China Slaps Huge Tariff on US
Happy Friday! A relatively quiet end to a wild week, with Congress already out the door for a two-week spring recess and President Trump taking a day for his annual physical exam at Walter Reed National Military Medical Center. Trump's tariff war is still shaking up the global economy, though, and American consumers don't seem to like it too much. More on that below.
A programming note: We'll be back in your mailboxes on Tuesday. Have a great weekend!
China Raises Tariff on US Imports to 125%
China retaliated against the Trump administration's tariff hikes on Chinese goods by raising its import tax on U.S. goods to 125%, starting on April 12.
Saying the administration's tariff initiative is a "joke," the Chinese Ministry of Finance said this is the last time it will match U.S. tariff increases, which President Donald Trump has now set at 145% for virtually all goods coming from China.
"Given that American goods are no longer marketable in China under the current tariff rates, if the US further raises tariffs on Chinese exports, China will disregard such measures," the ministry said in a statement.
Chinese President Xi Jinping responded directly to the tariffs for the first time, saying that he does not fear the effects of the rapidly developing confrontation, adding that "there are no winners in a tariff war."
China's Ministry of Foreign Affairs was a bit more pointed, defiantly warning that China "will never bow to maximum pressure of the United States." In a social media post, the ministry took aim at Trump's effort, saying, "Give the bully an inch, he will take a mile."
Hope for a deal? Trade experts say the tariffs imposed by both countries are so high right now that they could choke off most commerce between them, potentially causing enormous economic damage. The White House provided a glimmer of hope that there may be light at the end of the tunnel Friday, as White House press secretary Karoline Leavitt told reporters that the president is "optimistic" that the U.S. and China can strike a deal.
That slender thread of hope reverberated on Wall Street, where investors have responded extremely negatively to Trump's tariff plans, and was enough to send stocks higher, with the Dow Jones Industrial Average jumping 619 points and the S&P 500 climbing 1.8%.
Still, there's no sign that talks have begun, let alone of a deal in the works. The White House is reportedly waiting for Xi to request a meeting, with Trump administration officials saying they will not reach out first. A spokesperson for the Chinese Commerce Ministry said Thursday that "the door to talks is open," but added that "dialogue must be conducted on the basis of mutual respect and equality." The spokesperson also warned that China will respond to any confrontations with the U.S. in kind, adding that "pressure, threats, and blackmail are not the right ways to deal with China."
Melanie Hart, senior director of the Atlantic Council's Global China Hub, told CNN that China is well-prepared for an escalating confrontation, even as Americans are confident that they have the upper hand. "Look at where they're blacklisting US companies, hitting US farmers, cutting us off from critical minerals - that's a toolkit that they're very comfortable wielding," she said. "They have experimented with it in many other countries. They've been developing it for years. They have a bunker that they've been building for this moment."
Consumer Sentiment Plunges as Inflation Fears Rise
American consumers are increasingly worried about their financial futures, with growing concerns about a weakening economy and rising inflation driven by President Donald Trump's tariff war.
The consumer sentiment survey from the University of Michigan reported Friday that its overall index dropped 11% over the past month, to a preliminary reading of 50.8, marking the fourth straight month of decline.
"Sentiment has now lost more than 30% since December 2024 amid growing worries about trade war developments that have oscillated over the course of the year," University of Michigan Survey of Consumers director Joanne Hsu said.
Hsu added that the across-the-board decline in sentiment is itself a signal that a recession may be on the horizon. "Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month," she said.
The percentage of respondents saying they expect unemployment to rise increased for the fifth straight month and is now twice its level in November 2024. According to CNN, the April reading is the second lowest going back to 1952, and worse than any result during the Great Recession.
In a note to clients Friday, Capital Economics economist Harry Chambers said that consumers are in sync with Wall Street. "Households appear to have come to the same conclusion as markets: the tariffs will do lasting damage to the US economy," he wrote, per Yahoo Finance.
