How China Dodges U.S. Tariffs

HEADLINES
What You Need To Know

The Federal Reserve held interest rates steady at 4.25%-4.5% on Wednesday, pausing after three consecutive cuts as inflation remains above its 2% target. Chair Jerome Powell emphasized the need for more progress on inflation before further rate adjustments, despite President Trump’s calls for immediate cuts. Markets now expect the next potential rate reduction in June.

China’s factory activity slowed in January, with the Caixin/S&P Global manufacturing PMI falling to 50.1 as the country braces for new U.S. tariffs. Beijing’s economic growth remains fragile despite policy support, with trade tensions adding pressure.

SoftBank is negotiating a potential investment of up to $25 billion in OpenAI, which would make it the company’s largest backer. The deal remains under discussion, according to a source familiar with the talks.SoftBank previously participated in OpenAI’s funding, including a $500 million investment in its last round. In November, OpenAI allowed employees to sell about $1.5 billion worth of shares in a tender offer to SoftBank.

China’s DeepSeek has become the biggest story in tech this week, grabbing Wall Street’s attention with one key number: $6 million. That’s the estimated cost DeepSeek reported for training its latest AI model—far lower than expected. However, a new report from SemiAnalysis suggests that DeepSeek’s actual hardware spending over time is well above $500 million, making the cost narrative more complicated.

OPINION
Matt Allen’s Take

With all the talk about tariffs this weekend, there’s one trade issue that isn’t getting enough attention: the de minimis loophole. This exemption allows any shipment under $800 to enter the U.S. without paying import duties, undergoing customs inspections, or complying with many regulatory standards. Originally introduced in the 1930s, long before e-commerce, this rule was never designed for a world where companies could exploit it at scale. Today, that is exactly what’s happening.

Last year alone, nearly one billion packages entered the U.S. from China under this loophole. Because Customs and Border Protection cannot possibly inspect goods at this volume, many shipments slip through the cracks. This allows companies to avoid tariffs entirely by breaking up large orders into multiple smaller shipments, effectively bypassing traditional import duties. In 2022, for example, GAP paid $700 million in import taxes, while H&M paid $200 million. Meanwhile, Temu, which heavily benefits from this loophole, paid zero. This isn’t just a tax issue. It is an unfair advantage that distorts competition, letting overseas sellers price their products lower than U.S. retailers who must comply with the full cost of doing business.

Beyond tariff evasion, de minimis shipments present a significant consumer safety risk. Unlike standard imports, these packages do not undergo rigorous safety checks, making it easier for counterfeit goods, mislabeled products, and even hazardous materials to enter the market undetected. A November 2024 report found toxic substances, including lead, in children’s products from Temu and AliExpress. One jacket contained 622 times the legal limit of toxic chemicals. While U.S. companies are held to strict product safety standards, many of these direct-to-consumer imports face little to no oversight.

The financial impact is just as concerning. Because companies that use the de minimis loophole avoid paying import duties, the U.S. government loses billions in potential revenue each year. Meanwhile, American businesses and taxpayers bear the financial burden. Companies like Temu and SHEIN operate under an unfair trade advantage, undercutting domestic competitors who must follow the rules. This is not a matter of shutting down global trade. It is about ensuring a level playing field.

As discussions around tariffs heat up, the de minimis loophole deserves far more attention. Free trade isn’t free when it allows unchecked imports to flood the market while U.S. businesses are forced to compete with a built-in disadvantage.

UPCOMING
What You Need To Watch

On Monday, President Trump will call Canadian Prime Minister Justin Trudeau to discuss the trade war, a conversation that could have major implications for trade relations and markets.

On Friday, the Jobs Report will be released, giving a full breakdown of job growth, unemployment, and wage trends—key data for the Fed and markets.

Throughout the week, earnings season continues with big names like Palantir and Alphabet reporting

Also throughout the week, multiple Federal Reserve Governors will be speaking, which could provide more clarity on the Fed’s outlook for interest rates and the economy.

TIP
INFLATION

Inflation quietly erodes your purchasing power over time, making every dollar you own worth a little less each year. That is why investors need to think about how inflation affects their portfolios and how to protect against it. Stocks tend to be a strong long-term hedge against inflation because companies can raise prices, increasing revenues and earnings. However, high inflation can also lead to rising interest rates, which put pressure on growth stocks and the broader market. Hard assets like real estate and commodities often perform well during inflationary periods. Real estate values tend to rise with inflation, and landlords can increase rents, keeping up with higher costs. Commodities like oil, gold, and agricultural products also become more valuable as prices rise

CHART
HIGH ROA

TERM
TARIFFS

Tariffs are taxes imposed by a government on imported goods to make foreign products more expensive and encourage domestic production. While they can protect local industries, they also raise costs for businesses and consumers.

For example, if the U.S. places a 25% tariff on imported steel, American companies that rely on steel (like automakers and construction firms) will face higher costs, which may lead to price increases for consumers. Investors monitor tariff policies because they can impact corporate profits, supply chains, and even entire sectors—especially in industries like manufacturing, agriculture, and technology that depend on global trade.

Actions
Steps to Level Up

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