Implications of Donald Trump’s Trade War for the U.S. Economy and Global Economy: Factors, Trade Risks, and Future Directions

President Trump’s sweeping tariff announcement Wednesday triggered a sharp drop in U.S. stock markets, a flashing-red warning sign of the economic fallout that’s expected to result from the widening trade war.

The Dow Jones Industrial Average fell over 1200 points, or 3%, around midday. The broader S&P 500 index sank 4% and the tech-heavy Nasdaq index dropped nearly 5%.

The result is a whopping 34% tax on imports from China (on top of the 20% tariffs Trump already imposed), and a 46% tariff on goods from Vietnam. Many factories moved from China to Vietnam to escape Trump’s earlier tariffs.

According to economists, the new taxes will result in higher prices and slower growth in the US, which will likely push other countries into recession.

The tariffs amount to a nearly nine-fold increase in the prevailing U.S. import tax last year. The size and scope of the levies, announced after the U.S. stock market closed on Wednesday, took many investors by surprise.

“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.”

In an effort to control imports and encourage domestic manufacturing, Trump has built a barrier against global trade, just as he did against illegal immigrants in his first term.

The cars, ships, chips, airplanes, minerals and medicines that we need right here in America will be produced in the United States. “They’re all coming back to our country because if they don’t, they’ve got a big tax to pay.”

Many factories are bracing for higher costs and a reduction of export markets as a result of the trade war. The U.S. has already been hit with tariffs of their own from trading partners.

Tim Fiore conducts a monthly survey of factory managers in order to find out if there is anything that needs to be changed. “The retaliatory tariffs are going to be really ugly. It’s just going to kill demand.”

The United States launched a trade war in the 1930s. It did not end well. The Great Depression was worse because of the Smoot-Hawley tariffs.

“It meant higher prices, so it wasn’t good for consumers.” says a former Treasury Secretary. “It was bad for producers, because it meant higher input costs. It undermined comity among nations, which was bad for peace.

Even products the U.S. is unable to produce domestically, such as coffee and bananas, can be hit by the new tariffs.

Global Markets in Asia and Europe Fall Following U.S. Announcement of Global Tariffs Trump – First Detailed Analysis

The yield on the 10-year treasury fell as low as 4.11% in the morning from 4.17% late on Tuesday and a low of 4.80% early this year. But it later rose to 4.18%. Higher yields indicate higher expectations for the economy.

In other dealings early Thursday, U.S. benchmark crude shed $2.63 to $69.08 per barrel. Brent crude, the international standard, gave up $2.62 to $72.33 per barrel.

The S&P 500 rose 0.7% to 5,670.97 after careening between an earlier loss of 1.1% and a later gain of 1.1%. It started the week with a big drop and ended it with a nice gain.

Bangkok’s SET shed 1.1% after Thailand was assigned at 36% tariff on its exports to the U.S. That could cause Thai exports to fall by $7 billion to $8 billion, or about 2.3% of the total, Kasem Prunratanamala of CGS International said in a report.

The announcement came as a major shock, according to Yeap Junrong of IG. China was hit with an additional 34% tariff, bringing the totaltariff burden to 64%, when accounting for previous measures.

Source: Markets in Asia and Europe fall following U.S. announcement of global tariffs

The impact of the 24% tariffs on Japanese economy and implications for the future of the S&P 500 and other financial systems in the era of interest rate hikes

The potential impact of the 24% tariffs on the export-dependent Japanese economy dashed expectations that the central bank will keep raising interest rates. The financial group skidded 8%.

The S&P 500’s future was down 3.1%, auguring potential losses when U.S. markets reopen on Thursday.