US Set to Impose 93.5% Tariff on Battery Material From China

Economic

China–U.S. Trade War

Summary:

The anti-dumping duty on graphite is set to increase tensions along the global electric-vehicle supply chain that’s already facing Beijing’s export controls of some critical minerals and battery technology.

The US Commerce Department imposed preliminary anti-dumping duties of 93.5% on Chinese imports of graphite, a key battery component, after concluding the materials had been unfairly subsidized.

A trade association representing US graphite producers in December filed petitions with two federal agencies, asking for investigations into whether Chinese companies were violating anti-dumping laws. The new duties will add to existing rates making the effective tariff 160%, according to American Active Anode Material Producers, the trade group that filed the complaint.

“Commerce’s determination proves that China is selling AAM at less than fair value into the domestic market,” Erik Olson, a spokesperson for the the anode producers trade group, said in a statement.

The tariff would be a blow to battery manufacturers, said Sam Adham, head of battery materials at consultancy CRU Group. A 160% tariff equates to $7 per kilowatt-hour added cost to an average EV battery cell, or one fifth of the battery manufacturing tax credits that originated in the Inflation Reduction Act and survived President Trump’s budget bill, he said.

“That basically wipes out profits for one or two entire quarters for the Korean battery makers,” Adham said.

Tesla Inc. and its key battery supplier, Japan’s Panasonic Inc., were among companies pushing to block the new tariffs, arguing that they rely on Chinese graphite imports because the domestic industry hasn’t developed enough to meet the quality standards and volume that the carmaker requires. Tesla shares fell as much as 0.7% Thursday.

Graphite is a key raw material used to make anodes of the batteries, and nearly 180,000 metric tons of graphite products were imported into the US last year, with about two-thirds of these deliveries coming from China, according to BloombergNEF.

China dominates the processing capacity of graphite, with the International Energy Agency calling the material one of the most exposed to potential supply risks and “requiring urgent efforts for diversification,” according to a report in May.

Graphite is expected to remain the most common anode material for all types of lithium-ion batteries in the medium term, according to the IEA, with silicon only expected to begin eating into its market share from 2030.

The Commerce Department issued the preliminary determination affirming the anti-dumping duties in a document Thursday, and said the final determination should be announced by Dec. 5.

The tariff ruling “provides the policy clarity and market signals needed to accelerate domestic graphite production,” said Jon Jacobs, chief commercial officer at Westwater Resources Inc., which is building a graphite plant in Alabama. Westwater, which has agreements with Jeep-owner Stellantis NV and South Korea’s SK On Co., currently has a pilot line producing 12,500 metric tons of graphite a year. It plans to expand capacity to 50,000 tons annually by 2028, Jacobs said.

Westwater rose 15% on Thursday. Canadian graphite firms Nouveau Monde Graphite Inc. and Northern Graphite Corp. also surged on the tariff news.

The anti-dumping rate determination “could impact the cost structure for battery suppliers” like Fluence Energy Inc. and Enphase Energy Inc., analysts at Roth Capital Partners said in a note Wednesday. Fluence shares closed lower by 0.4% while Enphase dropped 0.7%.

Additional duties on batteries will add to pressures facing the renewable industry. While energy storage retained key tax incentives in President Donald Trump’s budget bill, Treasury Department rules restricting the use of Chinese cells complicates compliance for many developers. Supply chain risks and costs will slow the pace of storage growth on the US grid, according to Wood Mackenzie.

Source: Bloomberg

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Manuel

Cryptocurrency

Political

The U.S. House of Representatives on Thursday passed a bill to create a regulatory framework for U.S.-dollar-pegged cryptocurrency tokens known as stablecoins, sending the bill to President Donald Trump, who is expected to sign it into law.

The vote marks a watershed moment for the digital asset industry, which has been pushing for federal legislation for years and poured money into last year's elections in order to promote pro-crypto candidates.

Shares of crypto-related companies were mostly higher after passage of the bill, dubbed the Genius Act, that would expand the Commodity Futures Trading Commission's oversight of the industry.

Bitcoin, the largest crypto currency, was down 0.54% at $119,298.87, trading near a record high reached earlier this week. Rival ethereum rose 1.42% to $3,429.47.

