Famed investor doubles down against AI as debt soars, Trump goes on trade warpath

(Originally published July 2 in “What in the World“) Having surrendered to Iran, Trump is back to waging war on the American consumer.

Trump’s administration on Wednesday made good on a threat not to renew his own free-trade deal with Canada and Mexico. U.S. Trade Representative Jamieson Greer said the U.S. would not extend the U.S.-Mexico-Canada Agreement, which Trump negotiated in his first term to replace the 1994 North American Free Trade Agreement. The decision starts a 10-year clock to renegotiate the agreement before it expires.

Since the USMCA took effect in 2020, the U.S. has increased oil imports from Canada and auto imports from Mexico, where manufacturers relocated production due to tariffs on China. Trump is unhappy that the USMCA has failed to eliminate trade deficits with either country and insists that at least half the content of cars built in North America be made in the U.S.A. Carmakers say doing that will make automobiles too expensive for more Americans. Trump has since slapped additional tariffs of 25% on cars, 50% on metals, and 10% on lumber imported from Canada or Mexico.

Freight rates between Asia and the U.S. East coast meanwhile have soared 80% in the past month to their highest in two years. Not because of Trump’s failure to reopen the Strait of Hormuz, but because of Trump’s tariffs. Last month, Greer’s office announced plans to slap a 10% tariff from late July on imports from 60 nations, including China, the EU, India, Japan and the UK, after its own investigation concluded those countries were doing too little to prevent imports made with forced labor.

The new tariffs are designed to skirt the continuing battle against Trump’s illegal taxes on U.S. imports. Those take effect just in time to replace Trump’s 10%, 150-day tariff on global imports, which expires July 24. Trump imposed that tariff in February after the Supreme Court ruled illegal the original, 10% “Liberation Day” tariff he imposed in April 2025 in response to what he claimed was an economic emergency. In May, the U.S. Court of International Trade found that Trump’s new, replacement tariffs were also illegal, but they remain in effect while Trump appeals.

So, faced with tariffs that won’t be fading out as soon as they thought, shippers are again scrambling to move inventories ahead of the Christmas rush. The global benchmark for container shipping rates, the Platts Container Index, rose 80% in the past month to its highest since April 2022. Booking a 40-foot container on a ship from China to the U.S. east coast now runs $7,880, 62% more than it would have a month ago.

Worries of a bubble in markets—specifically that prices are being propelled upward by using dangerous amounts of borrowed cash to bet on wildly unrealistic forecasts of AI’s profit potential—continue to mount. Michael Burry, the investor who became famous for his “Big Short” of the U.S. subprime mortgage market before its collapse in 2007. Burry is now betting against AI-related stocks, including shorting Nvidia’s stock and buying put options against the iShares Semiconductor ETF.

While the Bank for International Settlements most recently reiterated its warnings about excessive leverage in government-bond derivatives, analysts also warn that margin purchases of stocks by investors—essentially borrowing from your broker to buy shares—have soared 51% in the past year, to $1.4 trillion. Investors are also pouring funds into exchange-traded funds that borrow against their capital to buy stocks.

One way traders borrow that cash is by buying a repurchase agreement from banks, agreeing to sell the banks the stocks they buy and repurchase them later at a slightly higher price—the difference representing the interest. The value of money traders have borrowed using these equity-linked “repo” agreements, at least among banks that report them to the Federal Reserve, has climbed to a record $220 billion.

The debt bubble stemming from the stock-market bubble doesn’t end there. In addition to borrowing money to buy more equity, investors are borrowing money against the inflated value of their shares. Softbank, for example, is negotiating a $10 billion loan using its stake in OpenAI as collateral. Since OpenAI is still private, its value is in the eye of the beholder, so to speak. When OpenAI lists its shares on the market—its initial public offering is now expected next year—Softbank’s collateral would be subject to the vagaries of the public market.

That leverage becomes far more dangerous if borrowing costs rise. The market is betting that, faced with rising inflation, the Federal Reserve is going to raise interest rates in September, which will push up borrowing costs across the board. The cost of borrowing to buy stocks is already rising. The spread between borrowing against S&P 500 total-return futures and the overnight interbank lending rate has climbed to its highest since late-2020.

Along with debt, the AI boom is also boosting emissions of greenhouse gases. Google announced last week that its greenhouse gas emissions last year rose 18%, largely from emissions created making AI hardware like chips and servers. Amazon reported this week that its own greenhouse gas emissions last year rose more than 16%, led by a 34% increase in emissions from the electricity it consumed and a 20% rise in supply-chain emissions.