by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an added US concession in the tariff war between Washington and Beijing, which will likely help de-escalate tensions between the two sides. We next review several other international and US developments that could affect the financial markets today, including an incendiary accusation by Poland that Russia was responsible for an arson fire last year that destroyed Warsaw’s biggest shopping mall (pun intended) and new signs that US lawmakers will gut many green-tech tax incentives, including for buying electric vehicles.

United States-China: After yesterday’s market euphoria over the news that the US and China had agreed to temporarily slash most of their tariffs on each other, the Trump administration last night clarified that it would also cut the US “de minimis” tariff on low-value parcels from China. Applied to packages with a retail value below $800, the de minimis tariff will now be cut to 54% from 120%. An optional $100 payment will be unchanged, rather than rising to $200. The move marks a further de-escalation in the US-China tariff war.

• The clarification will benefit Chinese retailers offering cheap goods directly to US consumers, such as Shein and Temu.
• Importantly, some low-end US retailers could also benefit, as they often rely on small shipments from China that qualify as de minimis parcels.

Russia-United States-Ukraine: President Trump yesterday told reporters that he might attend the planned Russia-Ukraine peace talks scheduled for Thursday in Turkey. The idea was quickly endorsed by Ukrainian President Zelensky, but we have seen no official response from Russian President Putin so far. Indeed, it’s still unclear whether Putin plans to attend. In any case, if Trump is serious about attending, it could set the stage for a potentially volatile, unpredictable meeting, which in itself could discourage Putin from participating.

Russia-Poland: Nearly a year after the largest shopping center in Warsaw burned to the ground, Polish Prime Minister Tusk said it is now confirmed that the fire was set by saboteurs working for the Russian intelligence services. The incident marks the latest instance of Russian destabilization efforts in the European Union. Those actions are likely to keep EU countries focused on rebuilding their militaries, which in turn will likely keep boosting EU defense firms and their stock prices.

Germany: Showing the extent to which populist nationalism and far-right authoritarianism have progressed in some Western democracies, the German government today banned the separatist organization “Kingdom of Germany” and confiscated its assets. Kingdom of Germany members have their own nominal king, reject Germany’s democratic institutions, and claim to rule a small enclave of about 2.4 acres near Wittenberg.

• Berlin’s move against Kingdom of Germany comes just days after it also declared the populist Alternative for Germany party to be a “rightwing extremist” organization, despite the party’s success in winning about one-fifth of the votes in the February federal elections. The designation gives the government the right to monitor the AfD more closely, including by tapping its communications.
• The designation has also sparked public debate over whether to ban the AfD outright. In a survey published over the weekend, some 53% of respondents favored such a ban.

United Kingdom: As firms dealt with an increase in national insurance contributions last month, April payroll employment fell by a seasonally adjusted 33,000, after a drop of 47,000 in March. The report also showed that average hourly earnings in the three months ended in March rose just 5.6% from the same period one year earlier, matching expectations but slowing from the annual rise of 5.9% in the three months ended in February. Weaker hiring but still-high wage growth is expected to keep the Bank of England cautious about cutting interest rates.

US Price Inflation: Late last week, economists at the Federal Reserve published a paper describing a new method to estimate the real-time impact of import tariffs on consumer price inflation. Looking at individual categories of personal consumption expenditures, the tariffs implemented for each category, the prevalence of imports in each category, and assumptions about pass-through from tariffs to consumer prices, the analysis estimates that President Trump’s tariffs this year have already boosted core consumer prices by 0.1%.

US Drug Industry: After hinting on Sunday that he would sign an order aggressively cutting US drug prices to “most favored nation” levels, the measure that President Trump signed yesterday only directed the Department of Health and Human Services to assist any drug company that wants to establish a direct-to-consumer purchasing program. The order threatened aggressive action against the drug firms if they don’t voluntarily cut their prices, but that was less stringent than feared. As a result, pharmaceutical stocks yesterday generally rose.

US Green Technology Industry: As we continue to process the draft budget bill presented by Republicans in the House, we note that one set of provisions would end a range of subsidies for green technology. For example, the proposal would end the $7,500 tax credit for buyers of new electric vehicles by the end of 2027 — despite the recent strong support for President Trump by Tesla chief executive Elon Musk. However, it’s important to remember that the bill at this point remains just a proposal, so it’s far too soon to know whether the provisions will become law.

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