We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.
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But since our readership-audience for The Good Investors is wider than our subscriber base, we think sharing the reading list regularly on the blog itself can benefit even more people. The articles we share touch on a wide range of topics, including investing, business, and the world in general.
Here are the articles for the week ending 06 April 2025:
1. The Effects of Tariffs: How the Machine Works – Ray Dalio
Tariffs are taxes that:
1) raise revenue for the country imposing them that both the foreign producers and the domestic consumers pay (how much paid by each depends on their relative elasticities), which makes them an attractive tax
2) reduce the global efficiencies of production
3) are stagflationary for the world as a whole, more deflationary for the tariffed producer, and more inflationary for the importer that imposes the tariffs
4) make companies in the importing/tariffing countries more protected from foreign competition in the domestic market, which make them less efficient but more capable of surviving if aggregate domestic demand is maintained through monetary and fiscal policy
5) are necessary in times of an international great power conflict to assure domestic capabilities for production
6) can reduce both current account and capital account imbalances, which in plain English means reducing the dependencies on foreign production and foreign capital which is especially valued in times of global geopolitical conflicts/wars.
Those are the first order consequences.
A lot of what happens from there depends on how:
1. tariffs are responded to by the tariffed country/countries
2. currency rates are changed
3. monetary policies and interest rates are changed by the central banks and
4. fiscal policies are changed by the central governments in response to these pressures.
Those are the second order consequences.
2. China’s demographic paradox: empty cribs and full pet beds – Amber Zhang
For the third consecutive year, China’s population has declined, dropping by 1.39 million in 2024 to 1.4083 billion. While the birth rate showed a modest increase from 6.39 births per 1,000 people in 2023 to 6.77 in 2024, deaths still outnumbered births, with 10.93 million people dying last year—pushing the death rate to a five-decade high…
…Yet amid this birth drought, another trend is flourishing: young Chinese are increasingly channeling their parental instincts toward pets, creating a booming industry catering to “fur babies”; some even lavish generously on luxury products and services that were once exclusively reserved for humans…
…In some cities, local governments are implementing increasingly generous subsidies to encourage childbearing. For instance, the city of Hohhot has recently launched what might be China’s most aggressive birth incentive program yet.
Starting March 1, 2025, parents in this northern city of 3.6 million will receive substantial cash rewards for having children: a one-time payment of 10,000 yuan ($1,394) for a first child, annual payments of 10,000 yuan for five years for a second child (totaling 50,000 yuan), and annual payments of 10,000 yuan for ten years for a third child (totaling 100,000 yuan).
The urgency is clear: Hohhot’s birth rate stood at just 5.58 births per 1,000 people in 2023, below the national average of 6.39…
…When it comes to having children in China, a counterintuitive pattern manifests: the wealthier regions do not necessarily see more childbirths. This demographic paradox poses a challenge to the conventional wisdom that financial stability leads to larger families.
For instance, in 2022, Shanghai—China’s financial powerhouse—recorded just 4.35 births per 1,000 residents, while remote Tibet registered 14.24, more than three times higher. Other wealthy regions like Jiangsu (5.23) and Beijing (5.67) similarly lag far behind less developed provinces like Guizhou (11.03) and Ningxia (10.6)…
…However, on the other end of the spectrum, numerous young Chinese individuals are treating their pets as if they were their babies…
…Her business offers custom-designed pet outfits ranging from 200-400 yuan each, with some clients ordering new clothes monthly. “They basically all take their pets out in little strollers, and every season they travel with their dogs. There are almost no ‘naked dogs’ here—they all wear clothes.”
Although the price range of 200-400 yuan exceeds that of many children’s clothing (not to forget that the one-time subsidy for the first birth in Hohohot is 10,000 yuan), pet owners do not hesitate at such a price…
… As birth rates plummet, a parallel trend is emerging: young Chinese are channeling parental instincts and disposable income toward pets, treating them with a devotion once reserved for children.
