CICC: How much longer can the United States "hold on"?

Since April, Trump's tariff policy has undergone a series of "dramatic" changes, with the "reciprocal tariffs" on China announced on April 2 increasing from 34% to a "irrational" 125%, and then dropping to even lower than expected 10% after the China-U.S. talks (The Asset Implications of the "De-escalation" of China-U.S. Tariffs). The market has similarly reacted, experiencing a significant drop after the tariff announcement, but has now completely recovered, as if the impact of the tariffs "never happened." Chart: U.S. tariffs on China have decreased from 145% to 30%, with an additional 24% deferred for 90 days. Source: PIIE, CICC Research Department The changes in tariff policy, akin to "child's play," certainly bear the distinct imprint of Trump's governing style, but they also reflect the constraints of having to bow to reality, as such high tariffs are unsustainable for both the U.S. and China in the long term. Therefore, the tariffs have dropped from an irrational level that was almost equivalent to a "trade embargo" to a level that is "negotiable and tradable." Although the timing and magnitude of this change were unpredictable, it was almost a necessity of reality; otherwise, U.S. inflation, the economy, and financial markets would face significant pressure, as evidenced by the "triple whammy" of stocks, bonds, and currencies in mid to late April (What Happened During the Last "Triple Whammy"?). Chart: Since the "reciprocal tariffs," the U.S. experienced a "triple whammy" in stocks, bonds, and currencies in mid to late April. Source: Bloomberg, CICC Research Department Looking ahead, there is likely to be considerable uncertainty regarding the progress of tariff policies, and reversals cannot be ruled out. The 90-day exemptions for the 10% tariffs on other economies and the 10% "reciprocal tariffs" on China will expire on July 9 and August 12, respectively. Therefore, understanding how long the U.S. economy and financial markets can "withstand" will greatly help us gauge the timing and bottom line of potential concessions. In this article, we will analyze how long the U.S. can "hold out" based on the three constraints of inflation, growth, and financial markets, and assess the possible future developments of tariffs. The Logic and Transmission Path of Tariffs' Impact on the U.S.: Short-term "Supply Shock," Long-term "Demand Shock" First, compared to the "demand shock" that tariffs impose on China, for the U.S., the short-term impact is more of a "supply shock," manifested as inflationary pressure due to supply shortages. Tariffs will raise the prices of imported goods in the U.S. and reduce the supply of imported goods, thereby decreasing the overall supply of goods in the U.S. and pushing up goods inflation. This can be observed through inventory levels and the degree of supply chain tightness to gauge the impact of tariffs: 1) Inventory: This includes macro-level inventories across various sectors and micro-level inventory situations disclosed in the financial reports of listed companies The inventory situation and supply-demand relationship can be monitored through inventory scale, year-on-year growth rate, and inventory-to-sales ratio. 2) Supply Chain: We have sorted out the supply-demand gaps and import dependence of different industries based on the U.S. supply chain framework to assess potential disruptions in external supply chains, supplemented by price and quantity indicators in production and transportation to gauge the current tightness of the supply chain. Secondly, the inflationary pressure caused by tariffs will increase the risk of stagflation in the U.S., making it difficult for the Federal Reserve to quickly cut interest rates in response to growth pressures. Currently, the "foundation" of the U.S. economy is not bad; under the baseline scenario, the economy is gradually slowing down, and a rate cut by the Federal Reserve would be sufficient to boost the economy. However, if the "supply shock" continues to transmit and pushes up inflation, making it impossible for the Federal Reserve to cut rates, this can be observed from the price levels at various stages. Finally, it may also evolve into a "demand shock," further pressuring economic growth. On one hand, inflationary pressure on the supply side will suppress consumption, which is already gradually slowing down. On the other hand, if inflationary pressure prevents the Federal Reserve from cutting rates, high interest rates will also suppress credit expansion in the private sector, thereby restraining interest-sensitive real estate and investment, increasing growth pressure. In addition to the direct transmission chain to the economy, if tariffs cause turmoil in the financial markets, it will also indirectly affect the economy. After the announcement of "reciprocal tariffs," the U.S. experienced a "triple kill" in stocks, bonds, and currencies (see "What Happened During the Last 'Triple Kill'?"), and on May 16, Moody's downgraded the U.S. credit rating from the highest Aaa to Aa1, reflecting negative impacts. We believe that if financial markets continue to be turbulent, it will not only increase the pressure of capital outflow from the U.S., which is detrimental to government and corporate financing, but will also bring about a negative wealth effect, thereby increasing growth pressure. Of course, there are also hedging measures during this period. If tariffs are further downgraded, Trump's tax cuts are smoothly advanced, or the Federal Reserve cuts rates, the impact of tariffs on U.S. growth will be weakened. However, if none of these can be realized, it means that the U.S. economy and financial markets will face more substantial impacts again. 1. How Long Can U.S. Inventory "Hold Up"? Restocking Can Support Until the Fourth Quarter; Textiles, Apparel, Computers, and Electronics with High Exposure to China and Tight Supply Face Greater Pressure From November 2024, when Trump was elected, to March 2025, before the announcement of "reciprocal tariffs," the U.S. clearly "rushed to import," with import amounts and social nominal inventory increasing by 20% and 2.4% respectively compared to the same period last year, which can be observed from two dimensions: 1) Macroeconomic Level: There are two sets of data, nominal inventory published by the U.S. Census Bureau and actual inventory published by the Bureau of Economic Analysis (BEA), both of which are monthly frequency, but actual inventory disclosure is more lagging (current nominal inventory data is published up to March, actual inventory data up to February). When prices are stable, the trends of both are basically consistent. Considering the timeliness of data publication, we use nominal inventory data for analysis From the perspective of nominal inventory scale and year-on-year growth rate, wholesalers and manufacturers are clearly replenishing their stocks. As of March, the inventory scale increased by 1.1% and 1.0% compared to October 2024, with year-on-year growth rates rising by 1.6 percentage points and 1.1 percentage points, respectively. Retailers replenished their stocks significantly in 2024 and entered a destocking phase in November 2024, currently showing no significant replenishment. From the perspective of the inventory-to-sales ratio, there has been a slight rebound under the "import rush," but overall it is still declining, indicating that demand remains strong. In March, the inventory-to-sales ratios for manufacturers, wholesalers, and retailers were 1.6, 1.3, and 1.3, respectively, positioned at the 90%, 13%, and 62% percentiles since 1998. Chart: Since Trump's election in November 2024, wholesalers and manufacturers have clearly replenished their stocks, while retailers have not shown significant replenishment... Source: Haver, CICC Research Department Chart: The year-on-year growth rate of inventory also reflects this Source: Haver, CICC Research Department Chart: From the perspective of the inventory-to-sales ratio, there has been a slight rebound under the "import rush," but overall it is still declining, indicating that demand remains strong Source: Haver, CICC Research Department 2) On a micro level, specialized retailers are replenishing stocks the fastest, followed by large retailers, while convenience stores continue to destock. Specialized retailers (such as Best Buy and Home Depot) are rapidly replenishing their stocks, with the year-on-year growth rate of inventory rising quickly from -0.5% in Q3 2024 to 10.0% in Q1 2025. The year-on-year growth rate of inventory for large retailers like Walmart and Target increased from 4.8% in Q3 2024 to 7.5% in Q4, with a slight decline to 6.8% in Q1 2025. They mentioned replenishment strategies in their financial reports and recent conference calls, with Target stating it aims to "increase inventory lead time and flexibility to respond to potential changes in trade policies." Meanwhile, convenience stores (such as Dollar General) continue to destock, with the year-on-year growth rate of inventory declining further from -3.0% in Q3 2024 to -6.4% in Q1 2025. Regarding price increases, Best Buy mentioned that "the company maintains about six weeks of inventory, and price increases will gradually reflect from Q2 to Q4," while Walmart stated that "it will start raising prices on some products from May." Chart: At the micro level, specialized retailers are replenishing stock the fastest, followed by large retailers, while convenience stores continue to deplete inventory. Source: Haver, CICC Research Department From the perspectives of inventory and import data, we estimate that this round of "import grabbing" can be supported until the fourth quarter. Currently, 24% of the 34% "reciprocal tariffs" imposed by the U.S. on China has been exempted for 90 days from May 12 to August 12, while the