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Tariff Talk
- Mike Avetisyan
- Apr 25
- 13 min read
If you’ve been out of the loop, you might have missed the ongoing trade war between the U.S. and its global allies and rivals. In a bold move to address the trade deficit and strengthen American manufacturing, President Trump enacted an array of tariffs targeting both allies and adversaries. However, the unintended consequence of these tariffs is that the burden often falls on American taxpayers rather than the foreign exporters they aim to target.
Before diving into the details, let’s first break down what a tariff is, why it’s implemented, and how it works.
What is a Tariff?
At its core, a tariff is a tax placed on imported goods, paid by the importer. For example, if the President imposes tariffs on Toyotas imported from Japan, U.S. importers must pay an added tax on these vehicles. This added cost is typically passed on to American consumers, leading to higher prices for those vehicles.
Tariffs serve two main purposes:
Revenue Generation: They provide additional income for the government.
Protection of Domestic Industries: By making imported goods more expensive, tariffs aim to level the playing field and make domestic products more competitive.
How do Tariffs Work?
Using the Toyota example, imported cars from Japan might initially be cheaper than U.S.-made vehicles, increasing competition for domestic manufacturers like Ford, Chevy, and GMC. To avoid paying tariffs, companies like Toyota have opted to build manufacturing plants within the United States in states such as Texas, Indiana, Mississippi, Kentucky, Alabama, Tennessee, and Virginia. However, producing cars domestically can be more expensive than manufacturing them abroad. Thus, raising prices for the end consumer. In this report we will look at what effects tariffs have on the US and global trade.
The Past
Before analyzing the current trade war, it’s essential to revisit the initial tariff disputes of 2018. The current U.S. administration views existing trade agreements with the European Union, India, Mexico, Canada, China, and Turkey as disproportionately unfavorable to the United States. In response, President Trump during his first run at office launched a flurry of tariffs aimed at shifting the balance in favor of the U.S.
In 2018, the United States imposed Section 232 tariffs on steel and aluminum imports from major trading partners and separately Section 301 tariffs on a broad range of imports from China. In response, Canada, China, the European Union (EU), India, Mexico, and Turkey imposed retaliatory tariffs on many U.S. exports, including a wide range of agricultural and food products. (USDA Economic Research Service and Morgan 5)
The current trade war is not a new phenomenon; it’s an extension of policies started during President Trump’s first term. Between 2018 and 2019, the Trump administration-imposed tariffs totaling up to $380 billion globally. This tit-for-tat approach quickly escalated tensions, as each new U.S. tariff prompted retaliatory measures from affected countries.
China, for instance, faced broad tariffs across various sectors and responded with targeted tariffs on U.S. agricultural exports. As the world’s largest agricultural exporter, the United States relies heavily on agriculture for a sizable portion of its state-level exports. These targeted tariffs had a profound impact on U.S. farmers, as we’ll explore further. The value of targeted tariffs had reached $30.4 billion for agricultural exports in the U.S. as we see in the graph below just how much of an impact it had.
As illustrated by Figure 1, retaliatory tariffs have reduced the export value of U.S. agricultural goods by a staggering 60%. Unlike other industries, the agricultural trade cannot simply shift to alternative markets overnight—trade agreements take considerable time to implement. In an effort to rescue the agricultural sector, the Phase One Agreement was signed in 2020 as a truce between the two trade giants, the U.S. and China.
Even so, the agreement brought little relief. China fell 40% short of its commitment to purchase an additional $200 billion of U.S. goods over two years, as outlined in the deal (Davis). Despite these shortcomings, the succeeding Biden administration opted to leave the tariffs in place. President Biden justified this decision earlier this year, stating that China's failure to honor its commitments was the reason for maintaining the tariffs (Lobosco).
While domestic farmers continued to grapple with the challenges caused by retaliatory measures, these tariffs remained in place as leverage to compel China to meet its obligations.
