Fluctuations of the U.S. stock market, broader S&P 500 index, and tech-heavy Nasdaq
The president’s announcement of new tariffs caused the U.S. stock market to plummet, signalling the seriousness of the economic effects that could result from the trade war.
The stock market had plummeted over 1200 points, or 3%. The broader S&P 500 index sank 4% and the tech-heavy Nasdaq index dropped nearly 5%.
Trump’s Implications for the U.S. Economy and its Foreign Trade: The New Taxes on American Products at the Crossroads of the Great Depression
The EU has a tax of 20% and China has a 34% tax on imports from China, according to the sign on the White House lawn. India received 26% and Vietnam received 46%. Nigeria? Only 15 percent. Trump claimed that these “reciprocal” tariffs reflect how other countries already tax American products. “That means they do it to us and we do it to them,” he said. It was very simple.
The economists say that the new taxes will result in higher prices and a slower growth in the United States, as well as pushing many other countries into recession.
The U.S. import tax was increased by nine-fold last year. Many investors were taken aback by the size and scope of the levies.
“This is a game changer, not only for the U.S. economy but or the global economy,” Olu Sonola of Fitch Ratings wrote in a research note “You can throw most forecasts out the door, if this tariff rate stays on for an extended period of time.”
During his first term in the White House, Trump tried to build a wall against illegal immigrants, now he wants to limit imports and encourage domestic manufacturing through an economic barrier against global trade.
“We are going to make lots of things here in America, including the minerals, medicines, and cars that we need,” Trump said in the Rose Garden. “They’re all coming back to our country because if they don’t, they’ve got a big tax to pay.”
But while domestic manufacturers are supposed to be the beneficiaries of the trade war, many factories are bracing for higher costs and a loss of export markets. Trading partners have already promised to retaliate with tariffs of their own on U.S. exports.
“Here it comes and we’re already seeing that,” said Tim Fiore, who conducts a monthly survey of factory managers for the Institute for Supply Management. The retaliatory tariffs are going to be pretty ugly. It’s just going to kill demand.”
The US launched a trade war in the 1930s. It didn’t end well. The notorious Smoot-Hawley tariffs are widely thought to have worsened the Great Depression.
“It was bad for consumers, because it meant higher prices,” says former Treasury Secretary Larry Summers. Higher input costs were bad for producers. It was bad for peace because it undermined comity.
Aside from that, Trump’s tariff math also ignores the broader economic consequences of these sweeping new tariffs. They will have an effect on the economy. They will influence exchange rates. And they will likely provoke retaliatory tariffs from other countries.
A 67% tariff would reduce demand for Chinese products. So if Americans are currently buying $439 billion worth of Chinese products each year, Trump’s economists expect that the new tariffs will reduce that spending by $294 billion — which would close the trade deficit. At least in theory.
This is not in line with previous statements by Trump, where he denied that tariffs were going to raise prices and then said that he couldn’t care less.
Behind these Greek letters there’s a blunt but understandable approach. Essentially, the equation is trying to answer the question: How high should we set tariffs in order to get Americans to buy fewer foreign products, and close the trade deficit? A trade deficit between the U.S. and another country can lead to higher tariffs on that country’s products.
Certainly these new tariffs are not “reciprocal” tariffs. Despite what some online have claimed, the math behind them is not completely invented.
On Wednesday, President Trump announced his latest tariffs, sparking an economic mystery. Where did those numbers come from?
So, will Trump’s new tariffs actually close the trade deficit? Maybe, maybe not. The administration has finally shown its work. And according to their calculations, raising prices and closing the trade deficit is what these tariffs are designed to do.
The China of the 21st Century: Why the United States isn’t going to leave China – but Beijing is a Just World
If there is an expectation that China will play a more active role in world affairs, the Chinese leadership would not say no. He thinks that China will avoid confrontation with the U.S., and avoid claims of leadership in international affairs.
But speaking to some of China’s America watchers, views of any opportunities that the new administration might offer are tempered by caution and skepticism about China’s appetite to eat America’s lunch.
In January 2020, the U.S. and China signed a deal to lower China’s trade surplus with the US but it fell apart very quickly, suggesting that China will be skeptical of any attempts by Trump to strike another such deal.
People’s University professor of international relations Shi Yinhong, who has been a visiting scholar at four American universities since the 1980s, is even more skeptical of any opportunity.
