"Stagflation is like being forced to treat two opposing diseases with the same medicine."
Economic Outlook Dives Just Three Months Into Trump’s Term. Probability of a recession leapt while growth outlook slumped, survey of economists finds - Wall Street Journal
What Apple Has at Stake in China -Wall Street Journal
The US Economic numbers are pointing to a slowdown. JP Morgan’s Economists put the odds of a US recession at 50%. Inflation is expected to rise due to the impact of the general tariffs imposed by the US. The combination of the two trends is stagflation – a terrible combination, last seen in earnest in the US in the 1970s. A Wall Street Journal articles looked at how Economic forecasters are slashing their growth forecasts just three months into Trump’s second term.
Economic Outlook Dives Just Three Months Into Trump’s Term
Probability of a recession leapt while growth outlook slumped, survey of economists finds - Wall Street Journal
What a difference three months makes.
Since President Trump took office, economists have dramatically slashed estimates for growth while raising them for inflation and unemployment.
The main reason, according to respondents to The Wall Street Journal’s quarterly survey of economists: tariffs.
When the Journal last surveyed economists, from Jan. 10 to 14, they were unsure about many aspects of Trump’s policies, including tariffs, immigration restrictions and tax cuts. But they had to weigh that uncertainty against an economy that had consistently outperformed expectations.
The shift in economists’ outlook reflects that Trump is pushing his trade policies further than almost anyone imagined three months ago.
The survey gathered responses from April 4 to 8. That was after Trump announced a baseline duty of 10% on imports and larger, “reciprocal” tariffs on countries on April 2, which the president dubbed Liberation Day. The responses predate Trump’s announcement on April 9 of a 90-day suspension in the reciprocal tariffs while retaining the 10% baseline tariff and ratcheting duties up to 145% on China, which has retaliated, and a subsequent exemption for electronic products from China tariffs.
Economists expect U.S. gross domestic product after inflation to expand just 0.8% in the fourth quarter from a year earlier, according to the survey’s average estimate. That is down from a forecast of 2% GDP growth in January. If accurate, it would make this year the economy’s worst since 2020, when the coronavirus pandemic caused a brief but deep downturn. Economists expect 1.8% GDP growth in 2026.
They also increased their estimated probability of recession in the next 12 months to 45%, up from 22% in January.
“We’re dancing with recession,” said Joseph Davis, chief economist at Vanguard.
Stocks have sold off and bond yields have risen since April 2 in response to the trade war. The University of Michigan said Friday that its survey of consumer sentiment plunged to one of the lowest readings in a decade and that household inflation expectations reached their highest since the early 1980s.
Forecasting the economy always involves a fair amount of guesswork. The last time the Journal’s survey showed economists putting this high a probability on recession—during much of 2022 and 2023—they were dead wrong.
But uncertainty is especially high in the current moment because of Trump’s on-again, off-again approach to tariffs, which aim to rapidly reconfigure complex global supply chains that have been decades in the making.
No one—including, apparently, Trump himself—knows the final outcome. Top aides including Treasury Secretary Scott Bessent have for months reassured Wall Street that tariffs are intended to give the U.S. leverage in negotiations with trading partners. Trump himself suggested his tariffs weren’t going to change before pausing the tariffs on Wednesday and then telling reporters Thursday that higher tariffs could come back if trade deals aren’t reached.
The economists’ estimates for 2025 GDP growth spanned an unusually wide range.
Amy Crews Cutts projected a 2% contraction based on plummeting consumer and business sentiment and evidence from her clients that tariffs are already causing supply-chain problems. But James F. Smith of EconForecaster is forecasting 3.1% growth on the assumption Trump will quickly roll back any tariffs because they are “so outrageous.”
“It’s looking like brilliant diplomacy,” Smith said. “In the short run, I’d be very surprised to learn that most of the companies with critical supply chains don’t have big inventories in warehouses around the U.S.”
