New Year, New AI Era & New Tariff\u00a0Sheriff<\/h2>\n
\n \t\tFebruary 5, 2025 at 2:21 am<\/a><\/em>\n\t\t \t\t \t\t<\/p>\n The first month of 2025 started with a bang when newly-inaugurated President Donald Trump announced a groundbreaking AI (artificial intelligence) program led by business titan thought leaders called Stargate, which promises to spend a half trillion dollars on AI data center infrastructure projects and create\u00a0hundreds of thousands<\/strong><\/mark><\/a>\u00a0of jobs. Just one week later, a wet blanket was placed on the Stargate euphoria when a Chinese AI upstart announced a technological\u00a0breakthrough<\/strong><\/mark><\/a>. Stocks moved lower on the last day of the month when Trump added insult to injury by confirming 25% Mexican\/Canadian tariffs and 10% additional Chinese tariffs would be implemented\u00a0immediately<\/strong><\/mark><\/a>.<\/p>\n Regardless, positive economic and corporate data coupled with other pro-business fiscal policies (e.g., deregulation and lower proposed taxes) allowed the financial markets to finish the month with respectable gains. More specifically, the S&P 500 surged higher by +2.7%; the NASDAQ +1.6%; and the Dow Jones Industrial Average +4.7%.<\/p>\n DeepSeek = Deep AI Trouble?<\/strong><\/p>\n Ever since OpenAI launched its ChatGPT language model (LLM) at the end of 2022, the global AI gold rush began. Just as the United States appeared to be dominating the AI race to global superiority, a bombshell was recently released, when a new Chinese AI upstart, DeepSeek, released a\u00a0white paper<\/mark><\/strong><\/a>\u00a0claiming the company\u2019s R1 large language model (LLM) rivaled competitors\u2019 LLMs\u00a0like OpenAI\u2019s ChatGPT, Meta\u2019s Llama (META), Anthropic\u2019s Claude, and Alibaba\u2019s Qwen (BABA) for a small fraction of the price spent by DeepSeek\u2019s American rivals. The \u201cDeepSeek Freak\u201d caused a chain reaction of selling across a wide swath of companies (including NVIDIA Corp \u2013 NVDA) that have benefitted from hundreds of billions in AI infrastructure spending. The fear that Chinese AI competition may leapfrog U.S. companies, and potentially dramatically reduce AI-related capital expenditures caused the NASDAQ to almost fall -2% last week, and AI juggernaut NVIDIA shed more than a half trillion dollars in the company\u2019s market value in a single day. Overall, U.S. stocks lost more than a trillion dollars in value on the day of the DeepSeek Freak unveiling.<\/p>\n Although investors were initially panicked by the DeepSeek revelations, not all of the Chinese claims have been substantiated. In fact, a just-released report by\u00a0SemiAnalysis<\/mark><\/strong><\/a>, a semiconductor research and consulting firm, states that DeepSeek\u2019s costs for its R1 LLM likely exceed $500 million, much higher than the $6 million training costs stated in DeepSeek\u2019s initial pronouncement.<\/p>\n Source:<\/strong>\u00a0NBC News<\/em><\/p>\n New Tariff Sheriff in Town<\/strong><\/p>\n While many investors were hoping for a delay in the implementation of President Trump\u2019s tariffs on Mexico, Canada, and China, Trump decided to move\u00a0full steam<\/mark><\/strong><\/a>\u00a0ahead with a February 1st start date.\u00a0 In 2023, Mexico was the U.S.\u2019s largest trade partner and Canada was the second largest. These Mexican and Canadian tariffs are very broad based and impact many different industries, including autos, agricultural products, and crude oil. You can see the extent\u00a0of the impact in the graphic below\u00a0graphic below<\/mark><\/strong><\/a>.<\/p>\n Source:<\/strong>\u00a0VisualCapitalist.com<\/em><\/p>\n But what does this mean for the economy? In short, it will mean higher prices for U.S. consumers and businesses. The Tax Foundation, an 85-year-old, non-partisan, tax policy non-profit attempted to quantify some of the potential impacts from the proposed tariffs. The bottom-line findings from the Tax Foundation were that tariffs would \u201cshrink economic output by -0.4% and increase taxes by $1.2 trillion between 2025 and 2034 on a conventional basis, amounting to an average tax increase of more than $830 per US household in 2025.