Shocking the U.S. Stock Markets: A Warning of the Economic Downturn due to the Trade War, and its Implications for the Stock Market
The sudden drop in the U.S. stock markets Wednesday was a warning of the economic downturn that’s expected because of the trade war.
The DJIA had dropped more than 1,200 points by midday. The broader S&P 500 index sank 4% and the tech-heavy Nasdaq index dropped nearly 5%.
The U.S. Trade War and Its Economic Implications for American Manufacturing, Exports, and Consumer Products: Trump, the United States, and the World
Holding up a sign on the White House lawn, Trump pointed to a new, 34% tax on imports from China; for the EU, a tax of 20%. Vietnam got 46%; India, 26%. What about Nigeria? Just 15 percent. Trump claimed that these “reciprocal” tariffs reflect how other countries already tax American products. “That means that they do it to us and we do it to them,” he said. “Very simple.”
Economists warn the new taxes will result in higher prices and slower growth in the United States, while likely pushing many other countries into recession.
The new tariffs are the most severe taxes on foreign products that America has ever seen. (For a sense of that era, listen to the Planet Money episode on the Smoot-Hawley tariffs.)
“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.”
Just as Trump tried to build a wall against illegal immigration during his first term in the White House, he’s now erecting an economic barrier against global trade, in an effort to restrict imports and encourage domestic manufacturing.
“We’re going to produce things like cars and ships, chips, airplanes, minerals and medicines that we need,” Trump said in the Rose Garden. If they do not come back to our country, they will have 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 are already seeing that,” said Tim Fiore, who conducts a monthly survey of factory managers. “The retaliatory tariffs are going to be really ugly. It’s going to kill demand.
The US launched a trade war in the 1930s. It didn’t end well. Many people believe that the Great Depression was worsened by the controversial Smoot-Hawley tariffs.
“It meant higher prices for consumers, and that is bad for them.” says former Treasury Secretary Larry Summers. It meant higher input costs for producers. It undermined comity among nations and was bad for peace.
It isn’t clear whether any of Trump’s tariffs arrive at the right answer. These are very rough back-of-the-envelope calculations. Every good and every industry is treated the same by this formula. Things that a country sends to the U.S. include bananas, oil, clothing, computers and cars.
In other words, a 67% tariff on Chinese products would reduce demand for Chinese products by … also 67%. If Americans spend $439 billion on Chinese products annually, the new tariffs will reduce that spending by $294 billion and close the trade deficit. At least in theory.
This is contrary to Trump’s previous public statements, where he has variously denied that tariffs would raise prices or has said that he “couldn’t care less.”
There is a understandable approach behind the Greek letters. 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? The higher the trade deficit between the U.S. and another country, the higher the tariffs should be on it’s products.
That isn’t true. These are not a type of tariffs. They do not correspond to other countries’ tariffs. Where these tariffs came from is more interesting.
When President Trump announced his latest tariffs on Wednesday, he also ignited an economic mystery. Just where in the world did those numbers come from?
So, will Trump’s new tariffs actually close the trade deficit? Maybe, maybe not. But finally, at least, the administration has shown its work. According to their calculations, closing the trade deficit and raising prices are what the tariffs are designed to do.
China’s Strategy to Avoid a War with the U.S.: A Prospect for a Different Version of the World, Says Wang
He said that China should try to avoid a war with the U.S. But it should not react to Washington’s actions but push back where it’s necessary.
But Wang also notes that China wants to lower its trade surplus with the U.S., as it seeks to shift its engines of economic growth away from investment, manufacturing and exporting, and toward services and consumption. Wang believes there is an “overlap of interests” and that the relationship between the US and China could get better during Trump’s second term.
The U.S. and China also signed a deal in January 2020 to lower China’s trade surplus with the U.S., but it quickly fell apart, suggesting, Shi says, that China will be skeptical of any attempt 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.
“I do think there’s a window of opportunity for both sides to really strike a deal, which is I think three to six months,” in Trump’s second term. If that window of opportunity is gone, then Trump might be tempted to revert back to his more confrontational approach.”
This means that you must be careful on the international arena. You don’t want to overstretch yourself. You don’t want to make promises that you cannot fulfill.”
He said to look at the dismantling of many foreign aid projects. “This presents an opportunity for China to present a different version of the 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 talking to the President. I have a good relationship with him. “We have a trillion-dollar deficit because of Biden, but we are going to have a very good relationship,” Trump said 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.”
Wang, who researches China at the Asia Society Policy Institute in New York, believes that there’s no need for China to be in a hurry when things in the U.S. are going its way.
Wang didn’t suffer through the economic and political hardship that older Chinese did. When China was relatively open, and the economy grew quickly, Wang came of age.
The U.S. as an Opportunity: The American Roulette and China’s New Role in the Chinese Dialogue of Beijing’s Decline and Decline
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 troubles.
Regardless of how the Chinese observe China’s response to any perceived openings or opportunities, the changes in the U.S. are felt by many America watchers and those who have been 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 is one of China’s liberals, who used to “look up to America as a role model to help change China in the more democratic direction.” She says recent developments in America under the Trump administration have been shocking and confusing.
But for the Chinese state, she says, “it’s definitely an opportunity, because what’s happening in the U.S. does a better job than state propaganda could do to demonize America as, you know, a phony democracy, which really is an imperialist power.”
Wang Haolan is a Chinese who has never seen the U.S. as a beacon. “I have never believed the U.S. was that great,” he says. The name of his popular podcast, The American Roulette, hints at this view.
The U.S. action “not only undermines the U.S. self-interest, but also jeopardizes the development of the global economy and the stabilization of production and supply chains,” it said.
BEIJING – China has hit back at new U.S. tariffs with sweeping levies of its own on American products, sharply escalating the trade war between the world’s two biggest economies.
U.S. Trade Controls on Rare Earth Minerals in the Mauritania-Japan Trade War: a Case Study with the World Trade Organization
The ministry is imposing export controls on seven rare earth minerals. They include samarium (钐), gadolinium (钆), terbium (铽), dysprosium (镝), lutetium (镥), scandium (钪) and yttrium (钇).
11 American businesses have been banned from doing business in the country because of their association with Taiwan and with the “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.
“These entities have behaved in a manner that may jeopardize China’s national security and interests, and no export operator is allowed to violate the above-mentioned provisions,” it said in a statement.
China has added 16 U.S. entities to its export control list and banned them from obtaining Chinese products because they are dual-use.
“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.
11 US companies have been banned from trading in the country, new restrictions have been applied to rare earth mineral exports, and a lawsuit has been filed with the World Trade Organization.
The Chinese levy will be effective on April 10th, after the US’s new tariffs take effect. China has also imposed strict limits on the exports of some rare earth elements that are mined almost exclusively in China, used in electric vehicles, weapons, and other tech.