Quote of the Day: Worries About US Treasuries
"I do think that the aberrant pattern in which long-term Treasuries were moving speaks to a very concerning situation in which the U.S. assets are trading more like those of an emerging market nation than those of a nation with the world's reserve currency. The fact that when they perceive more risk people are moving out of instead of into U.S. long-term bonds raises substantial concerns, and raises possibility of a [negative] government funding episode."
- Former Treasury Secretary Lawrence Summers, speaking to Fortune about unusual behavior of U.S. Treasuries in the markets since President Trump began to raise tariffs sharply.
Treasuries usually rise in price during periods of increasing risk as investors flee to safer assets, and in the rush, they drive interest rates lower. But over the past two weeks, U.S. bonds have seen falling prices as investors sell, with interest rates rising accordingly. Although no one has yet nailed down why exactly bonds are behaving that way, some experts are worried that it indicates that U.S. debt is no longer being seen as the world's safe haven. If true, it could have enormous implications for the U.S. economy, as well as the government's ability to finance the national debt.
Simon White, a co-founder of Variant Perception and a macro strategist at Bloomberg, is one of a growing number of analysts who think a major change is underfoot. "Treasuries are losing their haven status," he said. "Capital is leaving the US at an increasing rate as the dollar's reserve-currency standing is diminished, and the risk of a recession raises the likelihood of an inflation-stoking double-digit fiscal deficit."
Fiscal News Roundup
- China Caps Tariffs on US at 125%, Calls Trump Levies a 'Joke' – Bloomberg
- Wall Street Execs Sound Warnings on Economic Outlook – Axios
- Trump Is Waiting for Xi to Call. The Chinese See It Differently – CNN
- Freak Sell-Off of 'Safe Haven' US Bonds Raises Fear That Confidence in America Is Fading – Associated Press
- Treasuries Suddenly Trade Like Risky Assets in Warning to Trump – Bloomberg
- 10-Year Treasury Yield Tops 4.5% After Surge This Week That's Worrying Wall Street and the White House – CNBC
- Panic Grips World's Factory Hubs After Trump Tariff Whiplash – Bloomberg
- US Consumer Sentiment Plummets to Second-Lowest Level on Records Going Back to 1952 – CNN
- Trump Tariff Surcharges Are Now Getting Added to Customer Bills – Bloomberg
- Republicans Clash Over Medicaid in Hunt to Pay for Trump's Agenda – New York Times
- Trump Tariff Collection for Freight Shipments Delayed by Customs 'Glitch' – CNBC
- Smallest Businesses Are Biggest Losers in Global Tariff War – Wall Street Journal
- Spanish Premier Sticks to China Pivot, Ignores US Warnings – Bloomberg
- Trump Administration Advances Effort to Pull Maine's Federal K-12 Funding Over Trans Athletes – Politico
- Military Contractors Pitch Unprecedented Prison Plan for Detained Immigrants – Politico
- RFK Jr. Says Deep State 'Is Real,' Called FDA Employees 'Sock Puppet' of Industry – Politico
Views and Analysis
- Trump's Climbdown for the Ages – Peggy Noonan, Wall Street Journal
- Tariff Turmoil Will Continue Unless Congress Steps In – Bloomberg Editorial Board
- Trade War Threat Sinks Consumer Confidence, Alarms Wall Street – Michael Stratford and Victoria Guida, Politico
- 'I Hope I Am Wrong, but I Am Pretty Pessimistic': Four Economists Dissect Trump's Tariffs – Oren Cass, Jason Furman, Rebecca Patterson and Lawrence H. Summers, New York Times
- Victory Over Inflation Now Seems So Yesterday – John Authers, Bloomberg
- The U.S. Economy Is for Sale – Fareed Zakaria, Washington Post
- Why Are Democrats Pulling Their Punches on Trump's Disastrous Trade War? – Catherine Rampell, Washington Post
- The Terrible Arguments Coming from Trump's Tariff Defenders – Ramesh Ponnuru, Washington Post
- The Manufacturing Boom We Already Had – David Dayen, American Prospect
- 'Showerhead' Executive Order Hides a Serious Surprise – Noah Feldman, Bloomberg
- Trump and Xi Are Preparing for a War Nobody Wants – Daniel Ten Kate, Bloomberg