumping – China produces more than any other country. We buy more than anyone else. That’s why there is a big balance of payments deficit in the first place. China also subsidizes key industries. We can and maybe should be using the tax code. China would produce more if it could dump excess production on the world at or below cost. We need to build and enforce barriers. Tariffs are an important tool. This is clearly a trump card in our favor.
5. Export controls – When we prohibit American companies from selling into China, we may provide some protection to our leadership in the long run. But look at the situation in reverse. Putting 50% tariffs on steel and aluminum imports will give U.S. manufacturers a competitive advantage. But the gap exists because our plants aren’t modern or cost efficient. It means, even if American consumers of aluminum and steel could steer more orders to American manufacturers, the costs will be higher. Ditto trying to force Apple to assemble all iPhones here. Even if one could find the facilities and workers to do the work, the costs to Apple# and consumers would be prohibitively higher. When we put export bans on chips, what we do, besides creating lost sales for the American companies, is strip the Chinese companies of their toughest competition. If Chinese chips were hypothetically 50% less efficient than the American counterpart, that deficiency could be offset by incorporating 3x the number of chips into a device. Cumbersome? Yes. Requires more power? Yes. But China is building its electrical capacity at 3x the rate of the U.S. In other words, we can create roadblocks but Chinese creativity will create workarounds.
6. Barriers to U.S. companies working in China – These have to be broken down.
7. TikTok – Trump wants to keep it alive. Given his feud with Musk and the limited audience of his own Truth Social platform, he needs TikTok to reach broader audiences, especially if X is less available.
Thus, we can see that these trade negotiations are multi-faceted and very complicated.

With all that said, the stock market marches forward. It certainly isn’t because the world’s problems, economic or otherwise have been resolved. The wars in Ukraine and the Middle East are no closer to resolution today than they were six months ago. Tariff uncertainty has left managements in a state of confusion freezing many capital spending plans. Overall numbers don’t show much change yet largely because of the immense amount of money being spent on data centers and expenditures needed to support explosive AI growth. On the positive side, consumers are still spending, employment is still solid, and both profits and GDP are still rising. 10-year Treasury yields have remained in a 4-5% range for two years. Right now, they are smack in the middle of the range. While the dollar’s value fell sharply before and immediately after Liberation Day, it has held steady for the past two months. Hot IPOs are starting to ignite speculative fever, and bitcoin stays near all-time highs. The rise in speculative fever can be concerning but it isn’t quite at a crescendo level yet.

While a march to all-time highs could continue (we aren’t very far away), stocks aren’t cheap and markets seem to slough off the warning signs related to an expanding deficit. Trump never worried about rising deficits in his first term and he has always believed in leverage and the use of debt. Conservative hawks will undoubtedly extract an ounce of flesh from the House big beautiful bill that the Senate now inherits but they are unlikely to derail it. Trump wants to sign it by July 4. That may prove aggressive. But if Congress dilly dallies too long, it may be forced to deal with the debt ceiling separately, something neither party wants to do. Nor does full expiration of the 2017 tax cuts make sense either. So, something will pass and it is unlikely to be far different than the core package sent from the House to the Senate.

The obvious question is whether adding $20-25 trillion to our national debt over the next decade will make a difference. The answer is clearly yes. How that evidences itself (e.g. higher interest rates; escalating inflation, etc.) is an open question. Rising inflation would result in higher asset prices, and a devalued currency. It would likely extend the bifurcation between rich and poor (who don’t own a home or a stock portfolio). But that’s a topic for another day.

Right now, Wall Street’s clear focus will be on how the Big Beautiful Bill gets across the finish line as well as the progress, if any, in trade negotiations with China. Wall Street wants to hear friendly words on both issues this week. If it does, the rally continues, at least in the short-run.

Today, Natalie Portman is 44. Johnny Depp is 62. Michael J. Fox turns 64.

Thus, tariffs will be only a small

James M. Meyer, CFA 610-260-2220

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « June 5, 2025 – The Old Faithful Geyser in Yellowstone National Park erupts regularly, but not on an exact schedule. Considering the most recent 100 eruptions, the average time between eruptions ranged from 55 minutes to over 2 hours. Likewise, inflation and employment data can cause ebbs and flows in the bond market, creating volatility for investors. Economic data are currently coming in mixed, mostly related to changing tariff policy. Meanwhile, equity markets are slightly positive so far this year, and only off about 3% from all-time highs.

