The Economics of Tariffs, Rising Yields, and Japan’s Inflation Trends

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Dear Money Master,

As we approach the end of 2024, this is our second-to-last newsletter of the year. 🎉 This edition brings you the latest updates on key economic developments, including rising Treasury yields, Japan’s inflation trends, and China’s ongoing recovery efforts. We also explore the tech world with insights on Zopa’s ambitious growth plans and the challenges facing private equity giants in 2025. 🌍💻

With tariffs set to be a major topic in 2025, today we break down their economics and impact on global trade. 📊

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📰 Your Daily Financial Digest - December 27th, 2024

🌍 Economics

1. Treasury Yields Rise Amid Mixed Jobs Data 📈
   The 10-year Treasury yield climbed 3 basis points to 4.607%, reflecting market anticipation of a more hawkish Fed in 2025. Weekly jobless claims fell slightly, while continuing claims reached a 3-year high. Read More

2. China’s Industrial Profits Fall for Fourth Straight Month 🏭
   Profits dipped 7.3% year-over-year in November, although declines have moderated since earlier months. Beijing's stimulus measures are yet to yield significant recovery, though some economists see signs of a rebound. Read More

3. Japan Approves Record $730 Billion Budget for 2025 🇯🇵
   This marks a 2.6% increase from the prior year, driven by social security and debt costs, while new bond issuance drops to a 17-year low due to surging tax revenue. Read More

4. Private Equity Eyes Creative Solutions for Asset Backlog 🏦
   With a backlog of unsold assets totaling hundreds of billions, private equity firms like Blackstone and KKR are expected to adopt innovative disposal methods in 2025. This comes as buyout funds face investor demands for cash distributions to fuel new deals. Read More

5. Tokyo Inflation Accelerates, Raising Rate Hike Prospects 📊
   Core inflation in Japan's capital rose to 2.4% in December, signaling progress toward the BOJ’s 2% target. However, weak factory output and reliance on utility-driven price increases highlight ongoing economic fragility. Read More

💻 Technology:

1. Nippon Steel Faces Hurdles in $14.9 Billion U.S. Steel Deal 🛠️
   The deal’s timeline has been extended to Q1 2025 as President Biden considers national security implications amid political resistance. Read More

2. Shinsegae and Alibaba Plan E-Commerce Joint Venture 🌐
   The collaboration involves merging AliExpress Korea and Gmarket under a single entity to compete in South Korea’s growing online market. Read More

3. Zopa Doubles Profits and Plans 2025 Current Account Launch 💳
   The UK-based digital bank expects a 35% revenue jump in 2024, crossing the £300 million mark, driven by demand for its fintech offerings. Zopa, which currently provides credit cards, personal loans, and savings accounts, plans to debut a current account next year, emphasizing ease of money management and competitive savings rates. Read More

💹 Earnings & Personal Finance:

1. Holiday Debt Rises to $1,181 Per Consumer 🎄
   LendingTree reports a 15% increase in average holiday debt compared to 2023, as inflation pressures consumer spending. Strategies like balance transfer cards and paydown methods are suggested for debt management. ReadMore

🔍 Deep Dive: The Economics of Tariffs 💸🌍

What Are Tariffs?
Tariffs are taxes imposed by a government on imported goods or services. They serve two main purposes: to generate revenue 💰 and protect domestic industries 🏭 by making foreign goods more expensive. While they can be a useful economic tool, tariffs often trigger retaliation, leading to trade wars that disrupt global markets ⚔️.

The Economic Effects of Tariffs

• For Consumers: Tariffs raise prices on imported goods 🛒, potentially limiting choices and increasing household expenses.

• For Producers: Domestic industries may benefit from reduced competition 🎯, but higher costs for manufacturers relying on imported materials can offset these gains.

• For Governments: Tariffs can generate revenue 💵 but risk alienating trading partners, leading to retaliatory measures.

Historical Examples of Tariffs and Their Impacts

1. The Smoot-Hawley Tariff Act (1930) 📉:
   During the Great Depression, the U.S. imposed high tariffs on over 20,000 imported goods to protect domestic farmers. This policy backfired, leading to retaliation from countries like Canada and the UK. Global trade plummeted, worsening the economic downturn.

2. The U.S.-China Trade War (2018–2020) 🇺🇸🇨🇳:
   The Trump administration imposed tariffs on $360 billion worth of Chinese imports, targeting electronics, machinery, and more. China retaliated with tariffs on U.S. goods like soybeans and cars. While aimed at reducing the U.S. trade deficit, the tariffs disrupted global supply chains and increased costs for businesses and consumers 🌎.

3. Steel and Aluminum Tariffs (2018) ⚙️:
   The U.S. imposed tariffs of 25% on steel and 10% on aluminum, citing national security. While this helped U.S. steel producers temporarily, industries relying on these materials, such as automotive and construction, faced higher costs, leading to job losses in downstream sectors.

Balancing the Use of Tariffs ⚖️
While tariffs can protect domestic industries temporarily, they often have unintended consequences, such as higher consumer prices and strained international relations. For policymakers, the challenge lies in using tariffs strategically without triggering counterproductive economic outcomes 🚨.

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To your financial empowerment, The Money Masters Team

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Disclaimer: This information is for educational purposes only and should not be construed as financial advice. Always conduct your own research or consult with a financial advisor before making investment decisions.