Figure 2 highlights the significant losses U.S. farmers endured since the onset of the trade war, with soybeans suffering the greatest impact at a staggering 75% decline. These challenges left farmers in desperate need of support. In response, the Trump administration provided substantial financial aid, with direct farm aid climbing steadily during his presidency—from $11.5 billion in 2017 to over $32 billion in 2020, setting an all-time record (McCrimmon).
This funding was administered through the USDA’s Commodity Credit Corporation, a Depression-era agency borrowed from the U.S. Treasury to stabilize the farming sector. As illustrated in Figure 3, trade bailouts since 2011 reveal that payments for Trump’s bailout programs began in 2018, marking a significant shift in government aid to offset the impacts of retaliatory tariffs.
The trade war ultimately fell short of the Trump administration’s expectations. Both allies and adversaries retaliated, leading to a significant decline in U.S. exports. Farmers, in particular, faced severe challenges and had to rely on bailouts that hindered long-term growth. By 2021, U.S. exports to China had barely returned to pre-trade war levels (Bown).
Meanwhile, prices for both consumers and businesses continued to climb. In some cases, businesses absorbed the tariff costs to remain competitive, but this strategy reduced profit margins and proved unsustainable. Eventually, these costs were passed on to consumers, further driving up prices.
While the trade dispute had its drawbacks, there were some positive outcomes worth noting. The trade war was not entirely detrimental; it prompted some beneficial changes. One notable advantage was the diversification of supply chains. As businesses sought alternatives to China, countries such as Vietnam and Mexico saw increased opportunities and economic growth.
Another important outcome was the spotlight on unfair trade practices, particularly intellectual property theft, which had been a significant concern with China. The Phase One Agreement addressed some of these issues, marking progress in this area. Additionally, the tariffs on imported aluminum provided a boost to domestic production, creating jobs in the sector and strengthening U.S. manufacturing.
These gains stemmed from the initial trade measures introduced in 2018. However, the effects of the trade war were far-reaching and had a much more dramatic impact on global markets, as will soon be examined.
The Present
As we’ve seen, the first round of the trade dispute had significant drawbacks. Farmers lost vital trade opportunities, consumer prices surged, and key trade partners disappeared almost overnight. Could the second attempt be any different? In fact, it proved to be even more damaging.
Markets tumbled, trust eroded between allies, and bonds reacted unpredictably. The second phase of Trump’s trade war began immediately after his inauguration on January 20, 2025. Trump wielded tariff threats like weapons, seemingly without considering their recoil. However, these threats had undeniable blowback. By January 17, just days before his second term began, approximately $11.1 trillion had been wiped from the U.S. stock market, according to Dow Jones Market Data (Adinolfi).
Trading partners hadn’t forgotten Trump’s first term. Threats create uncertainty, and if there’s one thing markets despise, it’s uncertainty. With looming tariffs on allies like Canada and Mexico, businesses were left in limbo, unsure of how to respond. Investors sought safe havens to shield themselves from potential market downturns caused by trade disruptions.
This time, Trump’s focus included lumber, agriculture, steel, and aluminum. However, the disruption wasn’t solely about the tariffs themselves, it stemmed from the erratic on-and-off approach he used as a negotiating tactic. This unpredictability alienated many of the United States’ trading partners, creating a climate of uncertainty that markets struggled to absorb.
To better understand the events that unfolded during this turbulent period, I’ll outline a timeline of key developments.
March 4, 2025
President Trump enacted a 25% tariff on goods from Canada and Mexico, targeting a wide range of products, including groceries and electronics. Additionally, the administration doubled the existing 10% tariff on all goods imported from China.
March 6, 2025
Trump announced a temporary pause on tariffs, but this reprieve lasted only two days. The unpredictability of these actions created turmoil in the markets, discouraging investors from engaging with the U.S. economy.
March 7, 2025
The risk of a global recession rose to 40%, driven by escalating tariff threats and mounting uncertainty.