Our numbers back up this observation as well. Since 2019, online sales of mother and baby products relative to pet products have been on the decline, indicating that the pet product sector has been growing at a faster rate…
…The conventional narrative suggests young Chinese aren’t having children because they can’t afford to. Housing prices in major cities have soared beyond reach for many, education costs are high, and work-life balance seems increasingly elusive in a competitive economy. These financial pressures are real.
Yet this explanation falls short when we consider that many of the same young people who find children unaffordable are spending lavishly on pets. A Shanghai resident who balks at the cost of diapers might think nothing of spending 400 yuan on a designer dog jacket or 680 yuan on premium cat food. The annual cost of keeping a dog in China now averages nearly 3,000 yuan—a significant sum that many willingly pay…
…The rise of pet parenting speaks to changing emotional needs in a fast-paced, often isolating urban environment. Pets provide unconditional affection, without the decades-long commitment and societal expectations that come with raising children. They allow young people to nurture and care for another being without fundamentally altering their lifestyle or identity.
And this is especially true for women. As regions become wealthier, education levels rise, women gain more career opportunities, and traditional family structures evolve. The cost of raising children in these areas also increases dramatically—not just financially, but in terms of time, career sacrifices, and lifestyle changes.
In more affluent cities and provinces in China, society often expects parents to invest enormous resources in each child to ensure their success. Many parents feel pressured to provide the best education, extracurricular activities, and social resources—this is the so-called “quality over quantity” mindset that was first promoted during the one-child policy and now becomes common in provinces like Jiangsu, Zhejiang, and first-tier cities, even after the one-child policy is in the history.
But with a pet, one can still travel, focus on a career, and maintain independence. Social media amplifies these trends, making pet ownership a lifestyle statement and identity marker in a way that parenthood, once taken for granted, no longer is.
3. How to Make 267%—or Lose 90%—on Treasury Bonds – Jason Zweig
If you’d bought the leading exchange-traded fund investing in long-term U.S. Treasury bonds at its peak in August 2020, you’d have lost 41.3% by now—even after reinvesting your interest income…
…Over the same period, the Direxion Daily 20+ Year Treasury Bull 3X Shares ETF, which seeks to triple the daily return of a long-term Treasury bond index, lost 90.2%, according to FactSet. Its mirror-image fund, Direxion Daily 20+ Year Treasury Bear 3X Shares, which aims to deliver three times the opposite of the long-term bond’s daily return, gained 266.6%…
…Officially, “ETF” stands for exchange-traded fund—a tool that makes investing simple. This subset of ETFs, though, is so sensitive to market moves that the acronym should stand for “extra-touchy funds.” They are anything but simple.
Extra-touchy funds come in two basic forms: leveraged and inverse…
…Leveraged funds use total-return swaps or other derivatives to amplify the daily returns of an index, a basket of securities or even a single stock. Leveraged ETFs can aim to deliver twice or even triple the daily return of the underlying asset, turning a 1% market rise into a 2% or 3% gain; they also magnify losses the same way.
Inverse funds seek the opposite of an asset’s daily return. Depending on how they’re structured, they can turn a 1% daily loss into a 1%, 2% or 3% gain; conversely, they can turn a 1% market gain into a loss of 1% or more…
…Imagine two ETFs. One tracks an index directly, without leverage. The other, which is leveraged, seeks to triple the daily return of the index. You’ve invested $100 in each fund, although the leveraged fund gives you $300 in exposure.
Now, to use an extreme example, let’s say the index gained 5% yesterday and loses 5% today.
Your stake in the first fund would have been worth $105 at yesterday’s close. After today’s 5% loss, you’ll have 95% of $105, or $99.75.
The leveraged fund tripled yesterday’s 5% gain, pushing the value of your position up to $115 and your exposure to the index up to $345.
That means today’s 5% drop in the index takes $17.25, or 5% of $345, off yesterday’s closing value of $115. That leaves you with $97.75.
To get back to your $100 starting point, you need a 0.25% gain in the unleveraged fund but a 2.3% gain in the leveraged fund. Of course, if the market went up 5% two days in a row, you’d be far ahead in the leveraged fund. Depending on the path of the market’s changes from day to day, the leverage can enrich you or leave you surprisingly deep in the hole…
…In a “trending” or repeatedly rising (or falling) market, you can make a ton of money on such funds. In a jagged market with uneven ups and downs, anything can happen.