Overall, economists projected the average U.S. tariff rate will rise about 19 percentage points in 2025. In January, they had assumed a 10-point increase. The average effective tariff last year was around 2.4%, according to the Tax Foundation.
Economists expect Trump’s new levies to subtract 1.2 percentage points from 2025 GDP growth and add 1.1 percentage points to inflation.
The forecast for 2026 remained little changed at 2.6%, suggesting tariffs are expected to cause a one-off rise in the price level rather than sustained inflation.
In the past two recessions, the Federal Reserve slashed interest rates to near zero. But because most economists and policymakers expect Trump’s tariffs to push up prices—at least in the short run—the prospects for Fed rate cuts are clouded.
Economists also raised their average forecast for the year-end unemployment rate to 4.7% from 4.3% in January, then falling to 4.6% by the end of 2026.
Economists have been whiplashed by the big swings in tariff policy in recent weeks. Upon seeing the “reciprocal” tariffs take effect on April 9, economists at Goldman Sachs raised their estimated recession probability to 65% from 45% and slashed their GDP forecast—only to revert to previous projections after Trump announced the 90-day pause.
The president, the Journal has reported, has privately acknowledged that tariffs could trigger a recession but has said he didn’t want to cause a depression.
Like tit-for-tat trade wars, though, recessions can evolve unpredictably, with feedback mechanisms that exacerbate the deteriorations in sentiment, spending, hiring and investment. That is why policymakers will typically spare no effort to avoid them.
“It’s hard to get people’s confidence back,” Cutts said.
What Apple Has at Stake in China -Wall Street Journal
Apple is the most valuable company in the world. It has spent decades building up a complex supply network In China. However, its products are mainly manufactured in China and therefore face a very heavy tariff on goods sold in the USA. In the article below, the WSJ has tried to describe what Apple has at stake in China
The iPhone-maker just received some reprieve from tariffs, but is still heavily reliant on the Chinese manufacturing economy it helped build
Planes filled with iPhones have been leaving the Chennai airport in southern India for months, a last-ditch effort by Apple to delay a tariff calamity.
When President Trump last week ignited a trade war, it was clear that Apple could be hit hardest. And for more than a week, it looked like time was running out for the world’s largest company.
Then, late Friday night, the company got some reprieve when the White House exempted iPhones, computers and other electronics from its reciprocal tariffs. Trump had targeted China, where Apple overwhelmingly makes its devices, slapping the world’s second-largest economy with 54% tariffs that swelled to 145% amid tit-for-tat retaliation.
The lower figure threatened to cut deeply into Apple’s big profit margin from China-made devices sold in the U.S. The higher figure could have obliterated it. It is unclear how long that relief might last.
Apple shares are down about 11% since Trump’s April 2 tariff announcement.
Like Nike and other top American brands, Apple became a globalization pioneer working with China. A young executive named Tim Cook recognized the potential of the country’s low-cost, hungry workforce. He built a supply-chain colossus there and became Apple’s chief executive along the way.
More than one million workers churn out cutting-edge devices on a tight schedule. Their work is one of the strongest economic ties between the world’s two superpowers—one in which Apple is essentially one of the largest indirect employers, the other where it delivers the device most essential to daily life.
Cook has deftly played politics in both countries to protect his creation, making strategic investments in China to buy goodwill and working out a tariff exemption during Trump’s first term.
Friday’s exemption could spare Americans from paying more for iPhones, iPads and Macs. It also protects Apple’s substantial profit margins.
Still, it may be a temporary solution to what appears to be a more lasting rift between the U.S. and China.
Apple’s Chinese supply chain is so large and intricate, it can’t be moved easily. The company is studying how it could move some iPhone production to the U.S., according to a person familiar with the matter, but doing so will likely take years.
Diversifying final assembly of its products to other low-cost countries, including India and Vietnam, could help Apple dodge some of the impact of any China tariffs, but it can’t offset its dependence on the U.S.’s primary global rival, where many of the key parts inside the device will continue to be made.