portion of "reciprocal tariffs" exceeding 10% on other countries has been exempted for 90 days from April 9 to July 9. Assuming that tariffs "return" after the exemption period, we estimate, ► From the perspective of inventory consumption: Current inventory data is as of March 2025 and does not reflect changes since the tariffs in April. We calculate the replenishment speed based on the "accumulation" phase from November 2024, after Trump's election, to March 2025, using the inventory decline from the previous de-stocking cycle as the inventory consumption speed. Therefore, assuming that after the consumption in April, the U.S. replenishes stock again from May to July, and continues to consume accumulated inventory from August, it can approximately consume for another 3 to 4 months, returning to the trend level since the last de-stocking cycle in July 2022 around October to November. Chart: We estimate that inventory will return to the trend level since the last de-stocking cycle in July 2022 around October to November. Source: Wind, CICC Research Department ► From the perspective of import data: We estimate that since Trump's election in November 2024, the U.S. has "grabbed imports" worth approximately $230.7 billion. Assuming tariffs reduce U.S. imports by 20% to 30%, based on: 1) According to Bloomberg Economics, the "reciprocal tariffs" announced by Trump in early April could reduce U.S. imports by 30%; 2) The Tax Foundation estimates that a 10% global benchmark tariff will lead to an initial 10% reduction in imports over the first three months, followed by a 20% reduction each month; 3) Maersk's CEO Vincent Clerc stated that container shipping volumes between China and the U.S. fell by 30%-40% in April. If April's import value decreases by 20% to 30%, and from May to July continues to "grab imports" at the previous rate, with a monthly import decrease of 20% to 30% starting in August, then "import grabbing" could last for 3 to 5 months, corresponding to depletion from October to December. Chart: After Trump's election in November 2024 until the tariffs in March 2025, the U.S. "rushed to import" approximately $230.7 billion Source: Wind, CICC Research Department Furthermore, considering the varying degrees of supply and demand tightness across different industries and their reliance on imports, the impact of tariffs also varies significantly. We have organized the supply-demand gaps and import reliance of different industries based on the U.S. supply chain framework, measuring supply-demand contradictions with retail and channel inventory-to-sales ratios, and assessing supply sources and import reliance through domestic manufacturing and imports in the U.S. Overall, as of March 2025, the inventory-to-sales ratio in the U.S. channel segment is 1.3, which is at the 61st percentile since 1998. On the supply side, the total manufacturing output in the U.S. is 1.9 times that of imports, indicating a relatively low dependence on overseas sources. By industry, 1) currently tight supply and demand industries include electrical and components, energy and chemicals, and paper products, among which electrical and components heavily rely on imports from mainland China, accounting for 22.5% of their total imports, while the share of imports from mainland China for energy and chemicals and paper products is less than 10%. 2) In terms of manufacturing/import ratios, industries that are more reliant on imports include apparel (manufacturing/import ratio 0.1), leather (0.2), computers and electronic products (0.5), electrical and components (0.9), and textiles (1.1), with textiles (37.5%), leather (23.5%), and electrical and components (22.5%) having higher shares of imports from mainland China. Overall, the textile and apparel, computers and electronic products (especially computing storage devices and radios), and electrical components industries have high exposure to China and relatively tighter supply, which may face greater pressure in the future. Due to the previous partial relocation of production capacity in the apparel, leather, and semiconductor industries to Southeast Asia, there was less inventory replenishment before April under market expectations of low tariff increases for Southeast Asia. Assuming a faster pace of inventory replenishment from May to July, we estimate that compared to the overall inventory, these industries can only support around 4-5 months at the current level starting now. Chart: Industries such as textiles and apparel, computers and electronic products, and electrical components have high exposure to China and relatively tighter supply Source: Haver, CICC Research Department II. How long can U.S. inflation "hold out"? Tariffs may push CPI up by 1 percentage point year-on-year, but factors like inventory replenishment and low oil prices can delay inflation pressure until the end of the third quarter From the supply chain indicators at various stages, the tariffs in April have already transmitted some pressure to the supply chain, and the pressure temporarily eased after the "downgrade" of tariffs on May 12. 