by Louis Navellier
March 11, 2025
The Commerce Department announced last Thursday that the U.S. trade deficit surged 34% in January to $131.4 million, the largest monthly increase ever recorded – ever since such data began being collected in 1992. Imports soared by 10% to $401.2 billion, while exports rose just 1.2% to $269.8 billion. Clearly, imports were surging as importers dumped their goods into the U.S. before tariffs took effect. Since the trade deficit impacts GDP calculations, that’s one big reason why economists lowered GDP estimates.
The President’s goal with his tariffs is to try to close our trade deficits with our biggest trading partners – especially those who export far more to us than they buy from us, often by erecting high tariff walls.
The Wall Street Journal recently documented that in 2024 our largest trade deficits were with China ($295 billion), Mexico ($172 billion), Vietnam ($123 billion), Ireland ($87 billion), Germany ($85 billion), Taiwan ($74 billion), Japan ($68 million), South Korea ($66 billion), Canada ($63 billion), Thailand ($46 billion), Italy ($44 million) and Switzerland ($38 billion). Since many of these deficits are incurred by U.S. technology companies establishing factories in some of these (primarily Asian) nations, the Trump Administration is pushing for more on-shoring, like Apple’s commitment to invest $500 billion over the next four years in the U.S. rather than Asia. Another example is that Taiwan Semiconductor plans to invest $100 billion in the U.S. to expand its chip production. Also, the U.S. auto industry will provide the Trump Administration with strong arguments not to disrupt their operations in Canada and Mexico.
While anxiety over punitive tariffs is likely holding back some consumers – and investors – from buying goods, services (and growth stocks for their portfolios), I want to assure you that I do not expect most of these tariffs to be inflationary, or permanent. On the inflationary front, the 10% tariffs that have been imposed on China are expected to be suppressed by Chinese deflation as well as by a weak Chinese yuan.
As for the bigger (25%) tariffs on our neighbors, the Canadian and Mexican tariffs were first postponed a month, and the other retaliatory tariffs will be effective on April 2nd, unless Commerce Secretary Howard Lutnick believes they need to be modified, or if Canada and Mexico can lower their tariffs before then.
I should add that Secretary Lutnick said on Bloomberg TV last Wednesday that the auto industry is not expected to be impacted by the 25% tariffs in Canada and Mexico, since the Big 3 are in compliance with the minimum U.S. content in their vehicles, so auto tariffs have been delayed by the Trump tariff team.
Another interesting tidbit is that after meeting with British Prime Minister Keir Starmer, President Trump was open to a free trade agreement with Britain, due largely to the fact that the U.S. had an $11.9 billion trade surplus with Britain in 2024. This essentially means that when Commerce Secretary Lutnick works on reciprocal tariffs with other countries, he will be looking to level the playing field with them.
Incoming German Chancellor Friedrich Merz has not been very friendly to the U.S., so I am not sure he will be able to convince German automakers to shift more of their manufacturing to the U.S., to take advantage of lower electricity as well as other costs to avoid any “tit for tat” tariffs with the U.S.
While the stock market has freaked out over the latest economic news, as well as implementation of tariffs on China, Canada and Mexico, the silver lining is that Treasury yields have plunged. As a result, many Fed watchers are expecting two more key interest rate cuts. I still expect four key interest rates cuts this year. Inflation in the euro-zone has cooled to a 2.4% annual rate (in February). Due to slower inflation and negative economic growth, I expect the Bank of England and European Central Bank (ECB) to make additional key interest rates cuts this year. These cuts are expected to cause U.S. Treasury yields to decline further, which in turn will cause the Fed to cut key interest rates four times this year.
The ECB cut its key rate by 0.25% to 2.5% last Thursday, then signaled that its easing phase is nearing its end, adding that, “Interest-rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up.” The problem for Europe is that they are aging fast, and there is no net new household formation, except in Eastern European countries like Hungary and Poland with higher birth rates, so it is very hard for them to grow their respective economies.
Although Europe has had a lot of immigration, unfortunately these immigrants are not always assimilated well, which has caused a lot of unrest in Belgium, France and Germany, so I do not believe the ECB is recovering from recession and nearing the end of their rate cut cycle. The ECB has cut twice this year and I believe another three to four key interest rate cuts could be in store this year, since I do not expect that France and Germany will be able to pull out of their current recessions until interest rates collapse further.
Most U.S. Economic Indicators Seem to Be “On Hold” For Now
Most economic indicators seem to be “on hold” until the current tariff concerns reach some sort of clarity.