March 12, 2025
Blanket tariffs were imposed on all steel and aluminum imports to the U.S., aiming to bolster domestic industries. According to J.P. Morgan, “The new administration has imposed 25% tariffs on all steel and aluminum imports to the U.S. This could drive up the prices of various goods ranging from autos to canned drinks.” However, these measures came at a significant cost.
March 14, 2025
J.P. Morgan Research lowered its estimate for 2025 real GDP growth due to heightened trade policy uncertainty. While tariffs had stunted growth during Trump’s first term, the pace of economic disruption was now even more pronounced.
March 26, 2025
President Trump announced a 25% tariff on auto and auto parts, set to take effect on April 2, which he dubbed “Liberation Day.” This announcement exacerbated an already rising trend in vehicle prices, both new and used, further straining consumers.
April 3, 2025
Trump enacted sweeping tariffs on all trading partners, ranging from a minimum of 10% to over 23%. These measures impacted virtually everyone, as J.P. Morgan noted: “We estimate that the announced measures could boost Personal Consumption Expenditures (PCE) prices by 1–1.5% this year.” This unprecedented across-the-board approach caused indices to drop 12% by April 1, reflecting widespread investor unease.
April 10, 2025
A 90-day pause was announced for escalating reciprocal tariffs affecting nearly all U.S. trading partners. However, reciprocal tariffs on Chinese imports were increased to 125%.
April 18, 2025
Exceptions were made for electronic imports under the reciprocal tariffs, signaling a slight shift in policy.
Analysis
This tit-for-tat exchange of tariffs created significant space between trading partners. The constant pauses and shifts in policy fostered distrust and diminished interest in future trade agreements. The global market repercussions of these exchanges will be explored further.
As markets tumbled, bond yields took an unusual turn, raising alarms. “Government bonds have been selling off while stocks have plunged. That’s unusual, and it’s raising concerns that global investors are losing some of their long-standing confidence in America” (McCorvey). This is the uncertainty I mentioned earlier—when investors lack clarity, they often sell off assets while they can. Stocks and bonds, typically inverse in movement, are part of a diversified portfolio. When both decline simultaneously, it often signals inflation concerns or geopolitical and economic stress. I’ll leave it to you to connect the dots on why they moved in tandem.
Figure 4 vividly illustrates the anomaly of bonds and stocks falling simultaneously. But what’s driving this unusual trend? According to Rovella, “traders are plowing into havens such as cash and gold, with proxies for both getting windfall inflows.” In short, the money is flowing into gold. US. currency falls alongside. Trust in the US government is eroding therefore any currency that it backs will fall alongside it.
Gold’s surge to over $3,200 has catapulted it to all-time highs. Campbell suggests this could indicate overly bullish speculators have grown complacent. Historically, gold has been seen as a reliable haven during economic instability or as a shield against adverse government policies. While gold is at unprecedented levels, the question remains: how long can this peak be sustained? Only time will tell.
Figure 5 provides a clear illustration of the spot price of gold over the past decade. Let’s focus on 2018, the year the trade war began. The behavior of gold prices during trade conflicts offers valuable insights. “During the U.S.-China trade war from 2018 to 2020, gold prices surged by over 20%, reflecting heightened investor demand for safe-haven assets” (United States Gold Bureau). What about today? As we clearly see, gold is still a safe bet against a dwindling and uncertain global market.
Since 2018, gold has seen a remarkable 160% price increase, underscoring the degree of uncertainty surrounding the future. This surge highlights investors' concerns during periods of economic and geopolitical instability, as they turn gold for its historical role as a dependable store of value.
Crypto faced its worst trading day since 2020 as investors sought liquidity amidst a market selloff. In today's economic landscape, it's impossible to discuss financial impacts without including cryptocurrency. Bitcoin, which sold for just $365 a decade ago, has surged to an astonishing $84,449—a remarkable 23,027% increase. However, even this powerhouse wasn't immune to the broader market turmoil.
