China Hits U.S. Goods With 125% Tariff

Summary

Podcast Summary: WSJ What’s News – "China Hits U.S. Goods With 125% Tariff"

Release Date: April 11, 2025
Host: Luke Vargas, The Wall Street Journal

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1. Introduction

In this episode of WSJ What’s News, host Luke Vargas delves into the escalating trade tensions between China and the United States, the impending nuclear talks between the U.S. and Iran, a significant Supreme Court ruling on immigration, and insights from Ed Smith of Rathbone's Investment Management on the current economic landscape. The episode provides a comprehensive overview of events shaping global markets and investor sentiment.

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2. China Raises Tariffs on U.S. Goods

Key Developments:

• Tariff Increase: China announced an increase in its retaliatory tariffs on U.S. goods to 125%, effective the following day. This move matches the latest tariffs imposed by the White House and signifies Beijing's stance that American imports remain non-viable under current tariff levels.

• Xi Jinping's Statement: In a meeting with Spain's Prime Minister in Beijing, Chinese leader Xi Jinping stated, "there'd be no winners in a tariff war, but I am not afraid of the fight to come" (00:58).

• U.S. Negotiations: The Trump administration has launched a high-speed initiative to negotiate ad hoc deals with over 70 countries to circumvent higher tariffs. However, insiders suggest that many offers are preliminary and lack detailed economic proposals.

Market Impact:

• Global Markets: Asian markets, including Japan and South Korea, closed the day in the red, while European indices declined in morning trading. U.S. futures indicated a lower opening, and gold prices surged to an all-time high.

• Upcoming Earnings: Major U.S. financial institutions such as JPMorgan Chase, Wells Fargo, and Morgan Stanley are set to report their first-quarter earnings, a crucial indicator amidst the trade tensions.

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3. U.S.-Iran Nuclear Talks

Scheduled Meetings:

• Location & Participants: The U.S. and Iran are set to engage in high-stakes nuclear negotiations in Oman. Steve Witkoff, Trump's special envoy for Middle East issues, will meet with Iran's Foreign Minister.

Insights from Benoit Fouqan (03:18):

• Iran's Position: Iran aims to return to the 2015 nuclear pact, seeking to curb its uranium enrichment program in exchange for sanction relief.

• U.S. Objectives: The U.S. seeks a broader agreement, including the dismantling of Iran's ballistic missile program, with initial statements pushing for even the civilian aspects of Iran's nuclear program to be addressed.

• Strategic Dynamics: Fouqan describes the negotiations as a "chess game" with an open-ended outcome, highlighting the complexity and uncertainty surrounding the discussions.

Geopolitical Context:

• Axis Peace: The episode mentions the formation of an axis comprising China, Russia, Iran, and North Korea ("Krink"), united in opposing Western sanctions, increasing the urgency for Iran to reach a deal.

Further Comments from Fouqan (04:05):

• Economic Pressures: Iran's economic strategies rely on limited engagements with China and Russia, but these do not replace the robust economic relations fostered by the U.S. dollar and American banking systems. The U.S. currency has depreciated by 40% since Trump's election, pushing Iran to seek partial alternatives like the "Greeks alliance," which Fouqan refers to as a "band-aid" for long-term issues.

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4. Supreme Court Ruling on Migrant Deportation

Case Overview:

• The Supreme Court mandated the Trump administration to seek the return of Kilmar Abrego Garcia, a migrant mistakenly deported to a Salvadorian prison in March. The Court rejected the government's argument that it had no obligation to retrieve Garcia from a foreign custody facility.

Administration's Stance:

• The Trump administration contended that their only mistake was sending Garcia to El Salvador instead of a third country and maintained that federal courts lack authority to compel officials to retrieve individuals once they are in a foreign government's custody.

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5. Interview with Ed Smith: Investment Outlook Amid Trade Tensions

Economic Uncertainty and Policy Risk (06:10): Ed Smith, co-Chief Investment Officer at Rathbone's Investment Management, discusses the persistent policy risk affecting global markets. He highlights the tight correlation between the S&P 500 levels and the Trade Policy Uncertainty Index, which remains elevated despite a recent reprieve announced by the White House.

