Weekly Brief #74
Welcome to World War III (economically)... Plus, Prada acquires Versace for $1.4 billion, Klarna delays American IPO, Alphabet to spend $75 billion on AI, Audi recalls more than 44,000 cars, and more.
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Good morning investor 👋,
Welcome back to the 74th Weekly Brief.
This week’s performance:
S&P 500: -0.46%% | Nasdaq: +2.13% | Dow Jones: -1.26% | TSX: -4.57% | Gold: +3.10% | Bitcoin: +0.53% | The Quality Fund: -1.32%.
Huge volatility this week. Here’s your summary:
First, a tweet about Trump pausing America’s reciprocal tariffs for 90 days ex-China pumped the market. Second, this tweet was debunked by the White House as fake, and the market fell further. Third, a day later, Trump told everyone to buy the dip and announced a 90-day pause on reciprocal tariffs ex-China, proving the “fake” tweet right—sending the S&P 500 flying nearly 10%, one of the largest price movements since WWII. A day later, the S&P 500 fell ~5%. Because everyone decided to realize a day later that these tariffs aren’t “gone,” just postponed. And this all happened within the course of four trading days.
In my opinion, these tariffs are very likely to be over for most countries, just not for China. From that, we’re in a war between two superpowers. Economically. An economic WWIII, if you will.
Let’s get into it. (10 min read)
In this issue:
🪖 Welcome to World War III (economically)
👚 Prada acquires Versace for $1.4 billion
🇪🇺 EU removes tariffs from Chinese EVs
FEATURED STORY
🪖 Welcome to World War III (economically)
I’m losing track of these tariff write-ups. What is this… the eighth time now?
Nonetheless, it was a huge week for tariffs. The market finally digested what was announced last week by President Trump on “Liberation Day,” and it was a nasty few days—until he completely changed his mind, causing markets to reverse—before dropping again. All reciprocal tariffs, aside from a 10% blanket tariff on all countries, have been postponed for 90 days. (Those who retaliated against the original tariffs were not part of this postponement.)
There were only two countries involved in the “retaliation”: China and Canada (the EU as well, but they have since retracted their tariffs due to this postponement, so I’m cancelling that out). Canada only retaliated with a 25% tariff on goods not covered under the USMCA1. Now that America has dropped its tariff for the time being, this retaliation may also be withdrawn. But China did not sit back in response to America’s tariff threats, nor did it ask to negotiate like many countries did. Instead, it announced a reciprocal tariff in response to America’s reciprocal tariff. And this continued to evolve over the course of the week to where we are now.
Here’s the timeline of retaliation as of the time of writing:
Feb 4: U.S. → 10% tariff on China
March 4: U.S. → another 10% tariff on China
April 2: U.S. → announces 34% “retaliatory” tariff on China
April 4: China → announces 34% tariff on U.S. goods → U.S. retaliates with another 50%
April 9: All tariffs become official. China responds with an extra 50% tariff on all goods. → U.S. then announces a pause for world reciprocal tariffs but raises China tariffs to 125% (later clarifies the total China tariff imposed by the Trump administration would be 145%). China’s tariff on America stands at 84% as I write this.
What does this mean?
For one, it means that a China–U.S. trade relationship is virtually nonexistent at the moment. Selling a product in a market where your goods are subject to more than double the markup is an extremely unfavourable market to operate in on China’s behalf, which relies on low-cost goods.
There has always been an adversarial relationship between these two countries, but seeing how China is literally the only country that retaliated in such a heavy way to the original tariffs, and seeing how they continue to mention they “will never back down,” makes for a dire look at the future of global trade.
Side note: China isn’t dependent on America; only ~13% of its exports are to America. Likewise, America isn’t dependent on China; just 8.6% of American exports were to China. Both of these countries can go on and on, back and forth, forever if they so choose.
For two, it means we have entered a geopolitical, economic World War III.
Let’s hope this postponement on the global scale of the tariffs is left as is, and negotiations and conversations make that issue a thing of the past. Let’s coordinate (if this is the goal) on strengthening domestic manufacturing and weakening the massive dominance of Chinese manufacturing globally. The White House’s ambiguity is what’s causing the concern here. Once Trump’s intent is clear, things can streamline away from uncertainty.
I really do not enjoy making assumptions. Things like these are incredibly hard to predict. So I want to keep this short by saying: we are now in a huge economic bloodshed between the two global superpowers. My personal opinion? The world benefits from free trade, and it should stay that way. However, I also believe it is a much fairer move to only tariff China and no one else—if that is what sticks, and if that is the goal. The only problem is clarity and a clear plan on why they would need to do this.
For three, our portfolios will be affected (if you have similar holdings to me). Amazon—my largest position—has a large majority of the listed products on its platform sourced from China directly, and nearly a third of total GMV on Amazon globally is from Chinese sellers.
(Though even with high tariffs on Chinese imports, Chinese manufacturers and sellers won’t, without effort, give up on the U.S. altogether — unless required to. Many will switch supply chains if possible. Most of them will fight to stay (especially the largest sellers), because nothing else offers the same scale of reward that the American market does. I would also not dismiss the idea of Amazon subsidizing fees for Chinese sellers, or taking other measures to streamline a new supply chain for the benefit of their consumers long-term. Far-fetched, but possible.)
General theme is: if they stay with America, they stay with Amazon. But in all cases, Amazon will adapt.
In the meantime, I’m holding my stocks, buying rationally on dips, and continuing to be optimistic long-term as the world’s superpowers fight it out on the economic battlefield. There’s a lot we don’t know at the moment, but nothing that won’t be learned with time. Expect volatility in the coming weeks if things continue as they have been. Other than that, happy investing.
