As expected, Donald Trump was incredibly upset after Xi Jinping called his bluff and raised the bets in the poker game. Did the U.S. president really think Beijing will do nothing and with tail between legs, kiss his ring and accept the 34% tariffs slapped on the Middle Kingdom? Nope, the Chinese decisively slapped back by matching 34% tariffs on all American goods going into China.
Of course, Beijing knew Trump, whose ego is as huge as Mount Everest, will be provoked with the unexpected retaliation. The Trump administration has warned every government to not retaliate over the U.S. sweeping tariffs against the entire planet, including a remote island populated with only penguins and seals. Mr Trump was trying to intimidate and threaten everyone into submission.
But when the rebellious China refused to kiss the ring, the Godfather got extremely angry. In response, Trump threatened an additional 50% (he had already imposed two rounds of 10% tariffs before last week’s 34% tariffs), bringing the total to 104%, if Beijing did not scrap its 34% tax on Uncle Sam. Naughty China did not change course, accusing the U.S. president of behaving like a bully.
Just hours after the 104% tariffs from the U.S. kicked in on Wednesday (April 9), Beijing announced it would raise its own tariffs on American goods from 34% to 84% – effectively matching again Trump’s extra 50%. Hilariously, during his speech on Tuesday night, Trump prematurely claimed victory, claiming that China was hoping – desperately – to make a deal with his administration.
“They want to make a deal. They just don’t know how to get started because they’re proud people,” – proclaimed President Trump, who was emboldened with more than 70 countries that have reached out to begin negotiations. “I’m telling you these countries are calling us up, kissing my ass. They are dying to make a deal,” – Trump arrogantly told the audience at a dinner on Tuesday.
Trump has two options – raises the tariffs again on the defiant China, hoping it would scare Beijing (which most likely won’t work), or self-proclaims a great victory with U.S.’ 104% tariffs on China compared to the Chinese’ 84% tariffs on Americans. But Beijing has already announced that it will fight to the end and take countermeasures against the United States to safeguard its own interests. There’s a third option though.
Even if Trump does not care, or pretends to not care, about the stock market meltdown, the Dow Jones had lost more than 4,500 points in the past four trading sessions alone. The S&P 500 and NASDAQ had lost 12% and 13% respectively. It has become so bad that a feud has erupted between Elon Musk and Trump’s trade adviser Peter Navarro, who the Tesla boss described as “dumber than a sack of bricks”.
Even if Trump was not panicked, or pretends to not panic by accusing China of panicking, the American companies appear to have started panicking. Delta Air Lines, the most profitable U.S. airline, says it is scrapping the 2025 revenue forecast, blaming Trump’s tariffs for hurting flight bookings. Walmart too has scrapped its outlook for income in the first quarter due to tariffs on China.
Jamie Dimon, Chairman and CEO of JPMorgan Chase is a strong supporter of tariffs. But even he admits that the U.S. economy is heading for a recession as President Trump’s tariffs wreck financial markets. You know the U.S. economy is in trouble when the president and the U.S. Treasury Secretary take turns accusing China of making the wrong moves and panicking.
And when Treasury Secretary Scott Bessent was babbling and talked like someone on the brink of a nervous breakdown – even to the point of bursting into tears – while talking to the media about the catastrophe of the tariffs, you know the White House was indeed panicking over China’s retaliation. But if you think Wall Street was Beijing’s only target, think again.
Yes, forget about the U.S. stock markets. There’s something which makes Trump, Bessent, Commerce Secretary Howard Lutnick and Trade Advisor Peter Navarro very nervous. The bond market – not a tumbling stock market – appears to have gone kaput with prices tumbling and yields spiking. That’s very abnormal during times of uncertainties and fears of a recession.
If that sounds too technical or jargon, here’s how it works. Fixed income like bonds is usually a safe haven. So, when the economy plunges into chaos – stock markets crash, dollar depreciates, oil prices plunge – investors would flee toward bonds in a search for safety, driving yields lower. But that isn’t the case now. The 10-year Treasury note yield jumped 11 basis points to 4.37%.
Worse, the 30-year Treasury bond yield hit a high of 5.02% – a level not seen since November 2023. Even the 2-year Treasury yield jumped 2 points to 3.76%. This means not only nobody wants to buy the U.S. bonds, but someone like China and Japan – two of the world’s largest holders of American Treasuries – were dumping the U.S. government securities.
Do you think Japan, China and the U.K. – three major foreign holders of Treasury Securities – would buy more American junk I.O.U papers after they are being hit with some of Trump’s highest tariffs? It’s not rocket science that they don’t need to keep U.S. government bonds if Trump succeeded in cutting the U.S. trade deficit, resulting in Americans sending less money overseas to pay for goods.
Surprisingly, it was not the Chinese who were selling the U.S. bonds. Instead, it was the Japanese (the biggest holder of U.S. bonds) and others who have been dumping like crazy. China too was selling, but not in a huge wave like Japan, who has over US$1 trillion of U.S. debt paper. It didn’t help that allies like the Canadians and Danes are boycotting American products.
The sell-off of U.S. government bonds was the main reason Trump forced to suddenly make a spectacular U-turn on Wednesday. He paused tariffs on 75 countries, and temporarily subject them to 10% for 90 days (excluding Canada, Mexico and China). As a result, Dow Jones skyrocketed 7.87% – its biggest jump since March 2020. This was Trump’s third option – flip-flopping – which the U.S. claims was a “strategy” in order not to lose face.
However, the hidden part is that China may have – silently and carefully – orchestrated the weakening of Yuan,as the People’s Bank of China tries to tackle some of the economic impact of the trade war without destabilizing financial markets. It was not a coincidence that the offshore Yuan on Tuesday plunged to the weakest level since the creation of the market in 2010.
As Trump bulldozed the 104% tariffs on Chinese goods, China devalued its currency to a 17-year low against the U.S. dollar to make its products cheaper to offset the tariffs as much as possible. In the end, the Chinese goods might still look cheap, whilst American goods will be 84% too expensive for the Chinese consumers. Trump can do nothing except accusing till foaming at the mouth that China is manipulating currency.
The best part is Trump can’t devalue the dollar the same way Beijing did to yuan. Thanks to Trump, de-dollarization could pick up steam as demands for the U.S. dollar collapse, which make imports even more expensive to the struggling American consumers – sparking the risk of inflation, recession or even depression. Crucially, Trump’s tariffs will drive U.S. trading partners to China even closer.
Regardless how the Trump administration twists and spins his U-turns as a winning strategy, the damage is done as other countries have difficulties trusting the U.S. If the tariff war was indeed effective and easy to win, the POTUS has absolutely no reason to pause it. He ultimately blinked because both the stock and bond markets plunged. And China has not even begun dumping the U.S. bonds in retaliation.
Trump’s genius advisors have forgotten that the U.S. needs foreigners to keep rolling over the American bonds they hold, and buying new ones because the federal budget deficit is running at around US$2 trillion a year, or 7% of gross domestic product (GDP). Foreigners holding of US$7 trillion of Treasury bonds will turn into toilet papers if they have little use of it.
At the White House on Wednesday itself, President Trump had lunch with financier and investor Charles Schwab and met with Michigan Democratic Gov. Gretchen Whitmer, who had warned that Michigan was already feeling the impact of the tariffs throughout its automotive industry. He finally folds after watching Dimon’s interview on Fox Business that a recession was a likely outcome.
Source : Finance Twitter
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