By Jen Saarbach & Kristen Kelly, Co-Founders of The Wall Street Skinny
Never a dull moment…
Markets are imploding after Trump announced a new set of “reciprocal” tariffs on the U.S.’s trading partners in addition to the tariffs already levied against Canada and Mexico.
Equities are down as much as 10% in their worst week since March 2020, when COVID lockdowns began. The U.S. dollar has been in freefall, and 10-year notes are back below 4.00%, with the market pricing in a much higher likelihood of Fed rate cuts on the horizon.
We’re giving you the skinny on what tariffs actually are, their history, how these new ones were calculated, and what this all could mean for the economy as we know it.
The Skinny on Tariffs…
New Tariffs Announced This Week
This week, President Trump unveiled the following tariff changes:
- 25% Tariff on Foreign-Made Automobiles: Kicked in on April 3rd.
- 10% Baseline Tariff on Imports: Starting April 5th, any country that didn’t previously have a tariff now faces a 10% baseline. For countries like China (already at 20%), this change is negligible.
- New “Reciprocal Tariffs” on 60 Countries: These go beyond the 10% minimum and are based on the U.S. trade deficit with each country. Rates range from 20% to 50%. For example: China – 34%, EU – 20%, Japan – 24%. Canada and Mexico were determined separately in February (25%, except Canadian energy at 10%).
So, what does “reciprocal” really mean? The administration claims these mirror what trade partners already charge us. In reality, the actual tariffs vary widely country to country. The formula used had nothing to do with the actual rates.
Instead, the formula was: (Trade Deficit / Total Imports) / 2, then rounded up.
Example:
- U.S. imports $200 from country X
- U.S. exports $100 to country X
- $100 / $200 = 0.5 → 0.5 / 2 = 25%
So, the “reciprocal tariff” is 25% — even if country X was charging us far less.
What Happens Next?
Now that these tariffs are live, there are a few likely outcomes:
- Foreign manufacturers could lower their prices to absorb the tariffs
- U.S. companies could see profit margins shrink
- Or the added costs could be passed straight to consumers
Several countries have already retaliated. China slapped on a 34% tariff, escalating the trade war. U.S. businesses are warning customers of rising prices.
The near-term effect? A slowdown in U.S. growth, higher prices for consumers, and a growing risk of stagflation — slow growth + high inflation.
Say goodbye to that bull market.
Impact on the U.S. Economy
The last time we saw real stagflation was in the 1970s, triggered by the oil crisis. The Fed’s strategy? Hike rates hard to tame inflation and ignore the slowdown.
That led to interest rates north of 20%, and the economy eventually had to grow its way out.
Now? The market expects the Fed to go the other way — cutting rates to boost growth. Yields are dropping as expectations shift toward monetary easing.
What About the U.S. Dollar?
The U.S. dollar is weakening — a mix of easier monetary policy and international uncertainty. But there’s a bigger risk here.
For decades, we’ve flooded trade partners with U.S. dollars in exchange for goods. In return, they’ve used those dollars to buy U.S. assets, especially Treasuries. That relationship is the backbone of the global reserve currency system.
If trade breaks down, and fewer dollars flow to foreign countries, their only source of USD might become interest from the Treasury bonds they already own. Those coupons? Worth less as the dollar drops.
And if countries stop buying Treasuries altogether?
That’s a huge problem. Because if foreign demand for U.S. debt collapses just as the Fed is forced to stimulate with cuts or even more quantitative easing, we could be in uncharted waters.
So… Is the USD in Trouble?
That might explain why gold and crypto have outperformed during this move. It’s possible the market is pricing in the risk that the U.S. dollar could, one day, lose its status as the global reserve currency.
We break ALL of this down in detail — with historical context, future scenarios, and actionable takeaways — on this episode of the podcast.
🎧 Listen to the full discussion on The Wall Street Skinny Podcast here