Here’s why all that math matters: Getting double or triple the daily return of an index doesn’t mean you will outperform the index twofold or threefold in the long run.
4. Can the world’s free-traders withstand Trump’s attack? – The Economist
Countries are also diversifying trading partners, forging new alliances and building a new rule-making architecture. This has been made newly feasible by a decline in America’s and China’s share of global trade. At the start of the 21st century, America accounted for a fifth of global imports; today it makes up just an eighth. Its role as a consumer has also shrunk: the proportion of global value-added trade tied to American final demand fell from 22% in 2000 to 15% in 2020, the most recent year for which data exist. This reflects not only the rise of emerging markets and regional supply chains, but also changes in America’s economy. As services have grown, demand for imported goods has stabilised. Although China’s import share has risen, its market is forbiddingly competitive. Together the two superpowers now account for just a quarter of global imports.
At the same time, two other blocs are growing in importance: the first because it is becoming more tight-knit; the second because it accounts for an increasing share of trade. “Open-market allies” form a loosely aligned group committed to legal predictability, free commerce and diversified trade. At its core is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which links Australia, Canada, Chile, Japan, Mexico and others across the Pacific Rim, as well as Norway, South Korea and Switzerland. Together these economies absorb 22% of the world’s imports. Add in the European Union, which is responsible for another 12%, and the allies collectively account for over a third of global import demand—far more than America and China combined.
This group began to hedge against American protectionism in Mr Trump’s first term. Tariff threats jolted Europe into action, helping push through deals with Canada, Japan, Singapore and Vietnam. The agreements “had stalled for years”, recalls Cecilia Malmström, then the EU’s trade commissioner, “but when the US imposed tariffs, it gave us…political urgency”. At the same time, Canada appointed a minister for trade diversification and launched an export strategy seeking, by 2025, to boost overseas investment by 50%. Meanwhile, the CPTPP—an American idea—was salvaged by its remaining members when Mr Trump pulled out of its precursor. It came into force in 2018, eliminating most tariffs among 11 countries, including Australia, Canada, Japan, Mexico and Vietnam. Britain formally acceded last year, making the pact a 12-member group that accounts for around 15% of global GDP.
The second bloc might be called the “strategic hedgers”. It includes large, fast-growing economies such as Brazil, India, Indonesia, South Africa and Turkey, which depend both on American demand and Chinese capital, and are wary of aligning with either country. Their trade strategy is pragmatic. Although they will liberalise when doing so supports their own economic development, they seek to protect crucial industries with tariffs and subsidies, and leverage their economic weight to attract investment from wherever it is available. Collectively, they account for more than 15% of global imports.
Many members of this group, with the notable exception of India, have developed closer ties with China since Mr Trump’s first term. Brazil welcomed cheap Chinese goods—including electronics and electric vehicles—while shipping back soyabeans and iron ore. Indonesia absorbed a glut of Chinese machinery and textiles, while supplying coal, nickel and ferroalloys. Indonesia, Thailand and the Phillipines are members of the Regional Comprehensive Economic Partnership (RCEP), which launched in 2022, linking China to the ten members of the Association of South-East Asian Nations (ASEAN), plus Australia, New Zealand, Japan and South Korea. Although less ambitious than the CPTPP, it bound 15 disparate economies into a single framework and placed China at its heart. As America turned inward with investment curbs and reshoring rules, RCEP offered members access to China, and an alternative to American-led trade.
Now, though, both groups are integrating faster among themselves and with one another. Since Mr Trump’s election, the EU has updated deals with Chile and Mexico, reopened negotiations with Malaysia and is expediting talks with the Philippines, Thailand and the United Arab Emirates. Negotiations with Indonesia and India are also moving forward, with a target to complete a “commercially meaningful” agreement with India by the year’s end. The clearest sign of Europe’s urgency is its revived deal with Mercosur, a South American bloc including Brazil and Argentina. After 25 years of delay, it was at last sealed in December, owing, officials say, to Mr Trump’s return. The deal will create a combined market of over 700m consumers and streamline trade in cars, machinery and services. Although powerful countries such as France and Poland remain opposed, Mr Trump’s tariffs are expected to push the deal over the line this summer.
Canada is moving fast, too. Since its trade-diversification push began eight years ago, it has signed 16 deals, including a recent one with Ecuador. Canada also recently began trade talks with the Philippines, finalised a partnership with Indonesia and is negotiating with the ten ASEAN countries. Mark Carney, the country’s new prime minister, wants closer ties with partners that “share our values”, including Britain, the EU and certain Asian economies.
5. Lots More on a Massive, Historical, Stagflationary Shock (Transcript here) – Tracy Alloway, Joe Weisenthal, and Tom Orlik
Tom Orlik: We took him seriously, but not seriously enough. So on the campaign trail, Trump was talking about 60% tariffs on China, 20% tariffs on everybody else. And I think the reaction from Wall Street and the reaction from most in the economics profession was this is red meat for the campaign trail. This is not a serious proposal. The US economy, the global economy, the global trade system, wouldn’t be able to survive tariffs at this level. Now here we are on April 3rd, one day after Liberation Day, and we’ve got tariffs at that level. For China. If you add it up, tariffs may even be a bit higher than 60%. So it’s a huge shock…
…Tracy: Thank you. You gave this great presentation showing some of your favorite charts at the moment. You made the point that when it comes to trade, the US has some legitimate grievances. Can you walk us through that, especially in relation to China? Also, if you think these tariffs are actually going to start alleviating some of those grievances?
Tom: I think it’s interesting, Tracy. If we go back to the 1990s, it was a unipolar moment for the United States. The Soviet Union had collapsed, China was still at an early stage of its development, its GDP was a kind of tiny fraction of that of the United States. So the argument for free markets really made a lot of sense. Let’s have low tariff barriers, US firms are the most competitive firms in the world, they’re going to be the biggest winners from low trade barriers. Guess what? Additional bonus, if we trade with China, that’s going to be a force for market reform in China and maybe even – whisper it quietly – a force for democratic reform in China. That’s not how things played out over the years that followed.
China developed really quickly, up to the point where it became a rival to the United States for that biggest economy in the world, biggest geopolitical power spot. And China didn’t reform its economy, it didn’t become more market based, and it certainly didn’t reform its political system. And the US had a huge trade deficit and a lot of that trade deficit was with China. Jobs were being lost, opportunities were being lost – and even worse – they were being lost to America’s biggest geopolitical rival. That just doesn’t make a huge amount of sense. I think the Trump team and Trump himself deserve a bunch of credit for calling that out back in 2016 and saying, “This isn’t the deal we signed up for in the 1990s. This isn’t the deal we signed up for when we invited China into the WTO.” Something has to change…
…Joe: Can the global trading system survive the level of tariffs that we see, assuming this is what’s set?
Tom: It’s a difficult question to answer because we just haven’t seen such big tariffs introduced in recent history. We don’t have much data we can use to estimate the impact. That said, we’re making best efforts. What we’ve done is we’ve taken a computable general equilibrium model of the global economy. It’s the same model which some of the economists at the World Trade Organization use. We’ve used it to estimate the impact of this tariff shock. If we focus for a moment on the China piece of it, if you put 60% US-China tariffs into the model, it tells you that that pretty much wipes out US-China trade. That’s pretty consequential. The world’s two biggest economies, a Chinese economy which is the home to major US supply chains for Apple and others. If those two economies just stop trading with each other, that’s a huge, huge shock to the system.