COMMENTS

ANDREW FORSON, PRESIDENT, DEFI TECHNOLOGIES (by email):

“It signals the start of a new era for digital assets and public companies. We’re seeing an unprecedented wave of corporations embracing digital assets, diversifying beyond Bitcoin into Ethereum, Solana, and more. But for many institutions, education gaps and regulatory uncertainty have been real barriers.”

“By establishing clear, actionable rules for stablecoins and digital assets, the Genius Act unlocks broader adoption by traditional institutions and brings much-needed trust and transparency to the sector. This paves the way for compliant, bank-backed digital money and new solutions for corporate treasuries, helping to bridge the gap between innovation and investor protection.”

DANTE DISPARTE, CHIEF STRATEGY OFFICER, CIRCLE, NEW YORK:

“The House vote to clear the GENIUS Act for the President’s signature is a defining moment for the future of money and the internet financial system. It signals strong bipartisan support for responsible innovation and sends a clear message that the U.S. will lead in the regulation of dollar-backed payment stablecoins. We commend Congressional leaders for delivering a regulatory foundation that puts consumer protection, financial integrity, and U.S. competitiveness at the forefront.”

SUMMER MERSINGER, CEO, BLOCKCHAIN ASSOCIATION (press release):

“The bipartisan passage of the GENIUS Act is a watershed moment for digital assets in the United States. For the first time, Congress has moved comprehensive legislation that provides enforceable, tailored rules for stablecoins — a foundational technology for the future of finance. This marks real momentum toward regulatory clarity that protects consumers, supports innovation, and reinforces the strength of the U.S. dollar in the digital economy. We now call on President Trump to swiftly sign the bill into law, ensuring that the United States continues to lead in shaping the global standards for digital assets.”

MICHAEL JAMES, EQUITY SALES TRADER, ROSENBLATT SECURITIES, LOS ANGELES:

"Crypto stocks have been strong the past two days in expectation that the bill, which didn't pass on Tuesday, would eventually get the necessary votes to pass, which it has done this afternoon. That is part of the reason that crypto stocks have been outperformers in the last two days."

Source: Reuters

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Manuel

Commodity

Oil rose amid signs of tighter supplies in the near term and on stronger demand signals in the US.

West Texas Intermediate crude rose 1.7% to settle above $67 a barrel, snapping a three-day losing streak. Equity markets advanced — typically a bullish indicator for commodities — after better-than-expected US economic data allayed some fears of oil demand deterioration. Oil Rises on Signs of Tight Supply, Robust Demand in Near Term_1

Oil Rises on Signs of Tight Supply, Robust Demand in Near Term_1

Prices also found support from indications of a tighter near-term physical crude market on Thursday. US crude inventories slid last week and Iraq has lost about 200,000 barrels a day of oil production due to drone attacks on several fields in Kurdistan. Chevron Corp. said it was on the cusp of reaching a production plateau in the largest US oil field.

“While inventories globally have built very significantly, stocks in the pricing centres – especially in the US – are still quite low,” Daan Struyven, head of oil research at Goldman Sachs, said on Bloomberg Television. Market focus has shifted to “downside risks to supply,” he said.

Limiting the rally, Iraq approved a plan for its semi-autonomous Kurdish region to resume oil exports that have been halted since March 2023. The Kurdistan Regional Government will supply Iraq’s state oil marketer SOMO at least 230,000 barrels a day for export, the federal government said.

Supply concerns were also reflected in the forward curve for crude. It is currently trading in backwardation, where a premium is paid for sooner delivery over longer-dated contracts.

Source: Bloomberg

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Manuel

Cryptocurrency

Stocks

Nasdaq filed with the Securities and Exchange Commission (SEC) on July 16 to add staking to BlackRock’s iShares Ethereum Trust (ETHA) exchange-traded fund (ETF).

The rule change would add a detailed “staking” section permitting BlackRock to stake Ethereum (ETH) directly or through one or more trusted staking providers.

BlackRock would treat received rewards as income, and the firm must hold the staked coins in arrangements consistent with a May statement by the SEC Division of Corporation Finance on certain protocol staking activities.

Notably, the asset manager must also obtain either a counsel opinion or US government guidance on federal tax treatment before it starts.

Furthermore, in the event of slashing or forking, BlackRock will not subsidize or absorb incoming losses.

Nasdaq stated that its proposal would enable ETHA to capture returns while operating under defined constraints intended to protect shareholders and the market.

Competitive queue and deadlines

BlackRock joins a queue of issuers that have asked regulators to let their US-based spot Ethereum products earn protocol rewards.

