President Trump’s plan to impose large tariffs on many nations was the primary driver of the 20% drop in the S&P 500 that began on April 2 of this year. Among the largest tariff plans was to raise tariffs on China to 54%. Briefly, it was suggested that the China tariff would be 245%. That means America’s largest trade partners—China, Canada, and Mexico—faced a financial catastrophe that would deeply wound their economies and might push U.S. inflation back to the 9% level seen in 2022.
SPY
$665.17▲ $103.80(15.60%)1Y1D5D1M3M6M1Y5YMAX24/7 Wall St. Key Points:
- Last week, the U.S. president suggested the tariff on Chinese goods should be 100%.
- The effects on the U.S. economy of a trade war with China would be immediate and broad.
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Last week, Trump suggested the tariff on Chinese goods should be 100%.
A Trade War
The April announcements also raised anxiety about reciprocal tariffs. Agricultural goods sent to China accounted for a large share of farmers’ income. These also included mineral oil, electronics, and semiconductors.
Exports to Canada included auto parts. Often, these were used to make vehicles that were sent back to the United States. Exports to Mexico included machinery and car parts.
A trade war with China would have immediate and widespread effects on the U.S. economy. Companies like Walmart rely heavily on China. Walmart imports about 60% of its merchandise from there. Other retailers have similar numbers.
China might punish U.S. companies there to pressure the U.S. government to get to the bargaining table quickly. The Chinese government could retaliate by limiting the activity of American companies that do business in the country. This would be wide-ranging and would hit companies like Starbucks and Walmart.
Inflation crippled the U.S. economy in mid-2022. As the consumer price index hit 9%, Americans’ purchasing power evaporated. Since consumer activity is two-thirds of gross domestic product, the national economy could suffer turmoil.
One reason the stock market reacts so violently to trade talk is that the president can change his mind from day to day. In this market, it is impossible to forecast the future of many companies and industries. The president’s plans can disrupt some days and be calm on others.
The slow pace of tariff talks with China has upset President Trump. It is impossible to say whether he will change his tariff plans if those talks quicken.
Chinese Companies Added to the U.S. Blacklist in 2025
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