He believes Trump is unlikely to succeed in striking grand bargains, judging from his failure to reach deals with, for example, North Korean leader Kim Jong Un in 2018 and 2019.
This means, he says, “that you behave very cautiously on the international arena. You don’t want to overstretch yourself. You do not want to make promises that you can’t fulfill.
He says that you should see the dismantlement of the USAID and other foreign aid projects. “It gives China an unprecedented opportunity to present its own version of a just world.”
Xie Tao, dean of the School of International Relations and Diplomacy at Beijing Foreign Studies University, who received his Ph.D. from Northwestern University in 2007, also sees an opening for China.
“I’ll be speaking to President Xi. I have a great relationship with him. We’re going to have a very good relationship, but we have a trillion-dollar deficit because of Biden,” Trump told reporters in the Oval Office on March 21.
“As Napoleon famously said, when your enemy is making a mistake, don’t do anything to disturb him,” he says. “So I think China’s strategy will be more of a tranquil waiting.”
China shouldn’t be hurried when the US is moving in its way, according to Wang, who studies China at the Asia Society Policy Institute.
Wang didn’t live through the economic hardship or political campaigns when he was younger. Wang came of age during China’s reform era, when the country was relatively open, and the economy grew rapidly.
What does China’s Ambivalence Tell Us About the U.S.? Observer Analysis of a Beijing-based Author and a Fellow American
In some ways, China’s ambivalence about taking on greater global responsibilities mirrors Americans’ wariness and weariness with foreign adventures, against the background of domestic political and economic woes.
Regardless of how Chinese observers think China should respond to any perceived openings or opportunities, the changes in the U.S. resonate on a personal level with America watchers, many of whom have lived and been educated in the U.S.
Journalist and author Zha Jianying, for example, studied at the University of South Carolina and Columbia University in the early 1980s, when Beijing began allowing students to study in America.
Zha used to see America as a model of change in China, and used to think that he could make a difference. She says that recent developments in America under the Trump administration have been very shocking, and in some way disillusioning.
The Chinese state can take advantage of what’s happening in the US, where the government is trying to make it seem as if America is a fake democracy.
Wang Haolan, who was born in 1997, is part of a group of Chinese who have never seen the U.S. as a beacon. “I have never believed the U.S. was that great,” he says. The American Roulette is his popular show.
It said that the action undermined the U.S. self-interest and could endanger the stabilization of production and supply chains.
In explaining its retaliatory tariffs, the finance ministry said the imposition of tariffs by the United States is “not in line with international trade rules, seriously undermines China’s legitimate rights and interests, and is a typical unilateral bullying practice”.
Implications of the China Trade War on Rare Earth Nuclei and High-Energy Proton Exports from the U.S.
The commerce ministry also announced that it is imposing export controls on seven types of rare earth minerals. They include samarium (钐), gadolinium (钆), terbium (铽), dysprosium (镝), lutetium (镥), scandium (钪) and yttrium (钇).
The country has also barred 11 American businesses accused of “military and technological cooperation with Taiwan” from importing to, exporting from, or investing in China, adding them to its “Unreliable Entity List.” The new additions, mostly made up of drone and defense companies, include drone manufacturer Skydio, which started making out consumer drones but pivoted entirely to enterprise in 2023.
It said no export operator is allowed to violate the provisions because these entities have behaved in a way that may jeopardize China’s national security and interests.
China’s commerce ministry said on Friday it is adding 16 U.S. entities to an export control list, banning them from acquiring Chinese products designated as dual-use, for civilian and military purposes.
“This is an aggressive, escalatory response that makes a near-term deal to end the trade war between the two superpowers highly unlikely,” its analysts wrote in a note.
The BBC reports that China has also filed a lawsuit with the WTO, which follows a dispute complaint it lodged with the organization in early February following Trump’s previous tariffs on the country.
China is also launching investigations into exports of X-ray tubes from America and India, amid allegations of “dumping” — when exported goods are sold for less than their domestic price, damaging the local industry. If that sounds oddly specific, bear in mind that the US dominates international medical device trade.
The Chinese levy will be in effect one day after the US tariffs go into effect. China has strict limits on exports of rare earth elements which are mostly mined in China, used in electric vehicles, weapons, and other tech.