Cboe seeks authority for Fidelity’s FETH, Franklin Templeton’s EZET, Invesco Galaxy’s QETH, and 21shares’ CETH.

On NYSE Arca, Bitwise seeks approval to stake the ETH held in its ETHW. At the same time, Grayscale seeks the same approval for its ETHE and mini trust.

Bloomberg ETF analyst James Seyffart reacted to the Nasdaq submission on X, saying it was “about time.”

The first final deadline for prior filings is in October, while the deadline for Nasdaq’s filing on BlackRock’s ETF is in early April. However, Seyffart believes it is unlikely for the SEC approval to take that long.

Flows support issuer push

US-listed spot Ethereum ETFs attracted more than $726 million in net inflows across nine funds on July 16, marking a daily record.

ETHA led allocations with $499.2 million, marking a record for daily inflows into the fund, representing nearly 69% of the total.

The heavy inflows may indicate that institutional investors are betting on Ethereum’s fundamentals, such as its infrastructure for stablecoins and tokenized assets.

Source: Cryptoslate

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Economic

Central Bank

San Francisco Federal Reserve President Mary Daly reiterated on Thursday it is "reasonable" to expect two interest rate cuts before the end of this year, particularly with the impact of President Donald Trump's tariffs looking more muted than originally expected.

Inflation is still above the U.S. central bank's 2% target and there's still "some work to do" to bring it down, Daly said at the Rocky Mountain Economic Summit in Victor, Idaho. But the Fed also doesn't want to keep rates restrictive for too long because that would unnecessarily hurt the labor market, she said.

"I don't think we need to slow precipitously to produce the last mile on inflation," Daly said. "I wouldn't want to see more weakness in the labor market ... I really wouldn't want to see that, which is why you can't wait forever" on cutting rates.

Companies are figuring out ways to avoid tariffs and are not passing on all of their increased costs to their customers, and despite a doubling of the effective average tariff rate under Trump the increased levies on imports are not so far spilling more broadly into overall inflation.

"We haven't seen any evidence that that's occurring," Daly said, though recent consumer price data does show the price of goods is rising. Offsetting that, however, is encouragingly lower inflation in non-housing-related services inflation, she said.

Asked if she would support reducing the current policy rate range of 4.25%-4.50% when the Fed meets in two weeks, Daly noted that she expects rate cuts to resume as inflation falls, with the policy rate at an ultimate settling point of 3% or somewhere higher than that level.

"Whether it happens in July or September or some other month is really not the most relevant piece," she said. More relevant, Daly added, is that rates will be reduced.

"We don't want to unnecessarily tighten the economy in a way that hurts the labor market or growth. So that's the direction of travel," she said.

Two of the Fed's 19 policymakers have said they believe a July rate cut could be appropriate; others have signaled they expect it to take longer to be able to judge the effect of the tariffs and other Trump policies on inflation and the labor market, and therefore to know if a rate cut would be appropriate.

Financial markets reflect very little expectation for a rate cut at the Fed's July 29-30 meeting, with bets focused on the September 16-17 meeting as a much more likely time for the policy easing to resume.

Trump has waged an escalating pressure campaign on Fed Chair Jerome Powell to cut rates immediately and raised the possibility of replacing him before his term as U.S. central bank chief expires next May. Powell has repeatedly said he intends to finish out his term as Fed chief.

Daly declined to comment specifically about Trump's comments, but noted that all Fed policymakers participate in interest rate decisions.

"We share equal responsibility when we take that vote" on rates, Daly said.

Source: Reuters

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Economic

Some Federal Reserve policymakers are not budging from their view that rates should remain where they are despite the intensifying pressure from President Trump and his allies to ease monetary policy immediately.

Federal Reserve governor Adriana Kugler and New York Fed president John Williams both made this argument in speeches delivered Thursday morning and Wednesday night, citing the risk of inflation pressure from tariffs.

“With the unemployment rate still at historically low levels, elevated short-run inflation expectations, and goods inflation rising due to the upward pressure from tariffs, I find it appropriate to hold our policy rate at the current level for some time,” Kugler said in her Thursday speech in Washington, D.C.

“I judge that inflation is likely to increase further as tariff effects build up during the rest of the year.”

On Wednesday night, Williams stressed that he thinks that tariffs are already pushing up inflation and that will increase in the coming months. He expects tariffs will push up inflation by a full percentage point in the second half of this year and into the first part of 2026.

