by Louis Navellier
April 22, 2025
China is turning up the pressure on the U.S in the tariff war between the world’s two superpowers. First, China banned all rare earth exports to the U.S., including rare earth magnets. This ban will hinder electric vehicles (EVs), technology, aerospace and defense industries. Furthermore, China ordered its airlines to stop accepting deliveries of Boeing jets, which stranded 10 new 737 Max jets that were about to be shipped to three Chinese airlines. This could be good news, as it raises the probability of a resolution of the trade spat, since Boeing and several technology industries will likely put pressure on the White House.
In response, President Trump banned Nvidia’s H20 GPUs to China. The H20 chip was made specifically for China to comply with the Biden Administration’s chip restrictions. As a result, Nvidia is expected to take a $5.5 billion charge due to the H20 ban. The good news is that the H20 chip is a lower margin chip, so Nvidia can now divert its resources to make more of its more profitable Blackwell GPUs.
Nvidia’s GPU supplier, Taiwan Semiconductor (TSM), announced earnings last Wednesday, beating the analysts’ consensus estimates while providing positive guidance. TSM said, “We have not seen any change in our customers’ behavior” in response to tariffs. As a result, I expect Nvidia to stage a rebound.
One hopeful sign is that China’s President Xi Jinping said during his visit to Vietnam that U.S. trade protectionism will “lead nowhere,” implying that there could be a thaw coming in our trade relations. Right now, the U.S. has a 145% tariff on Chinese goods, while China has a 125% tariff on U.S. exports. Just like President Trump removed tariffs on technology items – probably after consulting with Apple’s Tim Cook – other business leaders will likely advise the White House on how to remove other tariffs.
Another compromise is that President Trump has hinted that he may modify the 25% tariffs on imported vehicles and parts. Since the 25% tariff impacts even domestic vehicle manufacturers on non-U.S. content, there is mounting pressure to reverse or modify these tariffs. In the meantime, shipments of imported vehicles have been suspended and/or diverted. I suspect that the President will demand more on-shoring and that trade barriers will be removed before he lifts all automotive tariffs, so he can claim victory.
Despite being an agriculture powerhouse, the U.S. has been importing more food than it exports lately. Mexico is the biggest exporter of food products to the U.S., exporting tomatoes, berries, vegetables and other fresh produce, so effective July 14th, the U.S. is imposing a 20.9% duty on Mexican tomatoes.
Kevin Hassett has declared that the U.S. is not headed into a recession, despite the fact that first quarter GDP will be distorted by the dumping of goods as well as surging gold imports. Since both the CPI and PPI were negative in March, aided by lower crude oil prices, tariffs are not (yet) causing inflation, as deflation is spreading and may persist, especially if retailers “dump” their excess goods on consumers.
Some Changes and Compromises Are Coming in Europe
As expected, the European Central Bank (ECB) cut its key interest rates by 0.25% last Thursday, so the collapse in global interest rates persists. This was the seventh consecutive ECB interest rate cut. I remain in the camp that due to recessions in France and Germany, the ECB will cut another three times this year.
In the meantime, the European Union (EU) is not unified. Brussels continues to cling to power and tries to influence the internal politics of EU member countries. After election meddling in Romania, France and Italy, the latest interference pertains to banning two conservative media outlets in Poland.
Italian Prime Minister Giorgia Meloni met with President Trump last Thursday and she was focused on NATO as well as how the EU and U.S. can reach a positive reciprocal trade deal. Meloni has rebuffed Britain and France by refusing to send troops to Ukraine and remains fiercely independent. I’ve said that Italy is so independent it could become the 51st state should the EU breaks up from its political unrest!
Speaking of the EU, the European Parliament was in the process of adding carbon fiber to its list of hazardous materials, but after intense opposition from aerospace and automotive industries, the proposed carbon fiber ban was shelved. If the EU banned carbon fiber, that would have a massive impact on the automotive and aerospace business, since carbon fiber is light and yet super strong. A carbon fiber ban would impact virtually all premium bicycle brands, since bicycle frames are made of carbon fiber. Golf clubs and tennis rackets would also be severely impacted by any EU carbon fiber ban. The most bizarre consequence is that an EU carbon fiber ban could cause the Ferrari Formula One team to move to Britain.
Compared to Europe, the U.S. economy is doing fine, even though we may see a technical recession in the first quarter, according to the Atlanta Fed. The Commerce Department announced that retail sales surged 1.4% in March – the largest monthly surge in two years. Auto sales surged 5.3% due to incentives as consumers rushed to beat tariffs. Excluding autos, retail sales rose 0.5%. Gas station sales declined 2.5%, but only due to lower prices at the pump. The good news is that 11 of the 13 retail sales categories rose, so retail sales were super strong, indicative of a very healthy consumer. I think it is safe to conclude that the consumer is healthy and is now finally out and about spending money in better spring weather!
The downer in the economic news is that Fed Chairman Jerome Powell on Wednesday said, before the Economic Club of Chicago, that he saw a “strong likelihood” that consumers would face higher prices and the economy would also see higher unemployment as a result of tariffs – even though tariffs are being negotiated down now. Powell elaborated that this would create a “challenging scenario” for the Fed, since anything it does with interest rates to address inflationary pressures could worsen unemployment, or vice versa. Powell concluded by saying, “It’s a difficult place for a central bank to be, in terms of what to do.”
President Trump bluntly responded on Truth Social that “Powell’s termination can’t come quickly enough.” Trump argued that the Fed should have lowered interest rates already this year. During his press conference with Italian Prime Minister Maloni, Trump called Powell out for being “political.”
Powell’s term expires in May 2026. I am sticking to my prediction that the Fed will cut key interest rates four times this year, hopefully starting at the May 7th Federal Open Market Committee (FOMC) meeting.
Navellier & Associates; own NVidia Corp (NVDA), and Apple Inc. (AAPL), in managed accounts. A few accounts own Taiwan Semiconductor Manufacturing Co. Ltd (TSM), per client request only in managed accounts. We do not own Boeing (BA). Louis Navellier and his family own NVidia Corp (NVDA), via a Navellier managed account, and NVidia Corp (NVDA), and Apple Inc. (AAPL), in a personal account. He does not personally own Boeing (BA), or Taiwan Semiconductor Manufacturing Co. Ltd (TSM).
The post 4-22-25: China and America Could Reach a Trade Compromise appeared first on Navellier.
