by Louis Navellier
June 10, 2025
Last Thursday, the new German Chancellor, Friedrich Merz, met with President Trump at the White House and he brought forth a framed birth certificate of his grandfather, Friedrich Trump, born in 1869 in Germany. Beyond that ceremonial act, I suspect that, behind closed doors, President Trump called for the new German leader to convince his nation’s automakers to expand their U.S. operations. In the past, the President has offered work VISAs for any German workers who move to America to work in the BMW, Mercedes, and VW Group’s plants. Furthermore, President Trump has bragged about our: (1) dramatically lower electricity costs, (2) lower labor costs, (3) no EV mandate by 2035 and other advantages, like our pro-business Southern states ready to expand their operations to accommodate the German auto industry.
The German chancellor must have felt like he walked into a bar fight, as Thursday was the same day that Elon Musk was staging a very public spat that overshadowed the German Chancellor’s visit. The press called this spat the “The War of the Roses,” after the 1989 Kathleen Turner and Michael Douglas movie that did not end well. Fortunately, Elon Musk calmed down a bit “the morning after,” so an awkward reconciliation may be forthcoming between these two very compulsive and stubborn personalities.
Prior to this White House meeting, Chancellor Merz implied that the EU could retaliate against some U.S. technology companies if the trade conflict with the Trump Administration escalates. Other than that, Merz said that he aims to reduce tariffs and defuse tensions with the White House, saying, “At the moment, we strongly protect U.S. tech companies,” adding that, “This can be changed, but I don’t want to escalate this conflict. We want to solve it together.” Clearly, Chancellor Merz does not want to fight with President Trump, since Germany has few tools with which to retaliate, especially with the European Commission (EU) doing such a poor job of supporting Germany’s heavy industries within their “green” mandates.
I’m sure the German Chancellor secretly views the U.S. as an economic oasis from those EU mandates for green energy, since Europe isn’t food and energy independent, like the U.S. is, and we don’t have an oppressive bureaucracy like the EU in Brussels, systematically destroying farming and manufacturing with their oppressive polices. The Trump Administration, unlike the EU, is instinctively pro-business.
In fact, some more good news came out last Thursday during the Merz visit: The Atlanta Fed’s GDPNow model is forecasting 3.8% annual GDP growth for the second quarter, reflecting the fact that President Trump, unlike the EU, is essentially on a “Mission from God” to implement pro-business policies to compete with heavy state control in Europe and Asia. That’s why he is now lobbying for lower interest rates from the Fed at their next Federal Open Market Committee (FOMC) meeting next week, June 17-18.
I should point out that these second-quarter GDP calculations are being artificially boosted by a collapsing trade deficit – just as they were artificially deflated by all those “dumped” imports, plus gold transfers from Europe, causing a rising trade deficit in the first quarter. Last Thursday, the Commerce Department announced that the U.S. trade deficit plunged 55.5% to $61.6-billion in April, down from $138.3-billion in March, before the Liberation Day tariffs were announced. This was the second largest percentage drop in the trade deficit ever recorded, second only to a 59% plunge in February 1992, over 33-years ago.
In April, U.S. imports declined 16% to $351-billion, the largest monetary drop ever. That’s partly because businesses were reportedly overburdened by all those excessive inventories early in the year, after imported goods surged 41.3% in the first quarter in an attempt to beat the upcoming tariffs. Meanwhile, exports rose 3% in April to a record $289.4-billion, which is positive for GDP growth calculations. The fact that exports rose in April in an environment where crude oil prices were declining is very impressive!
Turning to manufacturing, the Institute of Supply Management (ISM) announced that its manufacturing index declined to 48.5 in May, down from 48.7 in April. This represents the third consecutive month in which the manufacturing index has been below 50, which signals a contraction. One “green shoot” is that the “new orders” component improved to 47.6 in May, up from 47.2 in April. Despite this small but hopeful increase, the “new export orders” component plunged to 40.1 in May, down from 43.1 in April, while the imports component plunged to 39.9 in May, from 47.1 in April. Only three of 15 manufacturing industries surveyed reported an expansion in May, so the manufacturing sector continues to struggle.
