Just last week, the White House announced additional, major increases in tariffs on a wide variety of imports. Today, the effective tariff rate on Chinese goods will jump to 145%. In this case, the United States risks overextending its reach into long-standing trade disputes with this unprecedented and unnecessary move. The announcement finalizes a previously proposed 35% border adjustment tax on imports from Mexico and Canada. This action escalates the administration’s trade policy even more.
Indeed, the effective US tariff rate on Chinese imports has recently increased by historic proportions. It increased from 84% to 125%, and now it recently crossed the historically high 145% mark. The most recent round of tariffs was applied retroactively. This action is the administration’s latest salvo in their overall effort to address trade imbalances through the imposition of retaliatory measures and other countries’ retaliatory measures. Interestingly, there is already a 20% tariff on fentanyl-related imports, showing just how narrowly focused the administration is willing to go with tariffs.
In the upcoming capital financial markets, the announcement was an important and immediate shock. The EUR/USD exchange rate jumped above the 1.1200 level as traders processed the implications of that news. At the same time, GBP/USD continued its bullish recovery and approached the important psychological mark of 1.3000. Speculative demand to sell the US Dollar increased dramatically. That increase was largely driven by the most recent soft inflation figures coming out of the US, which dropped earlier today. This potent mix of factors has resulted in a notable weakening of the dollar against most major currencies.
Moreover, these tariff increases come at a considerable economic cost. Investors are even more worried about how they can be expected to affect the American economy. Wall Street posted its worst one-day decline as worries grew that President Trump’s initiatives would spur retaliation and possibly trigger bigger economic problems. Analysts have cautioned that such extreme steps might escalate current tensions to dangerous heights. Furthermore, they estimate that the countries that would be impacted would retaliate in kind.
In reaction to the uncertainty, gold prices skyrocketed. They climbed to $3,175 per troy ounce at the session peak in US trading hours, their highest value ever. Investors often turn to gold as a safe harbor during periods of turmoil. This most recent wave emphasizes their growing anxiety over the potential for economic damage through worsening trade wars.
On another note, Cardano, an altcoin, held support at $0.62 after a drastic recovery that took place the day prior. Whatever the reason, President Trump’s decision to pause tariffs for 90 days on most imports has played a role in this bounce-back. This relief was not extended to China and other countries that retaliated against the tariffs first announced on Apr. 2. The temporary relief added a layer of predictability within a highly disruptive and unstable market climate.
With the White House’s recent confirmation of these new tariffs, the trade landscape has gotten a whole lot murkier. This as US Consumer Price Index (CPI) figures are coming in cooler than anticipated. This batch of data has done even more to weaken the US Dollar. It definitely raises new and urgent questions about the administration’s trade strategy and its long-term impact on economic growth.