Tech megacaps ($200 billion or more in market share) plan to spend more than $300 billion combined on AI in 2025, what does this mean in the grand scheme of the AI race?

4 of the largest tech companies in the world-- Meta, Amazon, Alphabet, and Microsoft, intend on spending up to $320 billion combined in order to keep up in the AI arms race. This $320 billion figure would be a substantial increase from the spending figure of these 4 companies in 2024, which was $230 billion. This affirmation of the worthiness of AI comes at an interesting time, as just before this display of confidence came a point of fear: the release of China's Deepseek AI. The timing of this backing shows that American companies are not going to blink in the face of competition; however, I believe that this race to the top raises a few questions. 

The first of which being who is the ultimate winner of the AI race? I think that an interesting place to turn to for a possible answer or way of thinking about this is the Jevons Paradox. The Jevons Paradox states that as costs to use a resource drops (efficiency rises), demand goes up, and so too does total consumption. The reason why I think that this is a good starting place to form thoughts on the issue is that Microsoft's CEO, Satya Nadella, tweeted out using the paradox as evidence that people won't be able to get enough of AI as it gets cheaper and more efficient. However, Jevons paradox, as applied to this scenario, brings about even more questions. Who is the one making AI cheaper and more efficient to use for consumers? The current answer to that looks to be Deepseek and China. Next, what company benefits from total consumption going up. In my opinion, that would be Nvidia, as more and more people using a more efficient version of AI would also lead to Nvidia benefitting from selling their GPU's to China. Continuing on, what companies could get left behind here then? I think there is solid evidence, by using the lens of Jevons Paradox, that could show that ChatGPT and OpenAI, as well as those who rely on those companies are the ones getting left behind here. 

Source for the numbers: https://www.cnbc.com/2025/02/08/tech-megacaps-to-spend-more-than-300-billion-in-2025-to-win-in-ai.html

Central Banks deal with uncertainty in 2025’s foggy economic landscape

 In early 2025, central banks around the world are taking different steps in response to uncertain economic conditions. While there were significant rate cuts to combat inflation in this past year, different measures have been taken at the start of the 2025. Among the G10 central banks, Sweden, the European Central Bank, and Canada continued to cut rates while Japan increased their rates for the second time already in under a year. Meanwhile, the U.S. Federal Reserve and Norges Bank decided to keep their rates the same, and the Bank of England made its first rate cut of the year.

There have also been changes in emerging markets as well. Turkey aggressively cut their rates, while Brazil raised its rates due to concerns about its debt. Other nations like South Africa and Indonesia made more modest adjustments and China's central bank did not change anything and will wait to see the effects of potential U.S. tariffs. As the year goes on, most countries, except for Japan, are going to continue lowering borrowing costs. Specifically, those in Europe, Canada, and Australia will lower their costs which could be influenced by trade tensions.

Insurance Companies aren't supporting HOAs anymore

Homeowners Associations (HOAs) are facing increasing difficulties securing master insurance policies as insurers raise premiums or exit the market due to rising losses from extreme weather and aging properties. These higher costs are passed down to homeowners, making condos and shared properties more expensive to maintain. Additionally, insurance rate hikes are occurring nationwide. This trend is not limited to disaster-prone areas, as insurers are also pulling back in regions like Minnesota and Colorado due to hail damage risks.

Source: https://finance.yahoo.com/news/insurers-are-dropping-hoas-threatening-the-condo-market-124429337.html

Uncertainty in the economy creates certainty for high mortgage rates

Mortgage rates dropped slightly over this week by 0.06%, but still remain at a high 6.89%. The rate usually follows the 10-year Treasury yield. When President Trump made executive orders on tariffs, treasury yields became expected to drop causing mortgage rates to follow suit. However, rates did not drop to the same degree as yields due to the volatile nature of current policy developments and economic conditions. This unpredictable future is why mortgage rates are forecasted to remain high, and even increase throughout the year. As a result, applications to purchase a new home have fallen. This decrease in applications is likely to become a trend this year.

Source:

https://finance.yahoo.com/news/mortgage-rates-drop-slightly-but-remain-near-7-172458838.html

China Hits Back with Tariffs of their Own

China has announced their own additional tariffs of 15% on U.S. coal and liquefied natural gas along with 10% higher duties on American crude oil, agricultural machinery, and certain cars starting on February 10th. China plans to do this as a way to retaliate against the recently proposed tariffs by President Trump. As seen recently with the fear in the markets surrounding Trump's tariffs on Mexico and Canada, the tariff war with China could lead to an escalation in trade tensions pushing both sides deeper into a tariff war and ultimately having a negative impact for both parties.

With these tariffs looming, I have some concern for businesses on both sides. China's move poses a clear message to the U.S. that they want to protect their own business and economic interests. On the other hand though, there is a risk of a broader trade war that could slow economic growth for both sides and ultimately end up affecting the consumers with higher prices. It will be interesting to see if these tensions will be settled like President Trump was able to do so with Mexico and Canada. I believe that Trump will face more resistance from the Chinese government as there is constant looming tensions between the two countries. It may be important to be prepared for the possible economic repercussions of higher consumer prices should President Trump be unable to negotiate with the Chinese government.

