Risks of Recent Tariffs
Table of Contents
Traders and businesses anticipated the implementation of tariffs during President Donald Trump‘s second term, with the expectation justified based on the trajectory observed during his first term. That term had already experienced a series of tariff increases, and the evolving situation was largely predictable. It stemmed from the President’s erratic and inconsistent tariff policies with these policies notably commenced on February 1, 2025. At present, tariffs on all countries, except China, have been suspended for 90 days. It is important to note that China’s effective tariff rate is an impressive 155 percent, while in comparison, the United States has a rate of approximately 140 percent.
The anticipated outcomes of these policies were evident. Chinese exports experienced a significant reduction, falling by 21 percent compared to the previous year in April. Moreover, the U.S. economy shrank for the first time since the pandemic began. This development alarmed economists and policymakers as both nations decided to waive previous tariff increases in response to worsening economic conditions. They will also suspend reciprocal tariffs for 90 days and leading to a average tariff rate of 40 percent on Chinese goods entering the United States.
In contrast, U.S. goods entering China face an average tariff rate of 20 percent. Such developments highlight the complex relationship between trade policies and economic performance, underscoring the need for careful analysis and forecasting in global trade dynamics.
While the recently established tariff deal offers short-term relief, the atmosphere of uncertainty looms over market participants. This unease is expected to persist until the critical deadline of July 9th or until a more definitive agreement is reached, leaving stakeholders in a state of heightened anticipation and speculation.
Vulnerabilities
Whether unilateral or reciprocal, trade tariffs have rippled through global supply chains, exposing vulnerabilities. To name a few are:
- Inflationary Cost Pressures,
- Investment and Capital Expenditure Slowdown,
- Export Retaliation and Demand Shocks,
- Technology and Manufacturing Disruptions,
- Critical Goods and Regulatory Complexity,
- and Supply Chain Planning and Strategic Uncertainty
Import risks associated with raw materials tend to be especially pronounced, primarily because these materials serve as the foundational components of intricate value chains. Several factors contribute to this heightened risk. For instance, the concentration of suppliers in specific regions can lead to vulnerabilities; if a major supplier faces disruption, the entire supply chain can be severely impacted. Additionally, inelastic demand for certain raw materials means that even slight disturbances in supply can lead to significant price fluctuations and shortages. Long lead times can also exacerbate the situation, as they delay the procurement of necessary materials and inhibit a company’s ability to respond swiftly to market changes. Finally, geopolitical leverage—where political tensions or conflicts can disrupt supply routes—further magnifies these risks, leading to potentially severe economic consequences for businesses reliant on these essential inputs.
Ronald Francois
Ronald is a senior market strategist at Sigmanomics.com, bringing over a decade of hands-on experience in equity markets and three years of specialized expertise in options trading. Known for his sharp fundamental analysis and deep understanding of macroeconomic trends, Ronald provides readers with actionable insights that bridge the gap between institutional strategy and individual investor needs.
