May 13, 2025 · 30 min · 12 segments
With some kind of tariff equilibrium possibly within reach, we return to some regularly scheduled programming: artificial intelligence and language models which were the primary drivers of equity…
Michael CembalestHostI've spent a lot of time this year on the intersection between politics and economics and markets.
There was a flurry of executive orders and memorandums and proclamations on tariffs, which was a catalyst for the first Sell America episode since 1982.
Like Blanche Dubois in Street Cart Named Desire, the U.S. relies a lot on the kindness of strangers.
And one of the first charts in this piece shows how much the U.S. is now reliant on foreign versus foreign domestic net savings.
So U.S. is almost entirely reliant on this basis anyway on foreign net savings.
But it looks like for my 62nd birthday, I think that's right, Trump is going to set the China reciprocal tariff rate at 10% like the rest of the country, the rest of the other countries, in which case we've updated our tariff rate on all US imports And it now looks like, if we assume this temporary negotiation holds, that we're approaching an equilibrium state, which is a roughly 10% reciprocal tariff on a bunch of goods, other goods get exempted, and then other goods get subject to Section 232 product-specific tariffs.
The big picture is that you're still looking at the largest tariff increase in, you know, 70 years or so.
But it's a lot lower, roughly half of what it was, let's say, a month and a half ago.
So now that that's happening and we're approaching maybe some kind of steady state that countries and companies can adapt to.
Let's go back to some regularly scheduled programming, which is an update on AI, which was the primary driver of U.S. equity markets before all this trade war stuff began.
And even during all of this trade stuff going on, U.S. companies spent more time on Q1 earnings calls talking about AI adoption than they did about tariffs, which is interesting.
And another thing to keep in mind is that the market capitalization of companies that benefit directly or indirectly from AI is two and a half times larger than the market cap of the U.S. companies that would be the victims of tariffs.
So I think you could make the argument that AI is at least as important as tariffs to equity investors, if not more so.
At the same time, the premium one would pay for AI plays relative to the stock market is back down to the level it last was in 2017.
I've spent a lot of time this year on the intersection between politics and economics and markets.
There was a flurry of executive orders and memorandums and proclamations on tariffs, which was a catalyst for the first Sell America episode since 1982.
Like Blanche Dubois in Street Cart Named Desire, the U.S. relies a lot on the kindness of strangers.
And one of the first charts in this piece shows how much the U.S. is now reliant on foreign versus foreign domestic net savings.
So U.S. is almost entirely reliant on this basis anyway on foreign net savings.
But it looks like for my 62nd birthday, I think that's right, Trump is going to set the China reciprocal tariff rate at 10% like the rest of the country, the rest of the other countries, in which case we've updated our tariff rate on all US imports And it now looks like, if we assume this temporary negotiation holds, that we're approaching an equilibrium state, which is a roughly 10% reciprocal tariff on a bunch of goods, other goods get exempted, and then other goods get subject to Section 232 product-specific tariffs.
The big picture is that you're still looking at the largest tariff increase in, you know, 70 years or so.
But it's a lot lower, roughly half of what it was, let's say, a month and a half ago.
So now that that's happening and we're approaching maybe some kind of steady state that countries and companies can adapt to.
Let's go back to some regularly scheduled programming, which is an update on AI, which was the primary driver of U.S. equity markets before all this trade war stuff began.
And even during all of this trade stuff going on, U.S. companies spent more time on Q1 earnings calls talking about AI adoption than they did about tariffs, which is interesting.
And another thing to keep in mind is that the market capitalization of companies that benefit directly or indirectly from AI is two and a half times larger than the market cap of the U.S. companies that would be the victims of tariffs.
So I think you could make the argument that AI is at least as important as tariffs to equity investors, if not more so.
At the same time, the premium one would pay for AI plays relative to the stock market is back down to the level it last was in 2017.
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