1) Production stage: In April, the new export orders of China's manufacturing PMI fell to 44.7, the lowest value since 2023 According to the ISM U.S. Manufacturing PMI survey report, the production in the petroleum, coal, food and beverage, tobacco, and transportation equipment industries has significantly declined, leading to factory layoffs. 2) Transportation segment: In terms of prices, in April, the freight rates for Chinese export containers to the West Coast, East Coast, and Southeast Asia routes have significantly increased, indicating that tariffs have already transmitted to the prices of Chinese exports. The Baltic Dry Index has also risen since the end of April. In terms of volume, the import cargo throughput at the Port of Los Angeles rapidly decreased from a peak of 124,000 containers in the week of April 19 to a low of 76,000 containers before the tariff "downgrade" on May 10, a decline of 38.7%. However, after the tariff "downgrade" on May 12, it rebounded to 85,000 containers in the following week. Chart: In April, China's manufacturing PMI new export orders fell to 44.7, the lowest value since 2023. Source: Wind, CICC Research Department Chart: In April, the freight rates for Chinese export containers to the West Coast, East Coast, and Southeast Asia routes have significantly increased. Source: Wind, CICC Research Department Chart: The import cargo throughput at the Port of Los Angeles significantly declined in late April, but rebounded after the tariff "downgrade." Source: Wind, CICC Research Department From the overall impact of tariffs, referring to the San Francisco Fed's estimate that the import proportion in PCE is about 10.6%, if we assume that tariffs are fully transmitted, we estimate that the current effective tax rate of 16-17% could raise PCE by 1.4-1.5 percentage points to around 4%. Correspondingly, we estimate that CPI could rise by 1 percentage point year-on-year, and core CPI could rise by 1.1 percentage points. However, thanks to 1) "import rush" for restocking, 2) lower oil prices alleviating inflation, and 3) Trump's executive order on May 12 to reduce drug prices, aiming for "Most-Favored-Nation" drug prices, the transmission of inflation will not be reflected so quickly. Furthermore, even if tariffs are reinstated after exemptions on July 9 and August 12, we estimate that inflationary pressure may not manifest until the end of the third quarter. CPI year-on-year and core CPI year-on-year may rise from 3.2% and 3.3% at the end of the third quarter to around 3.4% and 3.5% by the end of the year Chart: Our calculation estimates that the current effective tax rate of 16-17% may raise PCE by 1.4-1.5ppt to around 4% Source: Haver, CICC Research Department Chart: Our calculation estimates that a 1 percentage point increase in CPI year-on-year will raise it from 3.2% at the end of the third quarter to around 3.4% by the end of the year Source: Haver, CICC Research Department III. How long can U.S. growth "hold on"? Consumption and investment support until the end of the year, existing home sales bottom out but new homes see an increase; progress on tax cuts and the ability to lower interest rates are more critical The impact of tariffs on growth can be divided into two channels: first, raising prices while suppressing demand; second, high inflation limits the Federal Reserve's ability to cut interest rates, and high interest rates further suppress credit expansion in the private sector. We pointed out in "The Asset Implications of the 'De-escalation' of China-U.S. Tariffs" that the risk of stagflation from tariffs still exists. An effective tariff rate of 16-17% may push U.S. PCE inflation up by 1.4-1.5ppt to 4.0%; tariff revenue may increase by $400-410 billion in 2025. Assuming a tax multiplier of 1 within a year and that U.S. consumers and overseas producers share the tariff costs, this could drag down the real GDP growth rate by 0.8 percentage points in 2025. Based on the natural economic growth path, combined with additional disturbances brought by tariffs, such as inflation suppressing consumer demand and high interest rates suppressing corporate investment and real estate sales, we estimate that consumption can be supported until the end of the year, investment can be supported until the third quarter, and real estate will continue to bottom out. ► Consumption: The baseline scenario remains resilient throughout the year, but a further escalation of tariffs may lead to zero growth by the end of the year. Excess savings were basically exhausted by March, but disposable income has increased, especially as asset income has supported the resilience of consumer spending. Nominal consumption in the first quarter of 2025 is expected to remain flat year-on-year at 5.7% compared to the