FINANCE
a. 👚 Prada acquires Versace for $1.4 billion
Prada is now set to acquire Versace for $1.38 billion, officially uniting two of the major (and iconic!) Italian fashion brands under a single entity. The deal includes Versace’s debt and is a strategic move by Prada to expand in the face of a luxury market slowdown, which many across the luxury industry—including LVMH—have been facing lately.
Prada plans to boost revenue through the deal rather than cut costs and is taking on €1.5 billion ($1.5 billion) in new debt to fund the buyout. The deal is expected to close in the second half of 2025 following regulatory approval.
b. 🤝 Klarna delays American IPO
The Swedish fintech buy now, pay later (the worst business creation under capitalism known to man) company Klarna has postponed its planned IPO after President Trump’s sweeping tariff announcement last week, according to The Wall Street Journal. The company was expected to list shares this week but put the launch on hold “amid market uncertainty.”
I’m not entirely sure if Klarna’s stance has changed since the postponement of the tariffs (excluding China), but what I am sure of is that this delay casts serious doubt, at least for me, on the 2025 IPO market. (Klarna, now based in the U.K., had filed to list on the NYSE under the ticker ‘KLAR,’ with a target valuation of over $15 billion.)
Related articles:
BUSINESS
c. 💰 Alphabet to spend $75 billion on AI
Not exactly new news, but it’s reassuring to hear as a Google shareholder that Alphabet (Google) is still moving forward with its massive $75 billion investment in data centre infrastructure for 2025, despite all the back-and-forth U.S. tariff policies creating uncertainty around domestic spending and imports (in the case of hardware, e.g., Nvidia).
Alphabet (as you may or may not know, if you’ve been following along) joins Amazon, Meta, and Microsoft in maintaining the nearly ~$400 billion in AI infrastructure spending expected throughout 2025. All of these companies have repeatedly said customer demand is exceeding supply, so the spending is justifiable—though of course, time will tell, and this is a great thing to know before next earnings.
Related articles:
d. 🚙 Audi recalls more than 44,000 cars
And recalls are back! Volkswagen—parent company of Audi—is recalling exactly 44,387 Audi vehicles in the U.S. from the 2021 model year due to a software error that may cause the instrument panel display to fail, meaning crucial details like speed, warning lights, and other messages may not appear. Affected models include the Audi A6, Q7, Q8, RS and S variants, and more.
Owners will receive a free software update at dealerships. Notifications are expected to be mailed starting May 30, 2025.
The J. Nicholas Vroomsday Counter is now at 8.32 million.
What is the vroomsday counter? Vroomsday is doomsday but for cars. The ‘vroomsday counter’ is the total of all cars mentioned in recalls since the inception of The J. Nicholas newsletter.
POLITICS
e. 🇪🇺 EU removes tariffs from Chinese EVs
This week, the EU said that it and China have agreed to negotiate setting minimum prices for Chinese-made EVs as an alternative to the EU tariffs imposed last year. EU Trade Commissioner Maroš Šefčovič and Chinese Commerce Minister Wang Wentao agreed to the proposal, and China has since confirmed that negotiations will begin as soon as possible.
The EU raised tariffs on Chinese EVs to as high as 45.3% last October (2024), targeting companies like BYD, Geely, and SAIC, on top of the standard 10% import duty already in place. German carmakers, which are heavily dependent on the Chinese market, have opposed the current EU tariffs, so this is a major relief for those companies. The EU says it is “open to price undertakings if they can match the effectiveness of tariffs.”
Related articles:
📚 Book of the Week
For every book purchased using the links below, 100% of affiliate commissions are donated to charity. (Amount donated so far: $36.42.)
My full bookshelf: Here.
Value(s) - Mark Carney
🇨🇦 It’s élection time in Canada a few weeks from now, and over the coming weeks leading up, I will be sharing three books written by or about the three major party leaders of the three main political choices for Canadians. I’m personally a Canadian, and most of those reading are Canadian, so it should be helpful.
Book Description:
Our world is full of fault lines—growing inequality in income and opportunity; systemic racism; health and economic crises from a global pandemic; mistrust of experts; the existential threat of climate change; deep threats to employment in a digital economy with robotics on the rise. Mark Carney argues that these fundamental problems and others like them stem from a common crisis in values. Drawing on the turmoil of the past decade, he shows how market economies have evolved into market societies where price determines the value of everything.
When we think about what we, as individuals, value most highly, we might list fairness, health, the protection of our rights, economic security from poverty, the preservation of natural diversity, resources, and beauty. The tragedy is, these things that we hold dearest are too often the casualties of our twenty-first century world, where they ought to be our bedrock.
In this profoundly important book, Mark Carney offers a vision of a more humane society and a practical manifesto for getting there. How we reform our infrastructure to make things better and fairer is at the heart of every chapter, with outlines of wholly new ideas that can restructure society and enshrine our human values at the core of all that we build for our children and grandchildren.
Thank you for reading, partner. If you enjoyed today’s issue, feel free to share it with friends and family. I’ve placed a button below for you to do so (right underneath the paid membership line (see what I did there).
All the best,
Jacob
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lol my favourite part of the brief has to be the. “Welcome To WWIII” (economically) 😂😂
Who wrote the 'blurb' on Mark Carney's book in your newsletter was that you Jacob or Klaus Schwab? You do know what Carney believes in don't you? I'll give you a hint, it's one word and it starts with a C.