Impact of New Tariffs (07:27): Smith assesses the disruption caused by the new 10% universal tariffs and 100+% tariffs on China, noting that the effective tariff rate now falls between 16% and 21%, potentially increasing the Federal Reserve's inflation target by approximately 1%.

Recession Risks (08:29): Smith confirms that recession risks remain significant, with Rathbone's forecasting a 40% probability of a recession. He emphasizes that even with possible fiscal stimulus, the base case points to meaningful economic slowdown and sub-1% growth in the U.S. for the year.

Consumer and Business Confidence (09:22): While traditional consumer sentiment indices have lost their predictive power for actual consumption, business confidence indicators remain crucial. Smith notes that business investment is likely to slow, as boardrooms express uncertainty and desire for greater clarity amid ongoing trade tensions.

Investment Strategies and Market Outlook (10:46): Despite the current market downturn, Smith advises against ruling out U.S. equities, citing the market's historical resilience. He points out that over 80% of rolling three-year periods show positive equity market returns, with the median bounce-back following a correction being 15% within 12 months. However, he stresses the importance of maintaining a disciplined investment framework to avoid emotional decision-making amidst heightened volatility.

Final Thoughts (11:34): Smith underscores that investor emotions are high, with potential for poor decision-making. He advocates for a rational, cool-headed approach to investing, especially in an environment where volatility is likely to remain elevated.

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6. Conclusion

Luke Vargas wraps up the episode by summarizing the key takeaways: escalating U.S.-China trade tensions with significant tariff increases, critical upcoming U.S.-Iran nuclear negotiations, a pivotal Supreme Court decision on migrant deportation, and expert insights on navigating the uncertain economic landscape from Ed Smith. The episode emphasizes the interconnectedness of global trade policies, geopolitical dynamics, and market behaviors, providing listeners with a comprehensive understanding of factors influencing today's financial and political environment.

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Notable Quotes:

• Xi Jinping on Tariff War: “There'd be no winners in a tariff war, but I am not afraid of the fight to come.” (00:58)

• Benoit Fouqan on Nuclear Talks: “We're basically on a chess game and the end game is quite open ended.” (03:18)

• Ed Smith on Tariffs' Impact: “It's a little difficult to exactly figure out what the effective tariff rate is... between 16 and 21% and that's going to hurt the Fed's targeted measure of inflation by round about 1%.” (07:47)

• Ed Smith on Recession Odds: “Our base case... the next couple of quarters are going to be hard in particular as business investment probably goes on hiatus.” (08:40)

• Ed Smith on Investment Approach: “It's really important to have a framework that means that you don't make emotive decisions. You only make sort of rational, cool headed ones.” (11:55)

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This detailed summary encapsulates the essential discussions and insights from the episode, providing a clear and informative overview for those who haven’t listened to the podcast.

Transcript

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[Luke Vargas]

Yet more trade Countermeasures As China ups its tariffs on US goods to 125%, we'll look at how investors can prepare for the road ahead. After a volatile week in markets, boardrooms.

[Ed Smith]

Are dumbstruck by what's just happened and they yearn for clarity. This reprieve doesn't really give that much clarity, so I think business investment, spending and hiring is going to be on ice.

[Luke Vargas]