\u201d Please, also see table below (Scenario 2<\/mark><\/strong><\/a>).<\/p>\n Source:<\/strong>\u00a0Tax Foundation<\/em><\/p>\n In addition to American consumers having to pay higher taxes and prices for tariffed import products, there will be an estimated -344,000 jobs lost and there could be unintended consequences from retaliatory tariffs imposed on U.S. exports (i.e., our goods shipped internationally will be priced uncompetitively). In fact, Canada and Mexico just jointly announced tit-for-tat tariffs on U.S. goods and services,\u00a0which will hurt<\/mark><\/strong><\/a>\u00a0these U.S. sales abroad.<\/p>\n With all of that said, the bark of the 25% tariffs on Mexico and Canada, along with the 10% in additional tariffs on China could be worse than the actual bite. Especially, if Trump uses these tariffs successfully as a negotiating tool and provides foreign countries with significant exemptions.<\/p>\n It\u2019s also important to keep the size of these tariffs in context. Imports of foreign good and services only represented\u00a013.9%<\/mark><\/strong><\/a>\u00a0of the Unted States\u2019 Gross Domestic Product in 2023. Of that small percentage of imports, Mexico, Canada, and China only represent a fraction of that. It\u2019s true that imports subtract from our country\u2019s economic activity, but even if tariffs on foreign goods lead to the consumption of more American manufactured products, those benefits will be somewhat offset by higher inflated prices that will pinch consumer wallets. The new year marks an exciting new era of AI and global trade, but with that comes many new threats and opportunities. Throughout our 17-year history at\u00a0Sidoxia Capital Management<\/mark><\/strong><\/a>, we have successfully navigated these pivot points, and we are excited about effectively managing through this current transitional period.<\/p>\n www.Sidoxia.com<\/mark><\/a><\/strong><\/p>\n Wade W. Slome, CFA, CFP\u00ae<\/strong><\/p>\n Plan. Invest. Prosper.<\/em><\/p>\n This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (February 3, 2025). Subscribe Here<\/mark><\/a> to view all monthly articles.<\/p>\n DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in META, NVDA, certain exchange traded funds (ETFs), but at the time of publishing had no direct position in BABA or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on the IC Contact page.<\/p>\n \n\t\t\tEntry filed under: economy<\/a>, Education<\/a>, Government<\/a>, inflation<\/a>, International<\/a>, Politics<\/a>. Tags: ai<\/a>, artificial intelligence<\/a>, bonds<\/a>, china ai<\/a>, deepseek<\/a>, donald Trump<\/a>, economy<\/a>, Federal Reserve<\/a>, GDP<\/a>, inflation<\/a>, interest rates<\/a>, investing<\/a>, Politics<\/a>, Sidoxia<\/a>, stock market<\/a>, Stocks<\/a>, tariffs<\/a>, trade<\/a>, trade war<\/a>, Wade Slome<\/a>.\t\t<\/p>\n<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":" New Year, New AI Era & New Tariff\u00a0Sheriff February 5, 2025 at 2:21 am The first month of 2025 started with a bang when newly-inaugurated President Donald Trump announced a groundbreaking AI (artificial intelligence) program led by business titan thought leaders called Stargate, which promises to spend a half trillion dollars on AI data center […]<\/p>\n","protected":false},"author":1,"featured_media":69395,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[96],"tags":[13170,36683,11677,629],"dealstore":[],"offerexpiration":[],"class_list":["post-69394","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-era","tag-sheriff","tag-tariff","tag-year"],"yoast_head":"\n![\"\"](\"https:\/\/investingcaffeine.com\/wp-content\/uploads\/2025\/02\/pic-face.jpg?w=1024\")
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