Another potential economic concern is that the ISM non-manufacturing (service) index declined to 49.9 in May, down from 51.6 in April. This was a big disappointment, since economists were expecting the ISM service index to rise a bit, to 52. In the past 60-months, the ISM service index has been below 50 (signaling a contraction) only four times. The “new orders” component declined to 46.4, down from 52.3 in April. Another concern is that the “order backlog” component plunged to 43.4 in May, down from 48 in April. Overall, 10 of the 18-industries ISM surveyed reported expanding in May, down from 11 in April.
The U.S. Is Still the “Oasis” of the World, Compared to Other Economies
Last Thursday – that busy day while Chancellor Merz was in Washington – the European Central Bank (ECB) cut their key interest rates by 0.25% for the eighth time due to lackluster economic activity and inflation cooling. Inflation in the euro-zone decelerated to a 1.9% annual pace in May, down from a 2.2% annual pace in April. The primary reason that euro-zone inflation is running lower than the U.S. (at 2.2%, based on the personal consumption expenditures-PCE), is because the euro-zone does not suffer from housing price inflation, since its households are shrinking due to its aging population.
China’s Caixin manufacturing purchasing managers index (MI) plunged at a more rapid rate in May, to 48.3, down from 50.4 in April. This index is called the private Factory Gauge, and it is one Chinese economic statistic not manipulated by the Chinese government. Since any reading below 50-signals a contraction, the higher tariffs against China are taking a toll. This Factory Gauge is now at its lowest level since 2022 and is expected to remain weak until there is a trade negotiation breakthrough.
It is widely reported that tariff negotiations with China are hitting an impasse, so a call between President Xi and President Trump may be imminent. The Wall Street Journal reported that China’s lead trade negotiator, Vice Premier He Lifeng, is playing hardball and not cooperating with the Trump trade team.
I remain optimistic that this tariff confusion will dissipate in the upcoming months. Furthermore, I expect inflation will remain low due to: (1) lower crude oil prices, (2) deflation from China, and (3) excess inventories from the dumping of goods in the first quarter. Re-surging consumer confidence and rising personal income is a powerful “one-two punch” that will sustain strong economic growth. The new “big beautiful” tax bill will put more money in consumers’ pockets, and any Fed rate cuts will boost spending.
In Poland, conservative candidate Karol Nawrocki of the Law and Justice Party won 50.89% of the vote and will become the next Polish president. This was a blow to the EU, since Brussels was secretly helping to shut down two conservative media outlets to suppress a groundswell conservative movement.
Nawrocki is an historian who ran a state institute for documenting historical crimes committed against Poland by both the Nazis and Communists. In the lead-up to the election, Nawrocki promised to block Ukraine from joining NATO. Interestingly, Nawrocki played up his past as an amateur boxer and has a “tough man” reputation. Since Poland shares a border with Ukraine and accepted millions of refugees, Nawrocki is expected to expand Poland’s NATO influence.
The Ukrainian drone attack on approximately 40-Russian military planes (including most of Russia’s bomber fleet) deep inside Russia, turned out to be incredibly embarrassing for Vladimir Putin. The whole world is now very nervous over how Putin may respond, since this surprise attack was a major escalation and expanded the battlefield. In the meantime, gold is doing well amidst all this new uncertainty.
Iran formally rejected a U.S. proposal that would temporarily allow uranium enrichment. Iran’s Supreme Leader, Ayatollah Ali Khamenei, said, “To the American side and others we say: Why are you interfering to say whether Iran should have uranium enrichment or not? That’s none of your business.” Negotiations may continue, but when talks reach an impasse, it will be interesting to see how Israel and the U.S. react.
In conclusion, I’d say that the bears on Wall Street keep recycling old ideas to distract investors. The main bearish argument is that the “big beautiful” tax bill will cause the federal budget deficit to soar and cause interest rates to rise. I disagree. When tax rates are cut, the federal government puts more money in your pocket, and consumers typically put some of that money in the bank and banks buy more Treasury securities, pushing rates down, so tax cuts do not cause Treasury yields to rise.
Furthermore, when the velocity of money perks up, prosperity rises and tax revenues often rise, too.
Navellier & Associates Inc.; do not own Volkswagen (VWAGY), Mercedes Benz Group (MBGYY), and Bayerische Motoren Werke AG Unsponsored ADR (BMWKY), in managed accounts. Louis Navellier does not own Volkswagen (VWAGY), Mercedes Benz Group (MBGYY), and Bayerische Motoren Werke AG Unsponsored ADR (BMWKY), personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
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