First, tariffs came for financial markets. Now, they’re coming for consumer markets.

To prepare for a slowdown of global trade, US retailers have spent months stocking up, building a massive inventory of products. It’s all in fear of the ultimate retail boogeyman: empty shelves. Whether the strategy pays off comes down to the resiliency of the US consumer.

Supply Chain of Command

Retail companies are facing two key unknowns amid the trade war. The first, obviously, is the extent to which tariffs will be implemented and for how long. Fortunately, there was an obvious short-term solution: frontloading shipments ahead of tariffs. Through March, total imports into the Port of Long Beach, one of the busiest entries to the US, climbed a colossal 28%, while shipments into New Jersey and New York were up roughly 9% each. In its most recent earnings call, Target said its inventories were up more than 7% year-over-year, while Walmart’s were up nearly 3%.

But building up inventory to pre-empt an import drought is a strategy that may be more of a tightrope walk than it seems. And successfully pulling off the maneuver comes down to the second unknown: the US consumer. If big retailers miscalculate demand, they could end up instead with a glut of supply — an outcome that experts recently told Barron’s may be just as bad for the bottom line:

• The retail math is simple: Shortages can eat away at consumer confidence and force retailers to overpay to restock — though a healthy amount of scarcity can leave some wiggle room for retailers to maintain or raise prices without crimping demand. On the other hand, if inventories prove too big just as consumers stop spending, retailers could be forced to offer products at a discount to move product.
• Unfortunately for retailers, signs are already pointing to the worst-case scenario: On Friday, the University of Michigan released its latest consumer confidence report, which showed the steepest three-month drop in consumer confidence since 1990. Meanwhile, the most recent Business Trends & Outlook Survey from the US Census Bureau shows a surge in firms preparing for layoffs in the future (and a jobs report from the US Labor Department due Friday could show whether the layoffs have already begun).

Between a Rock and an Empty Place: John Shea, CEO of e-commerce consultancy firm Momentum Commerce told the Financial Times that a “double whammy” is coming: “We’re seeing evidence that consumers are starting to trade down . . . while at the same prices are creeping up.” That only further complicates the push-and-pull tension retailers are feeling between frontloading inventory and overstocking amid a spending slowdown. “[Retailers] have to make a decision as to whether it is worthwhile importing products from China to put on the shelves, because the prices might need to go up by so much that actually no consumer would really be interested,” GlobalData retail analyst Neil Saunders recently told NBC News. “You might as well just say, ‘Forget it, we just won’t stock that product.’ That obviously does leave gaps on the shelf.”

Big Blue is doubling down on red, white, and blue.

IBM is booting up its domestic production, setting aside $150 billion to make computers in the US over the next five years. The investment is the latest in a string of similar pledges, as tech companies react to President Trump’s tariff threats. Apple and Nvidia both said they’d spend $500 billion on domestic manufacturing over the next four years, and Nvidia said it’ll produce all of its AI supercomputers in the US.

114 Years Young

Founded over a century ago, IBM’s main business has shifted over time. The company was always involved in making data-processing machines, and early on, that meant automated punch-card counters. Later, it became computers.

IBM was the No. 1 computer-maker globally in the 1960s, producing 70% of the world’s supply. It specialized in mainframes, hulking pieces of equipment used by businesses for handling large data loads. Though IBM was positioned to dominate the personal-computer market, and briefly did, it exited the PC biz in the early 2000s after losing market share to competitors like Apple.

Since then, IBM has gone back to its roots serving businesses, but it’s also looking to the future.

• IBM’s $150 billion investment includes $30 billion it said it’ll set aside for making mainframes and quantum computers. The tech giant says it operates the world’s largest fleet of quantum computing systems — advanced devices that promise performance thousands of times faster than traditional computers. Critics, however, aren’t confident about when quantum computing will be practical for companies to use.
• While quantum is still relatively nascent, IBM is also bringing its old school mainframes into the 21st century. The company recently announced a new mainframe that will support AI capabilities.

Say it Loud: Tech companies are actively promoting their planned investments into domestic production, and that could be on purpose to get in Trump’s good graces. POTUS has rolled out high tariffs that could jack up the prices of imported materials needed to produce tech products, but he has also been making exemptions that include semiconductor chips, smartphones, and computers. Bloomberg reports that many tech companies’ announcements are in line with what they already planned to spend before Trump was elected — they may simply be more inclined to talk about it now.

President Trump once again called on Canada to become the “51st state” as America’s neighbor to the north held a federal election Monday, perhaps hinting at a craving for poutine in addition to his beloved Big Macs.

Canadians opted for a firm but polite no. Prime Minister Mark Carney’s Liberal Party was reelected after the former central banker promised he will “dramatically reduce” the country’s reliance on the United States, though appeared on track to fall just short of an outright majority in the House of Commons.

To the Victor Go the Oils

Canada was left off of the now-famous tariff chart that Trump held up in the Rose Garden earlier this month, with goods exempted under the United States-Mexico-Canada Agreement. But its automobile, aluminum and steel exports to the US are now subject to a 25% levy while Carney promised to meet Washington’s trade war with a hard-nosed response — or “elbows up” as he put it, borrowing the language of hockey.

The former governor of the Bank of Canada and Bank of England, who was sworn in last month before calling a snap election, said on the campaign trail that the “old relationship” between the US and Canada is “over.” That old relationship, as it happens, has left Canada massively exposed to a trade war, with 75% of its exports sent to the US. Last month, the government launched a C$5 billion ($3.6 billion) program to help exporters find new markets. Among its potential expanded trading partners are friends and foes:

• The EU and Canada locked into their own free trade agreement in 2017, and bilateral trade has soared 65% since, according to the European Commission. European Commission President Ursula von der Leyen said, after a call with Carney earlier this month, that they discussed “open and predictable trade” as well as the EU’s “enhanced cooperation” with the members of the CPTPP trade agreement that includes Canada, the UK, Australia, Japan, Vietnam, Malaysia, Mexico, and Chile.
• While Carney has cautioned that China is Canada’s “largest geopolitical threat,” it is also Canada’s second-largest trading partner and increasingly interested in Canadian oil amid its own trade war with the US. China ramped up its crude imports from Vancouver in March to a record 7.3 million barrels, according to Vortexa data obtained by Bloomberg, as it slashed oil purchases from the US by 90%.

A record 12.5 million metric tons of crude oil was exported from Vancouver last year, a 527% increase thanks to the opening of a significant new pipeline project. Since last May, more than half of crude leaving Vancouver has gone to Asia, which previously received only a small fraction.

Resourcefulness: A worst-case scenario — a prolonged trade war between the US and Canada including 25% tariffs on Canadian imports — would damage the US economy to the tune of 1.9% of GDP by 2030, a Deloitte analysis found last month. Much of that comes down to the country’s vast resource economy: Canada is the US’ biggest foreign supplier of crude, the source of roughly 60% of its imports. It’s also the US’ top source of mineral and aluminum imports (the latter of which has been hit with a 25% levy, leading to some aluminum already diverting to Europe amid forecasts that the tariff will raise prices in the US more than anywhere else). Carney, meanwhile, suggested last week that he’s in no rush to make a trade deal with Trump, stating that plans to cut interprovincial trade barriers and kick off housing and resource developments will stimulate the domestic economy and offer “leverage in the negotiation.”