Cook has said it would be difficult for Apple to make iPhones in the U.S. There isn’t enough labour, skilled and unskilled. If there was, it would be too expensive. A fully American iPhone could cost $3,500, Wedbush Securities suggested.
“It took China 40 years to build a complex manufacturing supply chain,” said Doug Guthrie, a professor at Arizona State University who previously worked on organizational development for Apple in China. “We used to have that. It’s a disaster that we let it go.”
One reason Apple is so closely tied to China’s electronics supply chain is that the company helped build it. It began working with Chinese suppliers more than two decades ago, and increased production there in 2004 as a new hit product, the iPod, was taking off. It had help from a friendly government, and Apple in turn trained suppliers to meet its exacting standards.
‘iPhone City’
In time Apple helped build an ecosystem of more than 1,000 suppliers in China. The iPhone maker taught them how to operate more efficiently, so they competed with one another, driving down Apple’s costs, said Guthrie. Apple manufacturing partner Foxconn built a compound so large in Zhengzhou that it is known as “iPhone City.”
Combining low costs with premium-price devices means Apple’s share of profits for all smartphone production globally can top 80%, even when its share of device shipments is below 20%, according to Counterpoint Research.
Other countries don’t offer the same promise as a manufacturing hub, Guthrie found when he studied alternatives for Apple. India has lots of workers, but bureaucracy can make it more difficult to move quickly. Apple suppliers in India have focused on two southern Indian states that have more streamlined processes. Apple supplier Foxconn has its main India factories near Chennai. Indian officials hoped the new tariffs on China would help the country take on more of the Apple supply chain beyond final assembly. But such an effort would take years.
When Stephan Kruger worked in Apple’s supply chain from 2014 to 2018, he saw firsthand the advantages of Chinese production.
At one point he helped suppliers spin up production of the iPhone’s “taptic engine”—the part that simulates clicks, vibrations and other tactile feedback.
In the early part of the year he worked with suppliers to get machines in place, test them and refine the production process so that Apple was ready to boost production later in the summer, ahead of its annual September iPhone event.
No step in the process could be matched in the U.S. It required skilled labourers on the front end who could set up machines to stamp out the metal parts. Those workers also train the low-skilled workers in the production process.
Cook and China
“The U.S., over time, began to stop having as many vocational kind of skills,” Cook told CBS’s “60 Minutes” in 2015. “You can take every tool and die maker in the United States and probably put them in a room that we’re currently sitting in. In China, you would have to have multiple football fields.”
But it is also the low-skilled workers whom Apple needs. In China there isn’t only a massive supply of them available, but under the country’s mobile labor system, they work for only a few months. This army deploys to help Apple increase production volumes ahead of the U.S. holiday season, and then retreats when volumes fall, limiting Apple’s costs.
Not long after Cook succeeded Steve Jobs at Apple’s helm, some criticized the low-key Alabama native for his inability to follow up Jobs’s iPhone with a blockbuster of his own. The assumption was that the iPhone’s growth would slow.
Few appreciated how Cook’s supply-chain genius matched Jobs’s product genius. Cook wrapped the blockbuster with ancillary products and services, and delivered huge revenue growth.
Last year, Apple sold 233 million iPhones, up from 93 million the year Cook became CEO, according to IDC. In December the company’s market capitalization peaked at nearly $4 trillion, and it has been the world’s largest company by that metric for most of the past decade.
Cook has saved his supply chain from political threats before.
In China, Apple has made strategic investments including in research-and-development centers to curry favor with government officials. It was also able to continue production in China despite the country’s strict Covid-era lockdowns.
"We call a tariff a protective measure. It does protect; it protects the consumer very well against one thing. It protects the consumer against low prices." -- Milton Friedman
As the chart below from Bianco Research shows, US tariffs are substantially higher than the post-war era. This data indicates are the highest since 1933.
15/04/2025
What I read Today about Tomorrow.