"U.S.: 10% basic tariff... Xi Jinping: 'Take that and add 34% more!' Trump: 'Oh yeah? Take that and add 150% more!!"

An eye for an eye, a tooth for a tooth
- Code of Hammurabi-

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Trump's Trade Tariff Policy: Analysis and Implications

I haven't been able to write on my blog for a while due to various commitments, but today I'd like to discuss Trump's trade tariff policies.

President Trump has immediately launched round two of trade confrontations with China following his election. Why is Trump so aggressive about raising tariffs? The primary reason lies in his conviction to protect the American economy and prioritize U.S. interests. For years, the United States has experienced weakening manufacturing competitiveness compared to other countries, particularly recording significant trade deficits with China. President Trump has determined he cannot allow this situation to continue.

President Trump has stated that previous U.S. administrations made a grave error by allowing China to participate in Free Trade Agreements (FTAs). Observing China's behavior within the FTA framework, one can understand why Trump becomes so agitated whenever China is mentioned.

From my perspective, China has certainly behaved true to form. As soon as China joined the FTA, its characteristic national ambition began to manifest. China earned the nickname "the world's factory" by aggressively attracting manufacturing facilities from nearly all global companies, leveraging its cheap labor force. Consequently, numerous production bases of global corporations relocated from the United States to China. This resulted in mass layoffs of previously well-employed American workers, causing the U.S. to lose its productive capacity and capabilities that required labor.

The U.S. was already losing its productive capacity to Japan, which was eventually restrained through the Plaza Accord. However, China was inexplicably left unchecked by the U.S. government, which even encouraged its expansion. On this foundation of suddenly acquired enormous productive capacity, China began vacuuming up American dollars.

Even now, China remains the country with the largest dollar reserves globally. China began purchasing U.S. bonds with these dollars and started building up its military power with this financial strength. Now China is attempting to match the U.S. militarily. Furthermore, China didn't gradually rise from developing nation status to a G2 power through technological development funded by its accumulated dollars and massive production capabilities. Instead, it built its industrial technological power by purchasing or stealing technology from countries like the United States and South Korea.

From President Trump's perspective, each of these developments represents an absolutely intolerable situation that cannot be overlooked.

Trump also argues that China routinely engages in unfair trade practices that are eroding the entire American market. He cites examples such as the Chinese government providing subsidies to domestic companies to enhance price competitiveness, illegally appropriating American technology, or forcing technology transfers through financial leverage. President Trump is using tariffs as a powerful bargaining chip to pressure China and negotiate more favorable trade agreements for the United States.

This approach resembles deliberately adopting a strong stance at the negotiating table to command a more powerful voice. President Trump went so far as to declare the day he implemented his tariff policy as a "day of liberation."

As of April 2025, Trump's tariff policies are disrupting global trade patterns and sending strong ripples through U.S. bond and stock markets. He has imposed an exceptionally high 150% tariff on China and started negotiations with other countries based on a baseline 10% rate. This policy carries significance beyond mere tariffs. Let's examine what developments are unfolding as a result.

Shadows Cast Over U.S. Financial Markets: Volatility in Treasury Bonds and Stock Markets

Following President Trump's tariff policy announcement, U.S. financial markets have exhibited notable volatility. In particular, the bond and stock markets have been responding sensitively to policy directions.

Treasury Bond Market: At the Crossroads of Interest Rate Fluctuations

Trump's tariffs are creating complex ripples in the U.S. Treasury market. When tariffs increase import prices, inflation rises, potentially compelling the Federal Reserve to maintain higher interest rates for a longer period. Indeed, immediately after tariffs took effect on April 9, 2025, the 10-year Treasury yield surged from 4.1% to 4.5%, while the 30-year yield temporarily exceeded 5%. This appears to be the result of countries including China selling U.S. Treasuries, driving up yields.

However, when Trump announced a 90-day tariff grace period in an attempt to calm markets, yields temporarily stabilized. Why did this occur? With the U.S. fiscal deficit exceeding $36 trillion (122.3% of GDP), rising Treasury yields significantly increase interest payment burdens. Trump seems to have adjusted his policy in recognition of this burden.

Prediction: Over the next 1-2 years, Treasury yields will likely fluctuate depending on tariff intensity and international responses. If trade wars intensify, Treasury holders like China may implement additional selling, potentially pushing yields above 5%.

Conversely, if negotiations proceed smoothly, yields might stabilize around 4%. Investors might consider short-term Treasuries or variable-rate assets to prepare for potential interest rate increases.

Stock Market: Sectoral Hymns of Joy and Wails of Despair

The stock market rode a roller coaster in response to tariff news.

On April 2, 2025, when Trump announced the tariffs, the Nasdaq plummeted nearly 6%, marking its worst day since the 2020 pandemic. However, following the 90-day grace period announcement, the Dow Jones rebounded 2-3%, catching its breath. This volatility clearly demonstrates the uncertainty introduced by tariffs.

Sectoral impacts:

• Defense Industry: Positive - Increased defense demand due to heightened trade tensions
• Infrastructure: Positive - Expected benefits from domestic manufacturing revival policies
• Energy: Positive - Relaxed Canadian energy tariffs and increased domestic production
• Technology: Negative - High dependence on Chinese exports results in significant impact
• Automotive: Negative - Rising costs in Canadian and Mexican supply chains

Prediction: Over the next 1-2 years, stock market volatility will be difficult to avoid. If trade wars intensify, technology and consumer goods sectors may face additional downward pressure. Conversely, defense and infrastructure sectors are likely to trend upward due to government support and increased demand. Investors might consider stable assets like defense ETFs or infrastructure funds to reduce volatility.

