Econ Intel Brief - May 9, 2025
On my "no recession" call for April 2025, and the announced trade deal with the UK
All,
In today’s EIB, please find:
RecessionWatch – No Recession in April
Pres. Trump Announces a Trade Deal with the UK
U.S. steps-down on auto, steel, and aluminum tariffs; keeps 10% minimum
UK eliminates/lowers tariffs on ethanol, beef, autos; keeps digital services tax
My Take on the Trade Deal – Small Potatoes
This is not a “comprehensive” free trade agreement with the UK
Expect similar deals to trickle in; (10% tariff plus relief for favored sectors)
Preview of Upcoming Data Releases
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Best,
Chris
RecessionWatch - No Recession in April
I am tentatively calling “no recession” for April 2025. The situation is similar to last month. The jobs numbers are solid or strong, but measures of consumer and business confidence, financial conditions, and alternative data show underlying weaknesses.
I expect to confirm this “no recession” call once we have data on industrial production (May 15), real retail and food service sales (May 15), and real personal income (May 30).
Pres. Trump Announces a Trade Deal with the UK
On May 8, President Trump announced a “very large” trade deal with the UK. (See various reporting.) Details are still being finalized, but here is what we know so far:
The U.S. will…
Maintain its 10% “reciprocal” tariff on the UK.
Eliminate the 25% tariff on UK aluminum and steel imports.
Lower its tariff on UK auto imports to 10% (from 25%) for first 100,000 autos/year.
This is about the number of autos the UK exported to the U.S. last year.
Auto imports from the UK were only about $11.2 billion for 2024.
Eliminate its tariff on UK beef imports for first 13,000 metric tons/year.
Allow duty-free import of Rolls-Royce jet engines. (They make jet engines?)
Give the UK preferential treatment on any further Section 232 tariffs.
Includes potential future tariffs on pharmaceuticals and semiconductors.
The UK will…
Eliminate its tariff on U.S. ethanol imports (originally 19%).
Purchase $10 billion of Boeing aircraft or aircraft parts. (Details TBA.)
Keep its “digital services tax” (2% on revenue of search engines, social media, etc.)
U.S. and UK will eliminate tariffs on beef imports for the first 13,000 metric tons/year.
However, the UK will maintain ban on beef grown with artificial growth hormone.
This was a Labour campaign pledge. (It won the 2024 UK parliamentary elections.)
The UK will also keep its ban on U.S. chlorinated chicken (washed to kill bacteria).
My Take on the Trade Deal – Small Potatoes
Following Brexit, I have urged lawmakers to obtain a comprehensive free trade agreement with the UK. While this deal is being touted as such, it is not comprehensive, and may not even be a net reduction of trade barriers with the UK.
Pres. Trump imposed the 10% “reciprocal” tariff on the UK, which represents a substantial increase in the tariff rate on many U.S. imports from the UK.
Pres. Trump imposed the 25% tariff on steel and aluminum imports, so its elimination is simply a return to the status quo for steel and aluminum.
Pres. Trump imposed the 25% tariff on auto and auto part imports, so its reduction to 10% still represents a net increase in the tariff rate for autos.
I expect similar deals to trickle in. The U.S. keeps the 10% minimum tariff, provides some relief to politically favored sectors, and both sides give token concessions. For China, the New York Post reports a tariff rate of about 50% might be the end result.
All of this is a bearish signal for business investment and long-run economic growth.
Preview of Upcoming Data Releases
May 13, 8:30am ET. The BLS will release the consumer price index (CPI) for April.
The Clev. Fed model projects that inflation was modest (0.22% m/m, 2.34% y/y).
Indicates that inflation is continuing to fall back to the Fed’s 2% annual target.
May 29, 8:30am ET. The BEA will release the “second” estimate of Q1 real GDP.
Watch for revisions to real GDP growth (-0.3%) driven by inventories and imports.
This will include an estimate of “gross domestic income” (a sanity check on GDP).
May 30, 8:30am ET. The BEA will release personal income and consumption for April.
This will include PCE inflation, which is the Fed’s preferred inflation measure.
The Clev. Fed model projects that inflation was modest (0.20% m/m, 2.23% y/y).