Plus the rest of the day's news as the US And Iran prepare for nuclear talks and the Supreme Court orders the return of a man mistakenly deported to El Salvador. It's Friday, April 11th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of what's News, the top headlines and business stories moving your world Today. Global markets are on pace to end the week on a rocky note as trade tensions continue to weigh on the economic outlook this China announced it would raise its retaliatory tariff on US goods to 125% effective tomorrow, matching the latest duty imposed by the White House. Beijing signaled it's now done matching each US Tariff increase, saying American imports are no longer marketable under current levels. Speaking at a meeting with Spain's prime minister in Beijing, Chinese leader Xi Jinping said today there'd be no winners in a tariff war, but added he was not afraid of the fight to come. Meanwhile, the Trump administration has kicked off a high speed effort to negotiate ad hoc deals with more than 70 countries hoping to escape higher tariffs, a push that's playing out as lawmakers on Capitol Hill are eager to see deals reached that can avoid this week's tariff induced stock sell off. People with knowledge of the discussion say many of the offers from countries to negotiate with the White House are just preliminary calls and not fleshed out economic proposals. Markets in Japan and South Korea have ended the day in the red. European indexes are falling in morning trading, US Futures are pointing to a lower open, while gold has soared to an all time high. And in the latest test for markets. A number of U.S. financial institutions are set to report first quarter earnings this morning, including JPMorgan Chase, Wells Fargo and Morgan Stanley. The U.S. and Iran are scheduled to meet tomorrow for high stakes nuclear talks in Oman. I asked the Journal's Benoit Fouqan, who's in Oman, what to expect as Trump's special envoy for Middle east issues, Steve Witkoff and Iran's foreign minister prepare to meet face to face.

[Benoit Fouqan]

The Iranian wants to be back to the 2015 nuclear pact which is curbing the enrichment of their CBN program and get sanction relief in exchange. The US Has a bigger view. They minimum want no nuclear weapon and they like to discuss the ballistic program. There's been initial statements from the US Saying that they wanted even the civilian program to be dismantled. We're basically on a chess game and the end game is quite open ended.

[Luke Vargas]

Benoit this all sounds a bit exploratory and yet President Trump has threatened to take military action against Iran if no deal is reached. I'll also point out we've reported that some Western officials now see Iran as part of this axis called Krink. China, Russia, Iran, North Korea that is now united in defying Western sanctions. In light of that, what is Iran's urgency to make a deal?

[Benoit Fouqan]

I think quick is not enough for Iran. It's not enough. He had a little bit of breathing space with both China and with Russia either for commodities, drones or banking. But it's never been a replacement for having an economic relationship with the west, which is really something guarded by the dollar and the American banking system. And the evidence of that is basically since Trump was elected, the currency has fallen by 40%. So that Greeks alliance is a partial alternative. It's a band aid, but it doesn't resolve the long term issues that Iran is facing.

[Luke Vargas]

And back in Washington, the Supreme Court has told the Trump administration to seek the return of a migrant mistakenly sent to a Salvadorian prison, rebuffing government claims that it need do nothing to remedy its error. Thursday's order directed the government to take steps to bring Kilmar Abrego Garcia back to the US From a maximum security facility it sent him to in March. The administration maintained its only error was sending him to El Salvador rather than to a third country, and that federal courts had no power to command officials to retrieve him once he was in custody of a foreign government. Coming up after a whirlwind week for investors, is policy risk here to stay? How likely is a recession and is now a good time for action or patience? Rathbone's Ed Smith joins us to take on those questions after the break.

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[Luke Vargas]

As we near the end of one of the most topsy turvy weeks for global markets in recent memory, how should investors view the road ahead with reciprocal tariffs on pause, can we afford to put our recession worries on hold as well? Or could universal 10% levies be enough to shake confidence and dent growth forecasts? To take on those questions and more, I'm joined by Ed Smith, the co Chief Investment Officer at Rathbone's Investment Management.

[Ed Smith]

Ed, I guess the big question right out of the gate can investors afford to put policy risk behind them? That risk was really what had been driving unease around the world in recent days.

Well, over the last few weeks we've seen this really tight relationship between the level of the S and P and a daily measure of trade policy uncertainty that's drawn from news flow. And when we had the reprieve, the 90 day reprieve announced from the White House, you obviously saw this huge rally in markets, but actually that trade policy uncertainty index only came back a little bit. And so we're not surprised that actually yesterday the market gave back some of those gains. And I think the next 90 days are still going to be full of uncertainty and I think that's going to put a ceiling on how far markets can climb back.

How do you assess the disruption caused going Forward here by 10% universal tariffs as well as these now 100 plus percent tariffs on China compared to maybe that worst case scenario some investors were thinking of a few days ago? Have we really on balance stepped down in terms of the disruption as we end the week?