fourth quarter of 2024, with goods consumption rising from 2.9% to 4.1% year-on-year, while service consumption slightly decreased from 7.0% to 6.4%. Chart: Year-on-year growth rate of U.S. residents' disposable income has increased since the beginning of the year Source: Haver, CICC Research Department Chart: The increase in asset income offsets the decline in wages, supporting the resilience of consumer spending Data Source: Haver, CICC Research Department If tariffs continue to decrease, the Federal Reserve can cut interest rates to boost growth, assuming the savings rate remains at the current 3.9%, and disposable income grows by 0.4% quarter-on-quarter (the pre-pandemic average was 0.45%, and post-tech bubble was 0.4%), nominal consumption year-on-year may drop from the current 5.5% to 4.9% by the end of 2025. However, if tariffs are raised again, disposable income quarter-on-quarter (0.2%) and the savings rate (5.1%) will return to the expected recession levels of the second and third quarters of 2024, leading to a slowdown in year-on-year consumption to 1.7% by the end of the year, with quarter-on-quarter growth dropping to zero in December. Chart: If tariffs can further decrease, assuming the savings rate remains at the current level of 3.9%, disposable income maintains a quarter-on-quarter growth of 0.4% Data Source: Haver, CICC Research Department Chart: Consumption will not significantly decline, with a pessimistic scenario showing zero quarter-on-quarter growth Data Source: Haver, CICC Research Department ► Investment: The baseline scenario can support the whole year, while renewed tariff increases may lead to negative quarter-on-quarter growth in the fourth quarter. The gap between corporate investment returns and financing costs narrows from -1.2ppt in the third quarter of 2024 to -0.5ppt in the fourth quarter. This leading indicator's positive effect on investment is also reflected in the first quarter GDP, with non-residential fixed asset investment's contribution to real GDP rising from -0.5ppt to 1.3ppt, with information processing equipment contributing nearly 1 percentage point. Similarly, on a micro level, capital expenditures in the S&P 500 non-financial and non-energy sectors rose year-on-year from 14.4% to 17.7% in the first quarter, with information technology (43%) and communication services (28%) leading. Chart: The gap between corporate investment returns and financing costs narrows from -1.16ppt in the third quarter of 2024 to -0.5ppt in the fourth quarter Data Source: Federal Reserve, FDIC, CICC Research Department In the scenario of tariff reductions leading to two interest rate cuts by the Federal Reserve this year and tax reductions being implemented, assuming that investment returns and financing costs "even out," we expect year-on-year growth to rise from 5.5% in the first quarter to 7.5% by the end of the year, with further acceleration expected. If tariffs are raised again, and the Federal Reserve cannot initiate interest rate cuts this year, or if the gap between investment returns and financing costs expands again to -1.2ppt at the expected recession levels of 2024, corporate investment year-on-year may slow to 4.6% by the end of the year, with quarter-on-quarter growth turning negative in the fourth quarter Chart: Under extreme tariff assumptions, overall investment in the fourth quarter may turn negative quarter-on-quarter, with zero growth in the benchmark scenario for the fourth quarter. Source: Haver, CICC Research Department AI investment is more affected by industrial trends and base effects, but will still achieve positive year-on-year growth for the whole year. Based on the latest guidance from Google, Meta, Amazon, Microsoft, and Nvidia, capital expenditure by leading tech companies is expected to slightly decline year-on-year to 63% in the first quarter, and may continue to slow down to 20% by the end of the year starting from the second quarter. Since capital expenditure by leading tech companies has a lead of about one quarter compared to the information processing equipment under GDP investment, we estimate that the year-on-year growth of information processing equipment may gradually slow from 21% in the first quarter to 7% in the fourth quarter. Chart: Accelerated investment in AI-related fields in the first quarter of 2025, with year-on-year growth of information technology equipment rising to 21% Source: Federal Reserve, FDIC, CICC Research Department Chart: We estimate that the year-on-year growth of information processing equipment may decline from 21% in the first quarter to 5% in the fourth quarter, with an expected annual year-on-year growth rate of 13-14%. Source: Haver, CICC Research Department ► Real Estate: Overall improvement in the benchmark scenario, while renewed tariff escalation continues to suppress. The 30-year mortgage rate has risen above the rental yield since the beginning of the year, further