Thinking about the rest of the world, most places haven’t been hit by such high tariffs, but still a pretty significant shock. Europe, for example, now facing 20% tariffs when they sell to the United States. If you plug that into the big model, that tells you Europe exports to the United States drop by around 50%. So these are huge consequential negative shocks to the global trade system…
… Tom: So if we think about Trump 1 and the trade war with China back then, a couple of things happened. Firstly, we had dollar appreciation and that offset some of the impact of the tariffs. Secondly, we had transshipment. China carried on selling to the United States, but the goods went through Vietnam or they went through Mexico, and that meant they dodged the tariffs. Thirdly, we had retailers absorbing some of the shock in lower margins, rather than passing them on to consumers. So all of these things meant tariffs on China went up 25%, but the US consumer didn’t really feel the shock. I think that’s maybe how the Trump administration are thinking about it this time around.
This time around, though, I think there’s going to be some pretty significant differences. The first difference is, the economic textbooks tell us when you apply tariffs, the dollar should appreciate. But guess what? This time around, it’s depreciating. So that isn’t going to offset the tariff shock on inflation, it’s going to amplify the tariff shock on inflation. Secondly, this time round, it’s not just China, it’s everybody. Everybody’s being hit with the shock at the same time. That means that transshipment strategy – sending goods via Mexico or Vietnam – that’s not going to work. You’re still going to get hit with tariffs. Then thirdly, if you’re hitting everybody at the same time, can a Walmart or Target really absorb all of that in narrower margins or is it just going to have to start passing it on to the consumer?
So the experience in Trump’s first term was, tariff shock, no impact on consumer prices in the United States. This time round, it’s difficult to say, there’s a lot of variables at work. But I think this is going to be a stagflationary shock, pretty significant hit to US growth, pretty significant boost to US inflation…
…Tom: Wages in the US are much higher than wages in China or Vietnam or Mexico. Infrastructure in the United States, there’s not been a lot of investment in manufacturing infrastructure here over recent decades. Supply chains stretch across borders. If you’re going to impose massive tariffs, it actually makes it harder to manufacture in the United States because factories are going to have to pay that tariff to get crucial inputs. Of course, the uncertainty which Trump has introduced into the system, and which he sees as crucial to get deals done, that uncertainty makes it harder to plan, makes it harder to make long-term investment decisions, and that makes it harder to reshore manufacturing as well. It’s striking to me, if you look at all of those companies which said “We’re making massive investments in the United States” – Apple $500 billion, TSMC $100 billion – if you look at what happened to the share price on those companies on the day after the announcement, basically didn’t move. I think what that tells us is that investors are pretty skeptical. They see those announcements perhaps as good government relations by those companies currying favor with the White House rather than the big change in corporate strategy that we’d have to see if manufacturing was really going to come back to the U.S…
…Tom: There’s the idea that the tariff impact on inflation is going to be transitory. So what you have to respond to is the impact on growth. That would suggest the impulse for the Fed is going to be more rate cuts. That said, there’s a bunch of uncertainty out there. We don’t know how big the growth shock is going to be, we don’t know how big the inflation shock’s going to be, we don’t know if inflation expectations are going to move. If we see inflation expectations staying high, that would be a sign that the tariff shock and inflation isn’t going to be transitory…
…Tom: I think there’s a few things we’re going to be looking for in the days ahead. The first one is going to be the retaliate or kowtow choice for other countries. Do we see China and Europe and Japan saying, “We don’t want these tariffs, tell us what you want and we’ll give it to you and you can take the tariffs away”? Or do we see them saying, “You give us tariffs, we’re going to give you tariffs right back”? If it’s that retaliation path, that’s going to amplify the impact. Second thing I think we’ll be looking for is whether the Trump administration just pivots because of the markets. We’ve got the Nasdaq down more than 4% today. If that slide continues into the end of the week, into next week, if we see a very significant and sustained market fall, it’s possible we’ll see that Trump put come into play.
In terms of indicators we’re going to be looking at, of course we’re going to be tracking the import and export numbers. Another important one to look at is going to be the import price data. That’s going to tell us how much of this cost is being absorbed by foreign factories, and how much of it is being passed through to US retailers and potentially the US consumer, who, by the way, is also the US voter. Midterms – 2026, not that far away.
Joe: Tracy, can I just say two things that struck me yesterday? One is, they knew this was going to slam the market.
Tracy: Oh, yeah.
Joe: And they did it anyway. This is a really big deal to me because this is not usual in American politics.
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