If you think pre Liberation Day estimates of the effective tariff rate on US Imports going into that seem to stop out at around 15%. Whereas with the 10% tariffs on everything, the 150% tariff now on China and some of the 25% sectoral tariffs, we're actually still beyond that upper bound of those previous estimates. It's a little difficult to exactly figure out what the effective tariff rate is. But we think it's somewhere between 16 and 21% and that's going to hurt the Fed's targeted measure of inflation by round about 1%.

It sounds like it would be unwise, given what you've just said then, for investors to rule out the recession risks that were really starting to dial up in recent days or slower growth expectations.

Yeah, I think that's right. So on the morning after Liberation Day we raised our recession odds to 45%. Then we had escalation, probably taking it higher. We're now back to, we think around 40% recession odds. And whilst there are definite upside risks that could get us to decent growth this year if we get a lot of fiscal stimulus, stimulus assuming bond yields, then don't spiral. But our base case, our most likely case is that growth is still going to slow meaningfully this year, that the next couple of quarters are going to be hard in particular as business investment probably goes on hiatus and so we're looking at probably sub 1% growth in the US this year.

Got it. It seems like consumer confidence measures, business confidence measures will be pretty crucial in the next few weeks to determine how jittery everyone remains after what we've just been through.

Yeah. Consumer sentiment indices used to have a really good relationship with consumer spending. They were pretty good at forecasting the next quarter ahead's spending. But since 2016 actually, and particularly since 2020, there's been no statistically significant relationship between consumer sentiment or consumer confidence and actual consumption. In the us, more and more of the spending is being done by the very wealthiest households, particularly as they've become so much wealthier. In the us, stock markets have boomed, properties boomed, and the richest quintile now own a record 73% of household wealth. So consumer spending could slow down if we get more stock market losses. But you're probably talking about you need a sort of 30% peak to trough fall before that negative wealth effect really kicks in. The key challenge for us to watch is business investment and those confidence surveys which have retained a bit better of relationship. Still, our network intelligence from corporate boardrooms is that boardrooms are dumbstruck by what's just happened and they yearn for clarity. This reprieve doesn't really give that much clarity. So I think business investment spending and hiring is going to be on ice.

Given that, how do you weight US equities after what we've just been through? Investors hearing that boardrooms are dumbstruck doesn't exactly inspire a ton of confidence if they don't know what the future holds.

Yeah, I mean we're certainly not bullish, but we have got room to go further underweight than we are. It is important to remember that we've had bigger peak to trough falls than this in 2018, 2020, 2022. And the global equity market shows a lot of resilience. In over 80% of rolling three year periods. Equity market returns are positive. The median bounce back over the 12 months following a 10% correction is 15%. Now I'm saying these statistics because the base case should always be empty markets are going to do quite well. All right.

Kind of a return to investing basics there in an environment in which it seems like emotions are running pretty high among investors. Folks maybe had to sell positions at a loss in recent days, feeling like the bottom was about to fall out and now maybe regretting that decision. Others frustrated maybe that they didn't get in on Wednesday's rally and I don't know, looking for other moments to strike.

I think definitely, yeah. I mean we find that our clients are pretty well trained. Over the last few years they've seen a lot of major corrections. But more broadly in the market there is going to be this whip soaring volatility is likely to stay very high. It's on a hair trigger whenever there's a truth posted on Truth Social. Right. And I think you are going to see a lot of bad decision making. So it's really important to have a framework that means that you don't make emotive decisions. You only make sort of rational, cool headed ones.

Ed Smith is the co chief Investment officer at Rathbone's Investment Management. Ed, thank you so much for being with us on what's News.

My pleasure.

[Luke Vargas]

And that's it for what's News for this Friday morning. Today's show was produced by Kate Bullivant. Our supervising producer was Daniel Bach. And I'm Luke Vargas for the Wall Street Journal.

[Ed Smith]

We will be back tonight with a new show.

[Luke Vargas]

Otherwise, have a great weekend and thanks for listening.