Niu Niu Tong Sheng
Understand the tariff war 2.0 in 10 minutes.
Since Trump announced the "reciprocal tariff" measures, everyone might have been unable to get a good night's sleep. The stock market fluctuates by a thousand points, and the Hold Positions are red and green... Some have described this tariff war as the "Third World War."
What disruptive impacts does this battle have on the stock market, the economy, and daily life? In this episode of Futubull Tongsheng, let's explore how this "tariff world war" is shaking up the entire world.
Hello everyone, I am Shan Yi.
Even before Trump's second term officially began, people were already discussing this issue. Tariff War 2.0, as expected, ignited as soon as he took office again.
What is a tariff?
First, let's understand what a tariff is. A tariff refers to the tax imposed by the government on imported or exported goods, and it is one of the important sources of national finance.
Tariffs are mainly divided into two types: import duties and export duties.
Import duties refer to the taxes that need to be paid when goods enter the country.
Export tariffs are the taxes that need to be paid when a commodity is exported from a country.
For example, if a commodity worth 100 US dollars is subjected to a 10% import tariff by the exporter, an additional 10 US dollars in tax must be paid.
Why is Trump so anxious, using 'tariff wars' as a tactic every time?
As early as the late 1980s, a young Trump believed that there was no such thing as free trade, thinking that other countries, including Japan, were taking advantage of the USA, stealing American jobs, and mocking America behind its back. To this day, this aggressive Trump still advocates using tariffs to promote the USA's economy. He believes tariffs can encourage American consumers to buy domestic products, increase government revenue, attract investments back to the USA, and support America's manufacturing industry.
What is a trade deficit?
Another reason is the trade deficit, which refers to a situation where the total value of goods and services imported by a country exceeds the total value of goods and services it exports over a certain period.
For example, if a country's total imports for a year amount to 10 million US dollars and its total exports are 8 million US dollars, the trade deficit for that country would be 2 million US dollars.
A long-term trade deficit may lead to currency depreciation, as when imports exceed exports, the demand for foreign currency increases while the demand for the domestic currency decreases, resulting in a decline in the value of the domestic currency and causing competitive pressure on domestic enterprises.
Currently, the largest trade deficit for the USA comes from China, followed by Mexico and Europe. According to Statistics, the USA's trade deficit in goods last year exceeded 1 trillion dollars, while the total amount of goods imported from China was about 440 billion dollars, with only about 145 billion dollars exported to China, resulting in a trade deficit of approximately 295 billion dollars.
The USA views trade deficits as unfair trade practices, therefore imposing "reciprocal tariffs" on multiple countries. Economists predict that the policy is expected to bring in 700 billion dollars in revenue for the USA, equivalent to 2.3% of the USA's GDP.
How is the market responding?
Everyone should be quite clear. Following the announcement of Trump's Tariff 2.0 policy, many places experienced a Black Monday: the Hang Seng Index fell over 3000 points in a single day for the first time in history, the Japanese stock market hit a circuit breaker, and the US stock market also did not have a good outcome, dropping nearly 4000 points in just two days, causing shareholders to lament.
Trump's tariff policy targets multiple countries, with analysts believing that shipping volumes will be impacted. Shipping stocks and export stocks bore the brunt of the selling. However, the greater opportunity observed is that the stock market becomes volatile under the daily updates on tariffs.
Today, news emerged that tariffs will be suspended, prompting a surge in the stock market, only for the next day to bring certain news indicating that tariffs will continue to be imposed, placing pressure on the stock market. The stock market becomes extremely sensitive; this situation is not uncommon.
In addition to the stock market resembling a roller coaster, these uncertainties have a significant impact on economic prospects. Major institutions indicate that tariff policies make global trade full of uncertainty, which may suppress capital expenditure; consumer spending in the USA will be impacted, and economic growth is expected to slow down.
The former Treasury Secretary of the USA warned that under the current tariff measures, there is over a 50% chance of economic recession occurring in the USA. If it does happen, it is expected that an additional 2 million people will become unemployed.
What is the probability of an economic recession occurring in the USA?
Let’s see how Futubull AI analyzes this! Click the image below to immediately ask Futubull AI, "What is the probability of an economic recession occurring in the USA?"
In addition to the economic recession, the market also believes that this tariff storm may bring 'stagflation' to the USA.
Stagflation means stagnant inflation, which is characterized by economic stagnation, increased unemployment, and persistent inflation.
Speaking of inflation, the president of the New York Federal Reserve Bank predicts that the tariffs will drive the USA's inflation rate up to 3.5% to 4% this year, far above the Federal Reserve's 2% inflation target. If inflation continues, the Federal Reserve's room and pace for interest rate cuts may not be as large and fast as the market imagines, which will also pressure the stock market, creating a vicious cycle.
How is the dollar performing? Since Trump announced the 'reciprocal tariffs' on April 2, the US dollar index has been falling. Some analysts believe that typically, a significant increase in tariffs would lead to an appreciation of the dollar. However, under the escalated trade war, the dollar has not risen but rather fallen, likely because investors are withdrawing from the USA, leading to dollar depreciation.
Can Trump's tariff policy really Make America Great Again? Does engaging in a tariff war genuinely solve the USA's problems? Or does it accelerate the economic recession instead?
Let’s listen to expert analysis (the following views are from the CEO of Honghu Asset Management, Lu Tinglong):
What he refers to as 'Making America Great Again' includes enhancing America's discourse power internationally while also hoping to boost trade volume. However, the market's reaction to tariffs is very negative; the erratic policies and lack of transparency make other countries feel uneasy. It especially makes one feel that, as a major power, the USA’s tariff policy seems reckless, impacting the economy and international relations. This will lower other countries' trust in it. This is actually the most significant impact of this tariff war on the Global stage.
Many countries may no longer see the USA as the largest buyer, leading to a reduction in trade volume with the USA, and they may form their own regional trade systems to reduce reliance on the USA. Additionally, this will also affect the outlook for the dollar, including American national bonds and stocks. Investors might choose to diversify risks and hold less cash in dollars. As a Chinese saying goes, 'driving a dog into a narrow alley'; once people have no retreat, the power of retaliation will increase. Such a result might be something Trump did not foresee in his original plans.
Firstly, this sparks opposition among the domestic populace, as consumers will ultimately bear the burden of rising prices, which will severely affect inflation and consumer purchasing power in the USA. A shrinkage in trade volume will inevitably lead to economic decline, and if American debt remains high while the pace of interest rate cuts cannot be accelerated, inflation, recession, and stagflation could emerge in the future. This situation can be described as 'a pot boiling over.' As for bringing factories back to America, this idea is also difficult to realize due to its high complexity. The price of goods produced in the USA can be several times higher than in other regions, and not just a few tens of percentage points of tariff can attract people back to the USA. An economic recession spawned by the USA will inevitably have repercussions worldwide.
In the context of recession risks, everyone might opt for more stable cash flow return instruments, such as short-term bonds of two to three years; meanwhile, assets like Gold and Bitcoin are also gaining popularity as people seek to de-dollarize.
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