suppressing real estate sales. The annualized sales volume of existing homes in the first quarter of 2025 is expected to be 4.13 million units (vs. 4.16 million units in the fourth quarter of 2024), and there has been no significant improvement in the previously expected increase in new home sales, with an annualized sales volume of 684,000 units in the first quarter (vs. 673,000 units in the fourth quarter of 2024). If tariffs are gradually reduced, and the Federal Reserve opens up space for interest rate cuts, then two rate cuts would correspond to a central rate of U.S. Treasury yields at 4-4.2%, with the 30-year mortgage rate around 6.5%. By the end of 2025, existing home sales may increase year-on-year by 1.5% to around 4.1 million units, and new homes may increase year-on-year by 9% to around 740,000-750,000 units, with overall home sales increasing by 3% compared to 2024. However, if tariffs escalate again, and the Federal Reserve does not cut rates this year, U.S. Treasury yields would be at 4.2-4.5%, with the 30-year mortgage rate around 7%. The growth pressure may cause residents' home purchasing power to fall back to the level expected in the third quarter of 2024 recession. We predict that by the end of 2025, existing home sales may slightly decline year-on-year by 1% to 4 million units, while new homes are expected to increase year-on-year by 5.6% to around 720,000 units, with overall home sales remaining flat compared to 2024 Chart: Since the fourth quarter of 2024, mortgage rates have risen, returning above rental yields, suppressing home sales. Source: Bloomberg, CICC Research Department Chart: Existing home sales may rise from a year-on-year decline of -1% in extreme scenarios to a baseline scenario of 1.5%, while new home sales year-on-year may accelerate from 5.6% to 9%. Source: Haver, CICC Research Department Progress on tax cuts and whether to lower interest rates remains key. The Trump tax cut plan has passed the House of Representatives, and attention now turns to the Senate's review results. Several provisions in the 2017 tax cut plan are set to expire at the end of 2025, so Trump is actively promoting tax cuts to "hedge" against the growth pressures brought by tariffs. On May 22, the U.S. House of Representatives passed Trump's "The One, Big, Beautiful Bill" tax cut plan, which includes making Trump's 2017 tax cut plan permanent, eliminating the tip tax, and removing the Biden administration's clean energy tax credits. The House expressed hope to advance the final bill to the president for signing before July, with attention now on the Senate's review of the bill. If tariffs are further downgraded, the Federal Reserve may have the opportunity to lower interest rates. Given that the current foundation of the U.S. economy is not poor, a rate cut by the Federal Reserve would be sufficient to boost the economy, but inflationary pressures from tariffs constrain the Fed's ability to cut rates. If tariffs are further downgraded, the Fed may have the opportunity to lower rates in the third or fourth quarter, which could alleviate growth pressures. IV. How long can the U.S. financial market "hold out"? In the short term, focus on the disturbances from rating downgrades and the peak supply of U.S. Treasuries, and in the long term, pay attention to whether confidence in U.S. dollar assets is shaken. After the announcement of "reciprocal tariffs," amid investor sentiment venting and shaken confidence in U.S. dollar assets, the U.S. experienced a rare "triple kill" of stocks, bonds, and currencies in mid to late April (see "What Happened Last Time During the 'Triple Kill' of Stocks, Bonds, and Currencies?"). Although the losses have been recovered since May, on May 16, Moody's downgraded the U.S. credit rating from the highest level of Aaa to Aa1, and the subsequent peak supply of U.S. Treasuries after resolving the debt ceiling, along with the ongoing uncertainties of tariff policies, have raised concerns in the market about the U.S. financial market. ► In the short term, disturbances from the peak of maturities in May-June and increased supply of U.S. Treasuries after resolving the debt ceiling. On May 16, Moody's downgraded the U.S. credit rating from the highest level of Aaa to Aa1 and changed the outlook from negative to stable, citing the excessive government debt and interest expenditures. Previously, Fitch and S&P had also downgraded the U.S. rating below AAA, meaning the U.S. has been downgraded by all three major global rating agencies, increasing market concerns about the outlook for U.S. Treasuries With the debt ceiling nearing resolution and the peak of bond maturities in May-June, there may be an increase in supply disturbances (How far are we from a dollar liquidity crisis?). 