We are now in a trade war with China.   A cargo ship named ‘the OOCL Violet‘ is the location of the first casualties. 

According to Bloomberg,  on April 24th dockworkers at the port of Long Beach began to offload the cargo from the Violet.

With many thousands of containers onboard, the Violet was one of the first ships to arrive at a US port subject to the new 145% Trump tariff.   Loaded with cargo estimated at $564 million in value, Bloomberg News estimates about 40% of the goods onboard are subject to the new tariff. That customs bill must be paid by the importer before  US Customs will release the goods. 

The data suggests the US importers of those goods face at least  $417 million in new tariffs.   And that’s on top of all other preexisting fees, duties and tariffs.  Can you imagine the total tariff cost if instead of 40% … 100% of the cargo was subject to the new costs?    While I’m sure this number is inaccurate, a simple ratio analysis suggest that the tariff costs for this one ship would exceed $1 billion.  

Ouch.

 

Welcome to this week’s Steak House Index update.

 

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/

---

Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   But is the US economy expanding or contracting?

Expanding … according the ‘advanced’ reading just released by the BEA, Q3, 2024 GDP grew — in ‘current-dollar‘ terms — at the annual rate of 4.7%.

The ‘real’ growth rate — the number most often touted in the mainstream media — was 2.8%.   In current dollar terms, US annual economic output rose to $29.35 trillion.

According to the IMF, the world’s annual GDP  expanded  to over $105 trillion in 2023.   Further, IMF expects global GDP to reach almost $135 trillion by 2028 — an increase of more than 28% in just 5 years.

America’s GDP remains around 25% of all global GDP.  Collectively, the US, the European Common Market, and China generate about 70% of the global economic output.  These are the 3 big, global players.   They bear close scrutiny.

 

The objective of this blog is singular.

 

It attempts to predict the direction of our GDP ahead of official economic releases.  Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.

---

Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore “fun” items of economic importance.   Hopefully you find the discussion fun, too.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.

---

 

The Blog:

 

The image below, again courtesy of  Bloomberg, does a great job telling the story:

 

 

The Violet left Dalian, China on April 2nd.   On that date, the maximum tariff rate was 20%.   By April 7th, as more cargo was added in Ningbo, China, the rate had increased to 45%.   Additional cargo was added in Shanghai on the 10th of April — and by that time the tariff rate was 145%.    Of course, while all this was going on behind the scenes, the boat was on the water … heading to the US.

The goods on board subject to the highest tariff rate was $117 million of “knitted apparel”.  

 

 

Interesting … “women’s vests destined for Ross Stores.”   Let’s suppose that vest previously sold for $40, it’s very likely Ross might have to increase the price to $60 or $70 just to break even on the increased tariff cost. 

What other products were on the ship and were also impacted by the new tariffs? 

 

 

In almost every case, the new tariffs exceeded the value of the imported product itself.  

When the Violet docked in Long Beach, Peter Navarro was likely gleefully rubbing his hands together, excited by America’s new-found source of income, but his joy will be short lived I’m afraid.   Early indications suggest the bookings for sea containers from China are already down 60% from the prior month.   The Port of LA has already reported a 35% drop in cargo shipments from China.   This is just the beginning, in my opinion.   At this 145% tariff rate, I wouldn’t be surprised to see an 80-90% reduction in China imports over the next month or two.

Let’s go back to last Sunday’s ‘Meet the Press’ moderated by NBC’s Kristen Welker.   On that show, Trump suggested that American children do not need as many toys and that Americans do not need to spend as much money on “junk we don’t need.”   To quote:

 

“I’m just saying they don’t need to have 30 dolls.  They can have three.  They don’t need to have 250 pencils.  They can have five.” Trump said on the show.

 

Interesting comments from a US President, right?   I don’t recall the White House previously offering Christmas shopping advice to the American consumer.  Crazy times indeed.  I’m sure many people will have much to say about these comments.  

However, I’ll restrict mine to this:   America will be enjoying this Christmas season without the usual flood of imports from China. 

Might this change?   Could the US and China reach agreement and detente on this tariff topic?   Sure.   But the longer it takes, the less likely the possibility US and Chinese firms will have the ability to order, produce and ship products for the Christmas sale season.    And even if the ability exists, the desire may not.  

Let’s see if the Steakhouses are feeling the pressure. 

 

 

Nope, not really.   But, of course, Mother’s Day is this coming Sunday.   Presumably, that’s good for a reservation boost at our SHI10 restaurants.    Here’s the longer term chart.  

 

The SHI restaurants here in the OC didn’t get a bump from moms.   Every other market did — save San Francisco and ‘Vegas — but not here in the OC.   That surprises me a bit.   The sizable decline in ‘Vegas expensive eatery reservations, on the other hand, doesn’t surprise me one bit.   Apparently, ‘Vegas is not the place you take mom for Mother’s Day.   🙂

It’s worth mentioning that the FED completed their May FOMC meeting earlier today.   Interest rates were unchanged. 

Finally, in the category of “things could be worse” you could own a home in Boston!   According to a Wall Street Journal article on May 5th, Boston homeowners may be facing an additional $1 billion in property taxes this year.   And next.  Why?   Since the value of many Boston office buildings is down 50% or more — the result of the Covid “work from home” office vacancy — the city plans to make up for the commercial property tax reduction by increasing residential property taxes.   Ouch once again.  Crazy times, folks. 

Are we in a recession?   Is our GDP shrinking?   

Probably not.   Keep a close eye on employment levels — in April the US had 164 million folks gainfully employed.  The unemployment rate is fairly stable, currently 4.2%.    Ignoring this current cycle, the last time the unemployment rate was this low was during the Clinton administration in January of 2001.    How much “income” does 164 million people make?   Well, according to the BEA, in 2024 total compensation was about $14.7 trillion.  

So, again, there’s a lot of noise out there right now.   But all in all, the US economy is probably still on solid footing.   More solid than those poor dolls are feeling, anyway.  They are struggling.  Trump is not a fan.

<:  Terry Liebman  :>