“Rattled investors began dumping their crypto holdings over the weekend as they braced for further carnage after Trump’s retaliatory tariffs raised global recession fears and caused investors to sell all risk — pushing stocks on Friday to their worst decline since 2020” (Macheel)
Twenty years ago, the worldwide adoption of cryptocurrency seemed improbable. Today, however, the market cap stands at nearly $2 trillion, with the majority of this growth occurring in just the past decade. This journey hasn’t been without its challenges—crypto has endured a bumpy road to reach its current position. Yet, its inherent volatility continues to make it a playground for speculators, reflecting both its allure and its risks in the financial landscape.
Global uncertainty among investors has reached unprecedented levels, driven by heightened fears of economic instability. The pivotal question remains: how will you hedge against the risks of a trade war? In times of global turbulence, gold continues to be regarded as a reliable haven, offering a measure of security amidst financial volatility.
In the end, what did we learn? The tariffs implemented by Trump were more than a tool for collecting taxes on imports—they sparked a global trade war. “Global trust and reliance on the dollar were built up over a half century or more,” says University of California, Berkeley, economist Barry Eichengreen. “But it can be lost in the blink of an eye” (Condon). This disruption went far beyond monetary costs, undermining trust in the stability of a well-managed economic ecosystem. And trust, once lost, is incredibly difficult to rebuild.
Stability is a key component for growth, “It’s not just the tariffs, but the erratic way he’s rolled them out. The unpredictability makes the U.S. seem less stable, less reliable, and a less safe place for their money” (Condon). Global markets thrive on stability and trust to honor commitments and stability to avoid unnecessary trade conflicts. Without these pillars, the foundation of international economic cooperation begins to crumble.
In a brief period, tariffs and the looming threats of further increases have disrupted the global economic stage. History has shown us that while tariffs may provide immediate impact, they are often followed by unintended consequences that reverberate for years, if not decades, shaping the economic landscape in unforeseen ways.
Appendices
Appendix A- 30 years of gold spot price
Year | Average Closing Price | Year Open | Year High | Year Low | Year Close | Annual % Change |
2025 | $2,907.52 | $2,624.60 | $3,350.80 | $2,624.60 | $3,317.63 | 26.41% |
2024 | $2,388.98 | $2,064.61 | $2,785.87 | $1,992.06 | $2,624.60 | 27.23% |
2023 | $1,943.00 | $1,824.16 | $2,115.10 | $1,811.27 | $2,062.92 | 13.08% |
2022 | $1,801.87 | $1,800.10 | $2,043.30 | $1,626.65 | $1,824.32 | -0.23% |
2021 | $1,798.89 | $1,946.60 | $1,954.40 | $1,678.00 | $1,828.60 | -3.51% |
2020 | $1,773.73 | $1,520.55 | $2,058.40 | $1,472.35 | $1,895.10 | 24.43% |
2019 | $1,393.34 | $1,287.20 | $1,542.60 | $1,270.05 | $1,523.00 | 18.83% |
2018 | $1,268.93 | $1,312.80 | $1,360.25 | $1,176.70 | $1,281.65 | -1.15% |
2017 | $1,260.39 | $1,162.00 | $1,351.20 | $1,162.00 | $1,296.50 | 12.57% |
2016 | $1,251.92 | $1,075.20 | $1,372.60 | $1,073.60 | $1,151.70 | 8.63% |
2015 | $1,158.86 | $1,184.25 | $1,298.00 | $1,049.60 | $1,060.20 | -11.59% |
2014 | $1,266.06 | $1,219.75 | $1,379.00 | $1,144.50 | $1,199.25 | -0.19% |