1) Once the debt ceiling is resolved, the Treasury will replenish the previously consumed TGA account through bond issuance, which is equivalent to "withdrawing" liquidity, potentially leading to a mismatch in supply and demand that raises term premiums. After the resolution of the debt ceiling in June 2023, the replenishment of the TGA, combined with the resilience of the U.S. economy and market expectations for a delayed interest rate cut by the Federal Reserve, pushed the 10-year U.S. Treasury yield from 3.6% in early June to nearly 5% in October. However, from a static perspective, the scale of bond issuance required for replenishment this round is smaller than in 2023 (current TGA gap of $326.1 billion vs. $500-600 billion before the resolution of the debt ceiling in 2023). Chart: Current TGA gap of $326.1 billion, smaller than the $500-600 billion before the resolution of the debt ceiling in 2023. Source: U.S. Department of the Treasury, CICC Research Department 2) There is also refinancing pressure from maturing U.S. Treasuries in May-June, but the maturity scale is mainly concentrated in short-term debt, so the refinancing pressure is not significant. The scale of maturing U.S. Treasuries in May-June is $4.4 trillion, of which $3.8 trillion is short-term debt. Although the Treasury's latest quarterly financing plan announced at the end of April was significantly revised upward ($514 billion vs. $123 billion estimated in February), it is still far below the $1.01 trillion in the last three quarters after the resolution of the debt ceiling in 2023. At the same time, the U.S. Treasury stated that the main reason for the upward revision was that cash balance levels were far below the Treasury's previous expectation of $850 billion (vs. actual $406 billion). Excluding this factor, the financing plan at the end of April is still $53 billion lower than the February estimate. Chart: The scale of maturing U.S. Treasuries in May-June is $4.4 trillion, of which $3.8 trillion is short-term debt. Source: Bloomberg, CICC Research Department Current U.S. stock valuations have basically recovered to pre-tariff levels, focusing on earnings impact. Recently, thanks to economic data, tariff negotiations, and the performance boost from leading technology companies, the S&P 12-month forward P/E ratio has returned to 22 times, and the Nasdaq 12-month forward P/E ratio has returned to over 27 times. We estimate that an effective tax rate of 16-17% could drag down the S&P 500's earnings growth rate in 2025 by 5 percentage points, from 10% to 4.9%. If tariff negotiations proceed relatively smoothly and tax reduction policies are implemented in the second half of the year, the S&P 500 center corresponds to 5600-5900 Conversely, if the tariff negotiations lack substantial results and the tax reduction policies cannot offset the drag of tariffs, then the S&P 500 index will be in the range of 4600 to 4800. Chart: We estimate that an effective tax rate of 16-17% could drag down the S&P 500's earnings growth rate in 2025 by 5 percentage points, from 10% to 4.9%. Source: FactSet, CICC Research Department Chart: If the tariff negotiations proceed relatively smoothly and the tax reduction policies are implemented in the second half of the year, we judge that the S&P 500's central tendency corresponds to 5600 to 5900. Source: FactSet, CICC Research Department ► Long-term attention should be paid to the erosion of confidence in dollar assets as safe assets, but the long logic should not be overly short-termized. The "conservation" relationship between the current account and the financial account makes it difficult for both to be strong at the same time. The "Triffin dilemma" of the dollar as a reserve currency also means that the U.S. excessively pursuing a reduction in the current account deficit through tariffs in the short term will affect the supply of dollars, as well as the global demand for dollars and the intensity of dollar inflows through the financial account, thereby marginally impacting the dollar's status as a reserve currency. However, this process may be relatively long and not achieved overnight. (The "Two Accounts" of China and the U.S.) In summary, the recent "de-escalation" of tariffs can allow the U.S. to "endure longer," giving Trump more time. Benefiting from earlier "import grabbing," low oil prices, and low drug prices supporting inflation, as well as consumption and real estate supporting growth, inventory, inflation, and growth may be able to "endure" until the fourth quarter, but this also means that before the fourth quarter, there needs to be at least one or two progress in tariff negotiations (likely to happen), tax reductions (preferably), and interest rate cuts (unlikely). Otherwise, the market may need to re-evaluate the expected impact of tariffs, which could directly affect the results of Trump's midterm elections in November 2026. Authors: Liu Gang, Xiang Xinli, Yang Tingxuan, Source: CICC Insights, Original Title: "CICC: How Much Longer Can the U.S. Endure?" Risk Warning and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk