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There’s no letup in sight to the trade war: This morning, China raised its tariffs on U.S. imports yet again. Beijing said it would not make economic sense to raise them further, and called the Trump administration’s dizzying tariffs barrage “a joke.” And this morning, Tesla stopped taking orders in China for two models it imports from the U.S. (That raises the question: What does Elon Musk think about how President Trump’s trade fight is going?)
The U.S. dollar and Treasuries are being battered as well, casting further uncertainty over their safe-haven status.
Where things stand: As of tomorrow, Chinese levies on U.S. goods will rise to 125 percent from 84 percent. That’s after the Trump administration placed 145 percent tariffs on imports from China; the White House has also put 10 percent tariffs on most other trade partners as it faces a 90-day deadline to reach scores of trade deals.
Watch the market volatility closely. Treasury Secretary Scott Bessent said on Thursday that he saw “nothing unusual” about the market swings. But simultaneous drops in the dollar, stocks and long-dated Treasury bonds are extreme, especially in the United States, and suggest a potentially larger capital flight away from U.S. financial assets, analysts noted.
The sell-off in bonds in particular appeared to spook the White House into pausing most of its reciprocal tariffs.
Bondholders remain wary. They appear concerned about the inflationary effects of tariffs, “squeezing margins and reducing household real incomes,” Andrew Wishart, an economist at Berenberg, wrote in a research note this morning. Berenberg forecasts that the yield on the 10-year treasury note will rise to 4.8 percent, up from about 4.4 percent this morning.
Investors appear to be worried about what’s next for the “Trump put,” shorthand for the president walking back policies that could hurt the economy.
Because Trump has shown that he will listen to the bond market, the thinking goes, he has lost negotiating leverage — especially since he is seeking allies to team up against China. That means other trading partners can demand things from the U.S., and not, as the White House wants, the other way around.
Thursday’s market plunge seems tied in part to a growing belief that the only way for Trump to get out of this predicament is walk away from his fight altogether.
