Saving Christmas/A 10% baseline tariff takes effective corporate income tax rate to 34%/Foreign holdings of US assets

So, both sides luckily decided to save Christmas. China gave hope to some of its manufacturing base that caters to the US while the US side listened to the existential crisis of many small businesses. Whether still a 30% tariff will be enough to make a difference we'll of course see but for some, you are going to see a rush of ordering over the next 90 days the likes we've never seen before. You are going to see the cost of transportation skyrocket too in the coming weeks/months.

The stock market has of course spoken again that it wants nothing to do with tariffs but we're also seeing US dollar cross rates have become too a daily voting machine on the policies of the US and attractiveness of our markets. With regards to fixed income, bond yields are rising across the world on some economic sanity and excitement over the detente.

Technically speaking we're at key spots. The S&P futures are retesting its 200 day moving average. The 10 yr US yield at 4.44-.45% is now a few bps above all its key moving averages. And the US dollar index is about 30 cents from its 50 day moving average, though well below still the 200 day.

S&P Futures

10 yr Yield

DXY

I do want to put some numbers around the 10% baseline tariff on all US imports of goods that seemingly will be the minimum rate of all these country negotiations. As we import about $3.3 trillion worth of goods, that would be the equivalent of an incremental US corporate tax of $330 billion. The revenue collected from the US corporate income tax is expected to run this year at about $525 billion for comparison. Back of the envelope assuming the 21% corporate tax rate (obviously some pay less and many small business businesses pay pass thru rates), this is off $2.5 Trillion of pre tax income. If I add the $330 billion to the $525 billion, the $855 billion of total corporate taxes that will be paid under this 10% tariff regime would be the equivalent of a 34% corporate income tax rate which happened to be about where it was before Trump rightly cut it in 2017.

Just some perspective. Yes, not all companies will eat the 10% tariff but many don't eat the corporate tax rate either as they pass it on to the rest of us.