Link: https://www.cnbc.com/2025/02/04/china-levies-tariffs-on-select-us-imports-starting-feb-10.html

In a switch, Trump approves of the Fed’s decision to hold interest rates steady

 President Trump recently praised the Federal Reserve's decision to keep interest rates steady at 4.25%-4.5%, calling it the right move. This contrasts with his earlier comments at the World Economic Forum in January, where he demanded immediate rate cuts. Although the president doesn’t control the Fed, he does appoint its members, including Chairman Jerome Powell, whom he has criticized in the past. Markets don’t anticipate a rate cut until at least June. However, Trump’s plan to impose tariffs on Canada, Mexico, and China could complicate matters, potentially raising prices and affecting inflation, despite signs of easing.

https://www.cnbc.com/2025/02/03/in-a-switch-trump-approves-feds-decision-to-hold-interest-rates-steady-.html

China factory activity growth slows again as Trump tariffs loom

China’s factory growth slowed down in January with the Caixin PMI dropping slightly to 50.1. It’s still growing, but just barely. A big reason for this slowdown is trade uncertainty, which has led to the biggest drop in factory jobs in almost five years. Some companies are stockpiling products because they’re worried about possible U.S. tariffs, but at the same time export orders are shrinking, and manufacturers are being forced to lower prices to stay competitive. It’s clear China’s manufacturing sector is feeling the pressure, and if they want to stay strong, they’ll need to adapt and this could maybe be done by trading with more countries, investing in new technology, or focusing more on selling within China instead of relying so much on exports.

 https://finance.yahoo.com/news/china-factory-activity-growth-slows-015509187.html

What Is the International Emergency Economic Powers Act?

President Trump he would use the International Emergency Economic Powers Act (IEEPA) to impose tariffs on Mexico, Canada, and China "because of the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl,” Mr. Trump wrote in a social media post. On his first day in office President Trump declared a national emergency on the southern border which allows him to use this Act that was created in 1977. It gives the president a wide range of powers to regulate different financial transactions upon declaring a national emergency. Under the law, presidents can take a wide variety of economic actions “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy or economy” of the country.

Past presidents have used the law to impose sanctions, justify export controls, and restrict certain transactions and outbound investment but never has one used it to impose tariffs on a country. Legal experts have already started to questions whether or not Trump can use this power to create tariffs. Some have said that the law gives the president “unchecked executive authority in the economic realm” whiles others see it as a way to quickly create action out of the will of congress. These tariffs could be bad for all Americans with the price of everyday goods rising at high rates. 

In the past President Trump has used this law to threaten Mexico with tariffs in 2019 but eventually backed down after working out a deal. Although he has used this authority to penalize Venezuela’s state-owned oil company and impose sanctions on Iran in response for what the administration said were aggressive acts by Tehran.

Source: https://www.nytimes.com/2025/02/02/us/politics/trump-tariffs-ieepa.html

Global Trade Tensions Escalate: Canada, Mexico, and China Respond to Trump’s Tariffs

In a recent article, CNBC reported on the responses from Canada, Mexico, and China to President Trump's newly imposed tariffs. These tariffs, which include a 25% levy on imports from Canada and Mexico (with a 10% tariff on Canadian energy) and a 10% tariff on Chinese goods, have elicited strong reactions from the affected nations.

Canada's Response

Canadian Prime Minister Justin Trudeau announced retaliatory measures, stating that Canada would impose 25% tariffs on $155 billion worth of US goods. He emphasized the deep economic ties between the two countries and urged Canadians to reconsider travel plans to the US. Trudeau also highlighted that only about 1% of fentanyl imports and illegal border crossings into the US. come from Canada, challenging the justification for the tariffs.

Mexico's Response

Mexican President Claudia Sheinbaum condemned the tariffs and announced that Mexico would implement both tariff and non-tariff retaliatory measures against the United States. He refuted claims linking the Mexican government to drug cartels and proposed establishing a task force with the US to address concerns, emphasizing that problems are not resolved by imposing tariffs.

China's Response

China plans to file a complaint with the World Trade Organization and has vowed to take corresponding actions in response to the US tariffs. The Chinese government emphasized that trade differences should be resolved through dialogue and consultation. 

These escalating trade tensions could lead to higher inflation and job losses in all involved countries. The tariffs may increase the cost of goods and services, potentially impacting consumer prices, especially for essentials like groceries and cars. There is also concern that these measures could backfire, pushing US allies closer to economic relations with China. In summary, the imposition of these tariffs has strained international relations and introduced significant uncertainty into the global economy. The situation underscores the complex interplay between trade policies and diplomatic relations, with potential long-term implications for all parties involved.

'It doesn't have to be this way': Canada, Mexico, China, and the EU respond to Trump's tariffs. (February 2, 2025). CNBC.

U.S. Economy Slows in Q4 2024, But Consumer Spending Stays Strong

 The U.S. economy showed signs of slowing in the final quarter of 2024, reflecting the impact of high interest rates and shifting market conditions. According to Reuters, while GDP growth moderated, strong consumer spending helped sustain momentum, preventing a sharper downturn.

Key Economic Trends:

• Slower GDP Growth - The economy expanded at a reduced pace as businesses and consumers adjusted to tighter financial conditions.
• Resilient Consumer Spending - Despite inflationary pressures, household consumption remained a strong pillar of economic activity.
• Federal Preserve Policy in Focus - The Fed's high interest rates continue to influence investment, borrowing, and employment trends.
• Uncertain 2025 Outlook - Some economists predict a continued soft landing, while others warn of potential headwinds due to persistent inflation and global uncertainties.

What This Means for the Economy

The slowdown highlights the delicate balance between economic growth and inflation control. While consumer resilience is a positive sign, businesses are navigating a challenging landscape shaped by monetary policy and market volatility. The coming months will be critical in determining whether the U.S. economy can maintain stability or face stronger disruptions.

Source: US economy resilient despite moderation in growth in fourth quarter By Lucia Mutikani (Reuters)

Link: https://www.reuters.com/markets/us/us-economy-slows-fourth-quarter-spending-robust-2025-01-30/