“Be like water making its way through cracks. Do not be assertive, but adjust to the object, and you shall find a way around or through it.” – Bruce Lee
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Good morning!
As the great Robert Burns once wrote, “the best-laid plans of mice and men often go awry.” That’s a warning that the Trump administration might wish to heed. Ostensibly, one objective of the administration’s stance on tariffs is the money that American importers – and to some extent, their customers – will pay to the government. But the federal government would be wise not to get prematurely gleeful over the revenues it anticipates collecting from this new raft of import taxes, especially on Chinese-made goods.
That’s because there is always a workaround.
Chinese manufacturers, prominently targeted by the tariff policy, seem to have been ready for the White House’s attack on their business model – it wasn’t exactly a surprise, after all. To mitigate the effect, Chinese exporters are reportedly engaging in what might be termed “origin washing,” shipping their goods to third countries to mask their actual place of manufacture. In fact, as the Financial Times reports, a new industry has arisen, comprised of firms that specialize in helping Chinese manufacturers implement this tactic. Many openly advertise these services on Chinese social media platforms. Third countries being unwittingly used for such a tactic include Malaysia, Thailand, South Korea, and perhaps most notably, Vietnam. It does not seem to be a coincidence that in Vietnam, imports from China and exports to the U.S. both surged in April.
That’s not a legal tactic or loophole: for a product from China to qualify as a product of some other country, U.S. trade laws specify that it must go through a “substantial transformation” in that third country. That doesn’t seem to be the case in these instances.
U.S. authorities are apparently aware of this tactic, and waypoint countries, Vietnam included, are trying to halt the practice, if for no reason than to avoid damaging their own tariff negotiations with Trump officials. But the sheer volume of Chinese-originated shipments involved has overwhelmed enforcement efforts in those countries.
Frankly, the volume might strain U.S. customs officials beyond their capacities as well. Bloomberg News, reporting on last week’s expiration of the “de minimus” exemption on shipments with a declared value of $800 or less, noted that just the added strain of having these packages go through the customs clearance process could cause chaos. Nobody wants to sit there and inspect random packages of Shein tops, Temu home goods, or some other random items worth less than $10.
While government data does not list how many packages claimed the exemption in 2024, it’s reasonable to assume that a significant percentage of the roughly 4 million small packages that arrive in the U.S. every day had previously been exempt from this process – but no longer qualify. “This could get messy very quickly,” Derek Lossing, founder of the logistics consulting firm Cirrus Global Advisors, told Bloomberg. And the de minimis shipments are just the tip of the iceberg.
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Catch up with FS Insight
Editor’s note: As previously noted, Head of Research Tom Lee is traveling this week, disrupting his normal publication cadence. He is scheduled to return next week.
Technical
The SPX’s late-day bounce yesterday seemed to directly follow Trump’s comments on rescinding global chip curbs amid the AI restriction debate. Yesterday’s FOMC meeting did not seem to be very negative, and both stocks and Treasuries look likely to push higher in the days ahead.
Crypto
Treasury Secretary Scott Bessent’s visit to Europe could have significant implications for our outlook on crypto.