Last week, we learned that the Institute of Supply Management (ISM) announced that its manufacturing index slipped to 50.3 in February, down from 50.9 in January. The good news is that any reading over 50 signals an expansion, so the manufacturing sector has kept expanding for the second month in a row after contracting for 26 months. The bad news is that economists were expecting an ISM reading of 50.8 in February, so the ISM survey came in below expectations. One “green shoot,” however, was the suppliers deliveries component, which rose to 54.5 in February, up from 50.9 in January. So overall, there is some hope that the U.S. manufacturing sector will continue to improve, especially as the pace of U.S. on-shoring picks up. I should add that 10 of the 15 manufacturing industries surveyed reported expanding last month.
ISM also reported on Wednesday that its non-manufacturing (service) index rose to 53.5 in February, up from 52.8 in January and well above the economists’ consensus of 52.5. The new orders component rose to 52.2 (from 51.3 in January), as 14 of the 17 industries surveyed reported expansion in February.
Also on Wednesday, the Fed’s Beige Book survey was released in support of the next Federal Open Market Meeting (FOMC). It said that economic activity has risen slightly since mid-January, but eight of the 12 Fed districts reported flat to negative economic growth. The word “tariff” was mentioned 49 times in the Beige Book survey and created a lot of inflation uncertainty for the Fed. The bottom line is that more Fed rate cuts are in store. That will be confirmed by the next “dot plot” at the next FOMC meeting.
Then came the widely awaited jobs data for February. First, on Wednesday, ADP reported that only 77,000 private payroll jobs were created in February – the smallest monthly increase since last July, and only about half of the economists’ consensus expectation of a 148,000 increase. Interestingly, manufacturing and construction jobs rose, while education and healthcare jobs declined. Since there was a big drop in the Pacific region, it appears that the fires in Los Angeles region impacted the ADP report.
Then, on Friday, the Labor Department reported that 151,000 net new non-farm payroll jobs were created in February, slightly below the economists’ consensus estimate of 160,000. Also, January payroll jobs were revised lower to 125,000 (down from 143,000 first reported). The unemployment rate rose to 4.1%, up from 4% in January, and the worker participation rate declined to 62.4%, the lowest level in two years. Average hourly earnings rose by 0.3% (10 cents) to $35.93 per hour. The healthcare sector created 52,000 jobs last month, while federal government jobs declined by 10,000, likely due to Elon Musk and DOGE.
In the other big news last week, President Trump spoke before a joint session of Congress and told a sour-faced Democrat Party contingent that “America is back,” and to essentially get on board or get out of his way. Trump made it clear to the world that the U.S. will no longer be taken advantage of economically.
The President stated that reciprocal tariffs will commence on April 2nd. He praised a few companies (like Apple, Oracle and Softbank) for their on-shoring efforts and signaled that the tariffs will attract trillions of dollars in additional on-shoring. President Trump also praised Elon Musk and said that that the DOGE cuts will persist. Finally, President Trump said, “We need Greenland for national security and even international security, and we’re working with everybody involved to try and get it.”
Overall, President Trump’s first 40 days of “shock and awe” have caused Treasury bond yields to plunge, which in turn will cause the Fed to cut key interest rates. Right now, most economists expect two key interest rate cuts this year. However, since I expect a collapse in global yields, with the Bank of England and the European Central Bank cutting four to five times this year, I expect four key Fed interest rate cuts this year. The combination of strong forecasted earnings with more (four) Fed key interest rate cuts is effectively a “one-two punch” that should propel our fundamental superior stocks substantially higher!
Finally, the European Union (EU) reaffirmed its electric energy mandate that all internal combustion (ICE) vehicles would be banned in 2035. This was a bit surprising due to falling sales of electric vehicles (EVs) in the EU and the fact that the EU did not enforce massive fines on VW Group and other European car manufacturers for exceeding 2024 emissions. This just shows how out of touch the EU is, so the Trump Administration may see BMW, Mercedes and VW Group (Audi, Bentley, Bugatti, Lamborghini, Seat, Skoda, Porsche and VW) divert their manufacturing of ICE vehicles to the U.S.
Navellier & Associates; own Oracle Corp (ORCL), and Apple Inc. (AAPL), in some managed accounts. Navellier does not own Softbank Group (SFTBY), Honda Motors (HMC), Taiwan Semiconductor (TSM), or Volkswagen (VWAGY). Louis Navellier and his family own Apple Inc. (AAPL), in a personal account. They do not own Softbank Group (SFTBY), Honda Motors (HMC), Taiwan Semiconductor (TSM), Volkswagen (VWAGY), or Oracle Corp (ORCL), personally.
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