"World War 3" of Trade War Has Begun

Americans are waking up to the FIRST BIG retaliatory tariff against President Trump. China has announced a 34% tariff on ALL goods from the United States with a loss in 2 days of the S&P 500 currently at -3.5 TRILLION DOLLARS.

This is a move that all of us know will happen, but want to pretend it won't. China has declared that ALL imports from America will be subject to this 34% tax. And they have added 11 American companies to the list of "untrustworthy entities" and 16 companies to the "export control" list.

Moreover, China has announced NEW measures to control rare earth metals: They are imposing export control measures on samarium, gadolinium, terbi, dysprosium, lutetium, scandium, and yttrium. As President Trump has made clear, he wants America to engage more with rare earth metals. This morning, oil prices dropped ANOTHER -6%, a clear sign that a recession is approaching. In the past 2 days, oil prices have now decreased by nearly -15%. This is the largest drop in 2 days since April 2020, when the pandemic caused the global economy to go into lockdown. The market is worried.

In 2024, America imported 439 BILLION DOLLARS from China while China imported 143 billion dollars from America. The total trade value between America and China is approximately $582 billion per year. ONLY includes the 34% tariff imposed by America and China in the last 24 hours, which is approximately ~198 BILLION DOLLARS PER YEAR. This is TAX.

In fact, NOT including retaliatory actions, the reciprocal tariffs on Wednesday are objectively the largest tax increase in the history of America. This tariff rate accounts for about 1.6% of America's GDP, or MORE THAN 50 basis points compared to the previous record level in 1968. This calculation STILL does not take into account retaliatory actions.

We believe that the new tariffs announced by Trump and the upcoming retaliatory actions will reduce GDP and increase inflation. We expect GDP to decrease by -3% to -4% if this tariff level remains in place in the long term. PCE inflation will rise to 4% in the coming months as prices begin to increase.

The bond market knows that a recession is imminent IF these tariff levels are maintained. The yield on the 10-year bond has now decreased by 90 BASIS POINTS over the course of 2 months. The yield on 10-year bonds is currently below 3.90% for the first time since September 22, 2024. This is the time when the "Fed Pivot" begins.

The S&P 500 futures are currently down -3% and are expected to decrease by -8% in 2 days. This will be the largest drop in 2 days since the 2020 pandemic. We have witnessed nearly 4.5 TRILLION dollars in market capitalization wiped out since the peak after hours on Wednesday.

So, what's next? As we have warned for many weeks now, THERE WILL BE ADDITIONAL retaliatory tariffs against retaliatory tariffs. Mexico has stated that there will be additional tariffs, the EU has prepared "countermeasures" and Canada is ready to respond. This is World War III of trade wars.