On April 2, 2025, the White House announced an even more shocking new tariff policy.

This included a universal 10% tariff along with substantially higher rates for countries with large trade deficits with the United States. Specifically, South Korea faces a 25% tariff rate, while Vietnam faces a staggering 46%. There are analyses suggesting political motivations behind this tariff rate calculation method.

What additional measures might President Trump take in the future? While predictions are difficult, we can consider several possibilities.

First, he could increase current tariff levels or expand their scope. For example, he might extend tariffs to other items not currently subject to them. Additionally, we cannot rule out the possibility that he might adopt similar hardline policies in trade relations with countries beyond China. Looking at past examples, President Trump has sometimes made unpredictable decisions.

What is the legal basis for President Trump implementing these tariff policies?

The U.S. Constitution grants Congress authority over taxes, including tariffs, but Trump is utilizing existing laws. A prime example is the Trade Expansion Act of 1962. Created during the Cold War to promote international cooperation, this law grants presidents broad trade authority, including the power to lower trade barriers and tariffs.

President Trump is using a specific provision (Section 232) of this law to increase tariffs on imports, citing national security threats. He can also declare national emergencies and impose economic regulations through the International Emergency Economic Powers Act, or take action against unfair trade practices by other countries through Section 301 of the Trade Act of 1974.

Why does President Trump continue to raise tariffs? While there may be a simple objective of securing tax revenue, the primary goal is to revitalize American manufacturing. He aims to incentivize multinational companies to relocate their production bases back to the United States (reshoring) by increasing import prices.

Reactions from various countries to Trump's tariff policies have been far from calm. China has already imposed retaliatory tariffs on $220 billion worth of American products, and Canada has likewise imposed tariffs on $210 billion worth of U.S. goods. The European Union (EU) is considering tariffs on U.S. steel and aluminum, though member states hold differing opinions. Vietnam, in particular, is reportedly attempting to negotiate with the United States to delay or reduce tariff impositions. The entire international community appears to be thrown into confusion by President Trump's sudden tariff announcement.

Second, the U.S. could force the sale of bonds at the negotiation table. For example, let's assume that South Korea, unable to withstand U.S. tariff policies, purchases 100-year U.S. Treasury bonds during negotiations. Treasury bonds inherently lose value over time. The principle is similar to how a country experiencing economic difficulties may implement "quantitative easing" to increase market liquidity, resulting in increased currency in circulation but decreased currency value.

Consequently, 100-year bonds might become worthless after just 30-40 years, not the full 100-year maturity.

Additionally, the value of the currency of the bond-purchasing country rises relatively. This means the Korean won becomes more expensive, creating disadvantages in trade. Meanwhile, the U.S. achieves the effect of reclaiming dollars by selling bonds while securing liquidity without needing to print new money and inject it into the market.

This is especially devastating for countries like China that hold large amounts of U.S. dollars. Consequently, as soon as the U.S. raised tariffs, China began selling off previously held U.S. bonds, which is why Trump has temporarily suspended tariff increases.

When China sells bonds, the U.S. must buy them back. Bonds are issued on the condition that the issuer repurchases them. Therefore, if China begins aggressively selling bonds, the U.S. could face a short-term liquidity crisis.

Trump seems not to have considered this. It appears that Trump is surrounded by flatterers rather than advisors willing to offer direct, honest counsel in economic matters, even if it's something Trump doesn't want to hear. This might explain why this simplistic tariff increase card has emerged.

If President Trump succeeds in winning reelection and strengthens his tariff policies, what changes are expected in U.S. consumer prices, and how will this affect household economics?

If President Trump is reelected and strengthens his tariff policies, consumer price increases in the United States will be inevitable. Significant tariffs are already in place, but additional increases will further drive up import prices. Price increases for products imported from countries like China, which hold substantial market share in the U.S., could have widespread effects.

Consumers are likely to experience price increases across various categories including electronics, clothing, and furniture. This will directly reduce household purchasing power, effectively resulting in income reduction. Low-income households in particular will feel greater pressure from essential goods price increases.

Additionally, U.S. companies dependent on imported components will likely face increased production costs. These cost increases will probably be reflected in product prices and passed on to consumers. For example, automobile and appliance prices may rise.

Of course, if President Trump's intentions succeed in revitalizing domestic manufacturing, positive effects might be expected in the long term. However, in the short term, inflationary pressure from import price increases and the resulting economic burden on consumers appear unavoidable. Like building a dam to change a river's course, this policy may cause immediate discomfort while aiming for long-term benefits.

President Trump's actions appear aimed at revitalizing U.S. manufacturing, utilizing tariffs as leverage in dispute resolution, and increasing government revenue. He seems to dream of a small, efficient government reminiscent of the "Gilded Age." However, it's time to understand the complex dynamics of this trade war and consider how to navigate the approaching trade conflicts.

At this current juncture, even experts find it impossible to predict stock market movements. This uncertainty stems from the unpredictable impact of tariffs on the bond market.

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