“Maintaining this modestly restrictive stance of monetary policy is entirely appropriate to achieve our maximum employment and price stability goals," Williams said in his speech.

Opposing camps are now forming inside the central bank on the question of Trump's tariffs and how they should affect what the Fed does on rates.

Two other Fed governors, Christopher Waller and Michelle Bowman, have argued for cuts as early as the next meeting July 29-30, which is not an outcome investors expect.

Waller last week reiterated that any inflation from tariffs will be temporary, justifying a looser monetary policy approach.

“I think we're just too tight and we could consider cutting the policy rate in July,” said Waller, adding, “It’s not political.”

Waller’s arguments carry increasing weight since he is considered to be among the candidates to replace Jerome Powell as Fed chair next May, when Powell’s term is up.

“We're not seeing a lot of tariff inflation yet,” Waller added last week. “For that reason, I've been arguing that we could start lowering the policy rate from our current setting.”

These views align with those of Trump, who has repeatedly called on the Fed and Powell to ease monetary policy, citing what he views as a lack of inflation thus far from tariffs and the savings that could be made if the US were paying lower interest on its debt.

Powell has argued for more time to assess whether inflation does in fact move higher over the summer. Williams made a similar argument Wednesday, saying holding rates steady will allow more time to assess the data.

He said he anticipates inflation will come in between 3 and 3.5% percent this year and then fall back to about 2.5% next year before reaching 2% in 2027. The Fed's goal is to get inflation back down to 2%.

Kugler noted the still-restrictive policy stance is important to keep longer-run inflation expectations anchored.

She said she is not seeing any progress on headline and core inflation the past six months, noting that goods inflation has gone up and that reflects some pass through of increased tariffs.

Kugler stressed that businesses may not yet be passing the higher tariffs to their selling prices because they are waiting for greater clarity.

She also noted that tariff rates could increase further, as seen in newly proposed reciprocal tariffs for several countries and the new tariffs on copper introduced last week, putting further upward pressure on prices.

Source: finance.yahoo

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Adam

Bond

Economic

If long-end bond yields spiral out of control, the Fed could start injecting liquidity again: a step-by-step guide of how it works.

When a few weeks ago 30-year bond yields briefly flirted with the 5% level, the Fed’s Collins released an interview stating that ’’the Fed is absolutely ready to stabilize markets’’.

To stabilize the bond market, they would ’’inject liquidity’’ through operations like the LSAP - Large Scale Asset Purchase or QE.

Central Banks create bank reserves when they perform such operations.

Bank reserves are often referred to as ’’Liquidity’’.

When Central Banks engage in liquidity creation, they do that in the hope that it activates the so-called Portfolio Rebalancing Effect.

To understand this, let’s start from what QE does to the balance sheet of a commercial bank - take a look at the chart below.

Following the GFC, regulators forced banks to own more HQLA (high quality liquid assets) to meet depositor outflows.

Bank reserves and bonds qualify as ’’HQLA’’ as they are liquid enough to be converted in cash to meet potential outflows quickly.

But banks are not indifferent between owning bank reserves and bonds, and especially if the amount of reserves grows dramatically as a result of QE.

Bank reserves are a zero-duration and low-yielding instrument which can be suboptimal to own in big sizes especially if compared with bonds which offer higher returns and duration hedging properties.

And this is when the Portfolio Rebalancing Effect kicks in.

Once QE starts, Central Banks take away bonds and inject new reserves in the banking system.

Loaded with suboptimal reserves, banks will try to switch back the composition of their portfolios towards more bonds.

They will bid up safer bonds first, and bid up riskier bonds later when the hunt for returns intensifies.

This will kick in a virtuous cycle of low volatility and a hunt for riskier assets: the Portfolio Rebalancing Effect in action.

Summarizing:

Central Banks expand their balance sheet and purchase bonds

Commercial Banks are on the receiving end of QE, and hence their portfolio composition tilts towards more reserves, and less bonds;

But reserves are sub-optimal to own compared to regulatory-friendly bonds, and hence they look to rebalance their portfolios;

They start buying the very same bonds QE is buying, hence suppressing volatility further and compressing credit spreads;

Asset allocators and investors across the world are more and more encouraged to take additional risks in their portfolio, supporting the flow of credit and capital.

Does the Portfolio Rebalancing Effect make sense to you?