China Tariff Conundrum, Credit Lines and Interest Rates, Best Cities for Business

Hey everybody, it's Gene Marks, and welcome to this week's episode of the Paychex THRIVE Week in Review. This is where we take a few items from the news during this past week that impact your small business and mine and we talk a little bit about it. 

So, of course, the first item in the news which has been the item in the news for the past few weeks is tariffs. Now, if you're running a business and you are impacted by particularly the tariffs going on in China there may be some relief in sight. This past week the Wall Street Journal reported that the White House is considering slashing China tariffs to de-escalate the trade war. 

Donald Trump – President Trump – last week said that he was willing to cut tariffs on Chinese goods and the 145% tariffs he imposed on China during his second term would come down. But it won't be zero. He said the development was welcome news to investors who had been spooked by the White House's aggressive moves during the recent weeks. 

Now, China came back and said that they signaled they were open to trade talks with the U.S., although Beijing warned it wouldn't negotiate under continued threats from the White House. In China's policy-making circuits, Trump's comments Tuesday are reviewed as a sign of him folding, people who consult with Chinese officials said. Even if Trump decides to lower some tariffs on Chinese imports by half that would still mean the U.S. markets would be all but closed to many Chinese makers of electrical machinery and equipment and other products. Some analysts have estimated that trade between the two countries could dry up within months at such a level. 

So, the trade war continues and although it seems like it might de-escalate a little bit between the U.S. and China, tariffs themselves are still predicted to remain high between the two countries. As I said on previous episodes of this podcast, I am looking at tariff negotiations to resolve themselves, mostly favorably among most other countries around the world – that includes Mexico, Canada, and the EU – but China's going to continue to be a problem?

Like I've warned in the past, if you are doing business in China, if you have suppliers in China or significant customers in China, that is going to be a continuing challenge for you throughout 2025, even as this back and forth happens. 

The good news is everybody's willing to talk and hopefully we can reduce some of these high tariff rates in the weeks or maybe months to come. 

The second bit of news comes from the Philadelphia Business Journal. It is reporting on a conversation they had with Wells Fargo's CEO. This is Charlie Scharf. He told investors on an earnings call that Wells Fargo actually has been doing OK. Had a good quarter this past quarter. He's keeping a close eye on business customers use of their credit lines to see whether signs of panic are emerging amid the tariff uncertainty and bond market turbulence. 

He says on these draws, “We're monitoring it really, really closely, both on the commercial banking side and the corporate and investment banking side.” That's what he told his investors. He said one business, you know, one business caught their attention, but only one for the most part, though, business drawdowns have not been anything that have been of a concern, but Wells Fargo are keeping a close eye on that. And again, the bank did report strong earnings in their last quarter. 

Interesting also is just this past week, Wells Fargo economists said that they're now expecting more Fed rate cuts this year as concerns over tariff policies and stretch consumers raise the risk of recession. They predict that the Fed will cut rates by a total of 1.25 percentage points in 2025, bringing the upper range of the federal funds rate to 3.75%. What that means is that the prime rate for you and me to borrow a loan if we're the bank's best customers right now is about 7.5%. 

If the Wells Fargo economists are correct, we could see the interest rates on investing go down to as much as 6.25% by the end of the year, which would certainly make the cost of capital for us that much better. 

Having said that, the economists said they're expecting payroll hiring to come close to grinding to a halt this year, which they think would push up the unemployment rate to 4.6% in the fourth quarter. It would leave the Fed no longer with no other choice but to lower interest rates. That is their premise for doing that. 

So, two comments on that. Number one is remember that just because the Fed is lowering interest rates – that would be a lower cost of borrowing for businesses – really has nothing to do with mortgage rates. That's tied to the bond market, and right now bond yields are higher. They're between 4 and 5% and they've been inching up with the expectation of inflation. 

So, what I'm hoping to see is that bond yields start to fall in the 10-year Treasuries because that means that mortgage rates would hopefully fall and I think that would be a needed impetus for our real estate market and construction market, as well, which are huge markets for small businesses. That's number one. 

The second point that have on this is you're going to get no better data on the employment picture, not from Wells Fargo, but from your friends at Paychex. Every month they do their Small Business Employment Watch. They're the ones based on their data you should be paying attention to because they're the ones that will tell you how small business hiring and wage increases are coming along from their customers. 

So, keep a close eye out. We will see if interest rates do fall according to Wells Fargo. 

Finally, our friends at Wallet Hub released their annual study of the best places to start a business in the United States. Now, what were the criteria for doing this? I have this for you. They look at things like the business environment of the city, access to resources, and business costs. Business environment meaning startups per capital, survival rates, job growth in the city, resources – access to resources like capital – as well as education and good employees, then overall business costs like rents and office space and other costs that are in a locality. 

So, what do you think is the number one best place to start a business among all large cities in the country? Drum roll please: It is Orlando, Florida – the best place in the country. The top five are Orlando; Tampa; Austin, Texas; Jacksonville, Florida; Miami, Florida; and St. Petersburg, Florida. That was six actually. 

Five out of the six top-placed cities to start a business are in the state of Florida. Is that a coincidence? Probably not. If you are from any other states you want to see it more, Wallet Hub puts the best cities to start a business, you can Google it and find it. We'll also have a link in the show notes. 

My name is Gene Marks, and you have been watching or listening to this week's episode of the Week in Review, a Paychex THRIVE podcast. If you need any help or advice or tips to help you run your business, please come to us at paychex.com/thrive and you can sign up for our newsletter. You'll get it all, as well as links to prior podcasts as well. 

Thanks so much for watching. We will be back next week with another episode of the Week in Review, keeping you up to date on the news that impacts your business. We'll see you then.

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I'm your host, Gene Marks, and thanks for joining us.

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