Many thanks to everybody who replied last week with feedback about the optimal length of this newsletter. You are all fabulous and wonderful people, and your opinions have been heard.
This week's installment is 1,680 words, and there’s a lot in here: trade wars, the inverted yield curve, rare earths, the retailpocalypse, the geopolitics of car mergers, the eleemosynary predilections of MacKenzie Bezos, and more.
Illustration: Aïda Amer/Axios
GoPro will move some production from China to Mexico to avoid Trump tariffs.— Silicon Valley Business Journal headline, May 14
The U.S. is in the middle of a full-blown trade war with China, our largest source of imports. There's broad bipartisan consensus that even if the Trump administration's tactics are misguided, China achieved its dominant trade position unscrupulously, being selective as to which international trade norms it would accept. Some broader context:
The bottom line: This is the worst possible time to start a trade war with Mexico, our most natural ally in any economic confrontation with China. And yet now we seem to be entering an entirely voluntary and preventable two-front war.
Why it matters: To get embroiled in one major trade war might be considered a misfortune; to find oneself in two of them looks like carelessness. Trump can't end global trade. But by making it much less predictable, he can cripple a key driver of American — and global — economic vitality.
Risk-free bond yields aren't supposed to look like this. The interest rate on the 10-year Treasury bond is now 0.22 percentage points lower than the rate on 3-month Treasury bills. The rate on 3-year bonds is 0.25 points lower still. While the so-called yield curve inversion — perennially seen as a harbinger of bad times — doesn't mean that recession is imminent, it does mean that the markets have given up hope of healthy growth over the next few years.
Illustration: Lazaro Gamio/Axios
If Trump's 5% tariff on Mexican goods takes effect later this month, the president's trade policies would constitute a bigger tax hike than Bill Clinton’s in 1993, writes Axios' Courtenay Brown.
By the numbers:
What to watch: If Trump follows through on his threats — 25% on all Chinese and Mexican imports — those revenues would amount to 1.45% of GDP. You’d have to go back to the 1968 tax hike for a bigger revenue measure, per data compiled by the Treasury Department.
Illustration: Sarah Grillo/Axios
"Don't say we didn't warn you." With these words, China has signaled that its next step in the trade war might be to cut off America's access to rare earth minerals — a key component in everything from cellphones to missile systems.
Where it stands: China exports about 80% of the rare earths imported by the U.S., and a boycott could cripple much of American high-tech manufacturing.
Flashback: In 1991, Lawrence Summers, then the World Bank's chief economist, signed his name to a notorious "pollution memo" that was leaked to the environmental community. The memo made perfect economic sense, even if it was politically rash.
By the numbers: The Rare Earths Monthly Metals Index, a price gauge created in 2012 at a level of 100, stood at just 19 in May — surprisingly low after almost a year of worries that China could cut off supplies. If American businesses have been warned, they haven't shown any signs of stockpiling the precious supplies they need.
Now comes the trade war. Hallmark doesn't expect to be able to exempt greeting cards from the next tranche of Chinese tariffs, according to an internal memo seen by Axios' Dan Primack.
"Hallmark and our suppliers cannot absorb the full impact of the increased cost," says the May 15 memo. "Despite all supply chain creativity, it will not solve the whole problem."
Why it matters: The trade war is already hurting retailers, if only in terms of the amount of time that company executives are being forced to spend on contingency planning. Worse is yet to come.
Illustration: Sarah Grillo/Axios
Car companies aren’t just big business, they’re national champions. When it comes to mega mergers, sovereign governments are succeeding where industrial titans like Carlos Ghosn and Sergio Marchionne failed.
The trend: The U.S. government sold Chrysler to Fiat. The Japanese government removed Carlos Ghosn as chairman of Nissan and effectively toppled him as CEO of Renault, too. The Italian and French governments have encouraged the proposed merger between FCA and Renault. And the Chinese government, which brokered the takeover of Volvo, is now dictating an electric future.
The bottom line: There are undeniable economic imperatives driving the consolidation of the auto industry — but the hands on the wheel don’t belong to shareholders.
Go deeper: The geopolitics of the auto industry
Illustration: Aïda Amer/Axios
19 billionaires signed the Giving Pledge this week, but just one of them — MacKenzie Bezos — looks likely to give away more money than the rest of them combined.
Why it matters: The amount of money pledged to charity but not spent grows every year. Bezos understands that it makes sense to front-load her donations, since today is more urgent than tomorrow.
Illustration: Rebecca Zisser/Axios
President Trump will kick off a trip to Europe tomorrow, where he will meet with the U.K.'s Queen Elizabeth and outgoing Prime Minister Theresa May, writes Courtenay.
The U.S. jobs report will be released Friday. Economists estimate the economy added 190,000 jobs in May, while the unemployment rate is expected to tick up to 3.7%.
Beyond Meat and Zoom — two of the best performing IPOs so far this year — will both release quarterly results on Thursday for the first time since going public.
Felix Chevrolet, at Jefferson and Figueroa, will always be the purest distillation of Los Angeles.
Elsewhere: How Qualcomm shook down the cellphone industry for almost 20 years. New Zealand's "wellbeing budget" prioritizes mental health over economic growth. WeWork's CEO will consider declining investments on moral grounds, after raising $4.4 billion from Saudi Arabia. Lunch with Warren Buffett sells for $4,567,888. What Intuit knows about you.
Editor's note: The lead sentence in the 8th piece was corrected to delete the reference to Chevrolet becoming part of a Franco-Italian international conglomerate.