2013 | $1,409.51 | $1,681.50 | $1,692.50 | $1,192.75 | $1,201.50 | -27.79% |
2012 | $1,668.86 | $1,590.00 | $1,790.00 | $1,537.50 | $1,664.00 | 5.68% |
2011 | $1,573.16 | $1,405.50 | $1,896.50 | $1,316.00 | $1,574.50 | 11.65% |
2010 | $1,226.66 | $1,113.00 | $1,426.00 | $1,052.25 | $1,410.25 | 27.74% |
2009 | $973.66 | $869.75 | $1,218.25 | $813.00 | $1,104.00 | 27.63% |
2008 | $872.37 | $840.75 | $1,023.50 | $692.50 | $865.00 | 3.41% |
2007 | $696.43 | $640.75 | $841.75 | $608.30 | $836.50 | 31.59% |
2006 | $604.34 | $520.75 | $725.75 | $520.75 | $635.70 | 23.92% |
2005 | $444.99 | $426.80 | $537.50 | $411.50 | $513.00 | 17.12% |
2004 | $409.53 | $415.20 | $455.75 | $373.50 | $438.00 | 4.97% |
2003 | $363.83 | $342.20 | $417.25 | $319.75 | $417.25 | 21.74% |
2002 | $310.08 | $278.10 | $348.50 | $277.80 | $342.75 | 23.96% |
2001 | $271.19 | $272.80 | $292.85 | $256.70 | $276.50 | 1.41% |
2000 | $279.29 | $282.05 | $316.60 | $263.80 | $272.65 | -6.26% |
1999 | $278.86 | $288.25 | $326.25 | $252.90 | $290.85 | 1.18% |
1998 | $294.12 | $287.70 | $314.60 | $273.40 | $287.45 | -0.61% |
1997 | $331.00 | $367.80 | $367.80 | $283.05 | $289.20 | -21.74% |
1996 | $387.73 | $387.10 | $416.25 | $368.30 | $369.55 | -4.43% |
1995 | $384.07 | $381.40 | $396.95 | $372.45 | $386.70 | 1.10% |
Appendix B- Tracking Trump's tariff policy
Target | Dates | Imports Affected | Applicable Rate | Authority |
Canada | Announced Feb 1; scheduled Feb 4 but delayed 30 days; effective Mar 4; 30 day exemptions granted Mar 5 & 6; exemptions extended indefinitely | Up to $253 billion while exemptions are in effect | 25% non-energy; 10% energy and potash; to be replaced with 12% "reciprocal tariff" on non-USMCA imports excluding energy and potash later | IEEPA |
Mexico | Announced Feb 1; scheduled Feb 4 but delayed 30 days; effective Mar 4; 30 day exemptions granted Mar 5 & 6; exemptions extended indefinitely | Up to $236 billion while exemptions are in effect | 25%; to be replaced with 12% "reciprocal" tariff excluding USMCA imports later | IEEPA |
China | Announced Feb 1; effective Feb 4; increased Mar 4 | $430 billion | 10% initially; increased to 20%, plus additional 125% under "reciprocal" tariffs | IEEPA |
"Reciprocal" | Announced Feb 13; recommendations due April 1; Signed April 2; First 10% effective April 5; Country-specific increases delayed 90-days on April 9 except for China | $2.0 trillion, excluding autos, auto parts, steel, aluminum, energy, Canada, and Mexico | 10% baseline; higher rates for certain jurisdictions including 125% on China | IEEPA |
Steel and Aluminum | Announced Feb 10; effective Mar 12 | Ending steel exemptions $29 billion; ending aluminum exemptions $12 billion; expanding derivatives $44 billion | 25% | Section 232 |
Autos | Announced Feb 12; effective Apr 2 | Autos: $153 billion; Auto parts: $279 billion; amounts assume USMCA excluded | 25% | Section 232 |
Copper | Investigation initiated Feb 25; report due Nov 22 | $17 billion | Unknown | Section 232 |
Semiconductors and Pharmaceuticals | Announced Jan 27; rate specified Feb 18; effective date unknown | Unknown (products and categories have not been specified) | 25%+ | Unknown |
Timber, Lumber, Derivatives | Announced Mar 1; report due Nov 26 | Wood and wood products $22.9 billion | Unknown | Section 232 |
Agricultural Products | Announced Mar 3; effective Apr 2 | Unknown (products and categories have not been specified) | Unknown | Unknown |
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