News We’re Following
Breaking News
- Trump says US-UK deal being announced today is ‘full and comprehensive’ BBC
Markets and economy
- Trump to rescind Biden-era AI chip curbs amid AI restrictions debate BBG
Business
- UnitedHealth sued by shareholders over its reaction to backlash from executive’s killing REU
- Arm Holdings posts higher sales; outlook disappoints WSJ
- Microsoft wins appeal in FTC challenge to $69 bln Activision Blizzard deal REU
Politics
- Trump picks conspiracy theorist ‘wellness influencer’ Casey Means with no medical license as Surgeon General IND
- California sues Trump administration over blocked funds for EV charging FT
Overseas
- Israeli Embassy in London target of foiled Iranian terror plot BBG
- Bank of England cuts main interest rate by 0.25% to 4.25% AP
Of Interest
- Private Japanese lunar lander enters orbit around moon ahead of a June touchdown AP
| Overnight |
| S&P Futures +60
point(s) (+1.1%
) Overnight range: -16 to +60 point(s) |
| APAC |
| Nikkei +0.41%
Topix +0.09% China SHCOMP +0.28% Hang Seng +0.37% Korea +0.22% Singapore -0.44% Australia +0.16% India -0.51% Taiwan -0.02% |
| Europe |
| Stoxx 50 +1.12%
Stoxx 600 +0.5% FTSE 100 +0.22% DAX +1.08% CAC 40 +0.82% Italy +0.9% IBEX -0.01% |
| FX |
| Dollar Index (DXY) +0.54%
to 100.15 EUR/USD -0.07% to 1.1293 GBP/USD -0.14% to 1.3274 USD/JPY +0.66% to 144.78 USD/CNY +0.14% to 7.2379 USD/CNH +0.12% to 7.2373 USD/CHF +0.25% to 0.8258 USD/CAD +0.3% to 1.3881 AUD/USD -0.16% to 0.6414 |
| Crypto |
| BTC +2.98%
to 99681.72 ETH +7.7% to 1936.96 XRP +4.36% to 2.2102 Cardano +8.17% to 0.716 Solana +4.89% to 153.53 Avalanche +7.42% to 21.0 Dogecoin +7.45% to 0.1831 Chainlink +8.38% to 14.8 |
| Commodities and Others |
| VIX -4.46%
to 22.5 WTI Crude +1.1% to 58.71 Brent Crude +0.93% to 61.69 Nat Gas +0.97% to 3.66 RBOB Gas +0.54% to 2.039 Heating Oil +0.52% to 1.987 Gold -0.68% to 3341.64 Silver +0.06% to 32.47 Copper -2.37% to 4.507 |
| US Treasuries |
| 1M -2.1bps
to 4.258% 3M -3.2bps to 4.288% 6M -0.3bps to 4.2101% 12M -0.6bps to 3.9926% 2Y +4.6bps to 3.8221% 5Y +4.9bps to 3.9114% 7Y +5.0bps to 4.1012% 10Y +4.5bps to 4.314% 20Y +3.8bps to 4.8186% 30Y +3.8bps to 4.8072% |
| UST Term Structure |
| 2Y-3
M Spread widened 4.4bps to -50.7
bps 10Y-2 Y Spread widened 0.3bps to 49.0 bps 30Y-10 Y Spread narrowed 0.6bps to 49.1 bps |
| Yesterday's Recap |
| SPX +0.43%
SPX Eq Wt +0.66% NASDAQ 100 +0.39% NASDAQ Comp +0.27% Russell Midcap +0.67% R2k +0.33% R1k Value +0.54% R1k Growth +0.32% R2k Value +0.15% R2k Growth +0.49% FANG+ -0.08% Semis +2.05% Software +0.84% Biotech +0.23% Regional Banks +0.09% SPX GICS1 Sorted: Cons Disc +1.02% Tech +0.91% Healthcare +0.81% Fin +0.62% Indu +0.51% SPX +0.43% Utes +0.29% Cons Staples +0.2% Energy +0.08% REITs -0.02% Materials -0.5% Comm Srvcs -1.84% |
| USD HY OaS |
| All Sectors -1.4bp
to 411bp All Sectors ex-Energy -1.1bp to 371bp Cons Disc -1.5bp to 412bp Indu +0.1bp to 306bp Tech -2.7bp to 381bp Comm Srvcs +0.9bp to 574bp Materials +1.6bp to 387bp Energy -3.9bp to 476bp Fin Snr -1.6bp to 340bp Fin Sub -1.9bp to 327bp Cons Staples +3.7bp to 289bp Healthcare -9.9bp to 410bp Utes +0.4bp to 282bp * |
| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 5/8 | 8:30AM | 1Q P Nonfarm Productivity | -0.8 | 1.5 |
| 5/8 | 8:30AM | 1Q P Unit Labor Costs | 5.1 | 2.2 |
| 5/8 | 11AM | Apr NYFed 1yr Inf Exp | n/a | 3.58 |
| 5/13 | 6AM | Apr Small Biz Optimisum | 94.3 | 97.4 |
| 5/13 | 8:30AM | Apr CPI m/m | 0.3 | -0.1 |
| 5/13 | 8:30AM | Apr Core CPI m/m | 0.3 | 0.1 |
| 5/13 | 8:30AM | Apr CPI y/y | 2.4 | 2.4 |
| 5/13 | 8:30AM | Apr Core CPI y/y | 2.8 | 2.8 |