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  • June 9, 2025 – This week the focus will be on trade negotiations with China and the progress getting the Big Beautiful Bill on the President’s desk. The former is likely to be complicated and slow moving, but any movement in the right direction should keep investors happy. As for the legislation, it will be inflationary and worrisome long-term if one focuses on future debt service requirements. But this market has heard wolf cried too often to care until either interest rates spike higher or the dollar comes under renewed attack.
  • June 5, 2025 – The Old Faithful Geyser in Yellowstone National Park erupts regularly, but not on an exact schedule. Considering the most recent 100 eruptions, the average time between eruptions ranged from 55 minutes to over 2 hours. Likewise, inflation and employment data can cause ebbs and flows in the bond market, creating volatility for investors. Economic data are currently coming in mixed, mostly related to changing tariff policy. Meanwhile, equity markets are slightly positive so far this year, and only off about 3% from all-time highs.
  • June 2, 2025 – Just as the Soviets laid down the gauntlet in the 1960s starting the space race, China has caught up to us technologically in many ways and is still gaining ground in others. For the U.S. to maintain its leadership requires coordinated efforts from both the private and public sectors. Trying to erect barriers is not a winning formula. Rather, properly focusing resources to support the most strategic initiatives makes sense.
  • May 30, 2025 – Amidst a volatile market, significant economic risks such as high interest rates and trade policy are creating a tense environment where stock market gains may be capped. Key sectors, like housing, are already showing signs of strain from elevated rates, while the bond market remains turbulent. Therefore, a diversified and defensive investment strategy is recommended, emphasizing fundamental analysis and valuation discipline for stocks while holding high-quality bonds to navigate the expected volatility.
  • May 27, 2025 – The House has passed Trump’s big beautiful bill and moved it on to the Senate. It’s a budget buster that offers something for all but will expand deficits meaningfully. It’s a bit of a mess that can be fixed if the Senate has the backbone to fix it. Wall Street will be watching, especially bond investors.
  • May 22, 2025 – Memorial Day Weekend is typically the unofficial start of summer for many. However, this year has been anything but typical. Corporate earnings have been holding up based on recent company reports and outlooks. Tariffs have dented a few earnings reports, but the consumer continues to spend. Credit spreads are not indicating a recession yet, although interest rates have been on the rise as Congress works on a spending resolution bill. Markets gave back some of their recent gains yesterday but are still only about 5% from their all-time highs. Not quite bear market territory. Anyone traveling this weekend to a national park should remember to bring their bear spray.
  • May 19, 2025 – Stocks have clawed back all their post-Liberation Day losses as the perceived impact of tariffs have lessened. But now comes the hard part. Whatever tariffs are imposed will have economic consequences that we are only just starting to see. The big tax bill as originally proposed is a budget buster. 10-year Treasury yields are now back above 4.5%. With hindsight equity investors overreacted after Liberation Day. The subsequent rally may have gone too far as well.
  • May 15, 2025 – Following a big rebound, the S&P 500 is flat YTD but trades at a high valuation of 23x forward earnings. Consumer spending faces headwinds from rising student loan defaults and a cooling housing market. While recession fears have eased, the economy is slowing and inflation trends remain uncertain.
  • May 12, 2025 – China and the United States have agreed to reduce tariff rates on each other by 115% leaving our tariff rate on Chinese goods at 30%. Since shortly after the shock of Liberation Day that sent equity investors into panic mode, there has been a gradual retreat from an overbearing tariff framework outlined that day. Today’s suspension of tariffs, pending further negotiations may not be a final step. But it comes right out of the Trump playbook that shoots for the moon first and then settles into a much more compromised reality later. While tariff negotiations continue not only with China but the rest of the world, investors can now focus on the next leg of the Trump agenda, tax cuts.
  • May 8, 2025 – The Federal Reserve on Wednesday held its key interest rate unchanged in a range between 4.25%-4.5% as it awaits better clarity on trade policy and the direction of the economy. While uncertainty about the economic outlook has increased further, the Fed is taking a wait and see stance toward future monetary policy. Meanwhile, the S&P 500 Index has just about fully recovered its losses following the April 2nd “Liberation Day” when major tariffs were announced on U.S. trading partners. The bounce in risk assets is welcome, but we are still looking for white smoke signals showing that progress on inflation and tariffs is being made.

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