What’s going on?
It’s ping-pong tariff auction bidding going on now! The latest bid is 84% (34+50) by China in response to US’s combined 104% (20+34+50) on China.
Smoot-Hawley Tariffs (1930) averaged under 20% and targeted specific agricultural/industrial goods, but Trump’s 2025 Tariffs average has already crossed 25% (from 3% previously) with a current peak of 104% (on China) and it’s much broader (on all imports) and on almost all nations.
Impact on US
Tariffs => Expensive imports => Inflation in US.
For imported goods with inelastic demand, the tariff burden may be passed freely to US consumers becoming just another tax for them.
Trump’s tariffs will hurt US importers (causing inflation) + counter-tariffs from other countries will hurt US exporters (causing recession) = (Stagflation in the US)
Losses in US companies which export through foreign manufacturing (eg. Apple) + Advance fears of a recession => flight of capital and plunge in US stocks (like we’re seeing now)
Impact on other nations
Tariffs => Exports from other nations reduces => dollar inflow in other nations reduces => depreciation of currency of these nations.
Moreover when their exporters make losses => Investors will pull out capital ($) from these countries (eg. Shanghai Composite plummeted) => further depreciation of their currencies.
Speculative trading only amplifies this entire cycle: so to block such a sharp yuan decline, PBOC is infusing forex into the economy & today directed state banks in China to curb dollar purchases.
Combined impact globally (recession)
Advance fears of global recession => Drop in prices of raw materials (oil+commodities)
Inflation happening in US is contagious throughout the world. Why? Because the Fed would hike rates, strengthening the dollar, thus depreciating other currencies in the process.
The global trade may shrink. While in 1930 trade was roughly 5% of the U.S. GDP, today it's significantly higher at 30% of the U.S. GDP. Even globally, Trade/GDP ratio was under 10% in 1930 but today it’s over 60%. So global growth will suffer.
Conclusion
Tariffs may work for US as a short-term negotiating chip, but can be disastrous for it if the trade war is prolonged beyond the wager. So US is essentially playing a gamble on other countries’ resilience time before they compromise. Do you think this global chess will end in a checkmate or a stalemate?
