As global markets react to significant shifts in trade policy, investors are grappling with uncertainty. The latest developments in tariff changes, particularly those initiated by the Trump administration, have led to escalating tensions and retaliatory measures from countries such as China and the European Union. You need to understand how these evolving dynamics affect your investments and the broader market landscape.
China slaps 84% retaliatory tariffs on U.S.
China has pushed back again on U.S. President Donald Trump’s tariff policies by hiking its levies on U.S. imports to more than 80%.
Tariffs on U.S. goods entering China will rise to 84% from 34% starting April 10, according to a translation of Office of the Tariff Commission of the State Council announcement. The hike comes in response to the latest U.S. tariff increase on Chinese goods to more than 100% that began at midnight.
The tit-for-tat escalation of tariffs threatens to crush trade between the world’s two largest economies. According to the Office of the U.S. Trade Representative, the U.S. exported $143.5 billion of goods to China in 2024, while importing products worth $438.9 billion.
The Trump administration announced a sweeping new tariff policy last week, warning other countries not to retaliate. Some nations, including Japan, have seemed willing to negotiate on tariffs, but China appears to be taking a more hardline stance and quickly announced a counter-tariff.
After China’s initial response to the April 2 tariff rollout, Trump announced an additional 50% hike, putting the total level for import taxes on Chinese goods at 104%.
The EU Retaliates
The European Union on Wednesday voted to approve its first set of retaliatory measures to counter tariffs imposed by the U.S. on steel and aluminum.
The European Commission, the bloc’s executive arm, said duties would start being collected on a first tranche of tariffs on U.S. imports from April 15, with a second set of measures following on May 15. According to a draft document seen by CNBC in March, the tariffs target a wide range of goods, including poultry, grains, clothing and metals. The EU has not released a final list of impacted products and declined to comment further on Wednesday. The 27-nation bloc had warned it would act to protect European business and consumers after U.S. President Donald Trump imposed 25% duties on the metals.
European Commission President Ursula von der Leyen at the time said the EU was ready to retaliate unless negotiations with the U.S. administration were successful.
The imposition of steep tariffs has sent ripples through various sectors, prompting swift adjustments from businesses worldwide. The stock market has been particularly volatile, with investors seeking clarity amid ongoing trade disputes. You must pay attention to these changes, as they can directly influence financial decisions in the coming months.
In this rapidly changing environment, staying informed is crucial for navigating potential risks and opportunities. Understanding the specifics of regional trade dynamics and their implications will help you make better choices in your investment strategy.
Tariffs War Sparks US Government Debt Sell-Off
Confidence in the US economy is plummeting as investors dumped government debt amid growing concerns over the impact of Donald Trump’s tariffs.
Governments sell bonds – essentially an IOU – to raise money from financial markets for public spending and in return they pay interest. The US does not normally see high interest rates on its debt as its bonds are viewed as a safe investment, but on Wednesday rates spiked sharply to touch 4.5%.
After the US implemented a 104% tariff on products from China at midnight on Wednesday, Beijing hit back with 84% levy on American products.
Stock markets have been falling sharply over the past few days in reaction to the escalating global trade war and fears of tariffs leading to higher prices.
However, the sale of bonds in the US poses a major problem for United States, the world’s biggest economy.
The interest rate – or yield – for US government borrowing over 10 years has spiked sharply in the past couple of days from 3.9% to 4.5%, the highest level since February.
The rise has spooked economists because US bonds are traditionally seen as a so-called safe haven for investors to put their money in times of financial turmoil.
“Rising bond yields mean higher costs for companies to borrow, and of course governments too,” said Laith Khalaf, head of investment analysis at AJ Bell.
“Bonds should do well in times of turmoil as investors flee to safety, but Trump’s trade war is now undermining the US debt market,” he added.
While interest rates on US government debt rose, the price of the bonds themselves fell as demand weakened due to investors offloading them.
Mohammed El Erian, chief economic advisor at Allianz and former boss of the biggest bond manager Pimco, said one reason US borrowing costs had shot up was because there had been an “erosion” of bonds being seen as a safe haven.
Will the Federal Reserve step in?
Some analysts suggested that America’s central bank – the US Federal Reserve – might be forced to step in if turbulence continues, in a move reminiscent of the Bank of England’s emergency action in 2022.
“We see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilize the bond market,” said George Saravelos, global head of FX research at Deutsche Bank. “We are entering uncharted territory,” he said, adding that it was “very hard” to predict how markets would react in the coming days as the bond market suggested investors had “lost faith in US assets“.
Questions remain over the scale and what type of investors are dumping US bonds. There has been speculation some foreign countries, such as China which owns some $759bn of US bonds, might be selling them.
Key Take-Away
There will be no winners in this trade war, the loser will be the global economy – i.e. individual consumers and small businesses across the world, the ones least able to weather the storm!