MW Why Trump's 55% China tariff won't bring the trade-war payoff the stock market thinks it will
By David Blond
American consumers now will either do without low-cost products from China or pay higher prices
The Tokyo Round of trade negotiations that set most of today's global trade tariffs lasted between 1973 and 1979. Even in the 1970s, the world was still in a post-World War II environment that regarded the U.S. as the No. 1 manufacturing center. America's goal at that time was to rebuild the global system of trade. To do this, the U.S. needed healthy foreign economic partners. But most of the world was still recovering from the war, full currency convertibility was years away, and even the IMF floating-rates system was in its infancy.
The U.S. was willing to concede on manufacturing to gain more access for U.S. agricultural exports. For example, the U.S. didn't export cars to Europe; it invested in European plants and built cars there, for example, Ford $(F)$ in the U.K. and GM $(GM)$ in Germany with Opel.
China was still closed and outside of the trading system. The largest developing country with manufacturing exports was Taiwan. When China joined the United Nations in October 1971, Taiwan was no longer listed in the reports on world trade in manufacturers. Taiwan's trade can be found in a category called Asia, N.E.S.
Most-favored no more
The Most Favored Nation (MFN) rules allowed the global system to work efficiently. By setting each country's import tariffs irrespective of the source of the trade, customs clearance was simplified.
There was full transparency for domestic buyers of foreign products - not U.S. President Donald Trump's current chaos and confusion about the costs to bring a container load through U.S. customs.
When China entered the world trading system, it offered a set of MFN tariffs. U.S. exports to China were charged these rates and vice versa for Chinese exports to the U.S. Today, the average trade tariff charged by China is about 7.4% under MFN. The average for the U.S. into China is different, but not by much, I suspect.
Many non-tariff barriers and quotas make this harder to calculate fully. Tariffs on U.S. food grains are likely set at 10%. China saves face with a 10% tariff on U.S. goods, not high enough to change sources of supply, while the U.S. loses - a 55% tariff is high by global standards and likely will stop products coming into the U.S. rather than create opportunities for American companies to boost production at home.
A 55% tariff on Chinese goods that have no American substitutes will lead to massive disruption in America's consumer-based economy. There won't be much of a renaissance in American manufacturing. How many small companies can afford to add 55% to the cost of the products they sell and expect to remain in business? Few small wholesalers or companies can afford to clear customs now, as they must pay the upfront costs well before they try to sell the products.
More: Here's how the 55% U.S. tariffs on China are broken down
Whatever U.S. Treasury Secretary Scott Bessent says about the Trump administration's trade victories, I don't believe it. America had a functioning system that kept both large and small U.S. companies profitable and able to meet the varied needs of a consumer-driven economy. Trump's assault has dropped a bomb into the ordered world of give-and-take, offers and counteroffers. Now, where the U.S. winds up is anyone's guess.
One thing's for certain: China is the winner here. It can now charge 10% on all incoming American goods - likely more than it charged under the MFN. Because Trump is restricting high-tech exports, this is limited to a few agricultural exports. Even on rare earths, there isn't much chance that American companies will mine and process here to avoid the tariffs.
At the end of the last round of trade negotiations (Doha Round), tariffs had declined to the 1% to 5% range on average for the major countries of the world. They were like sales taxes - not something to worry about when deciding where to source the products their customers needed or adding that much to the logistics of shipping from a distance
America's lack of exports can be explained by the size of the U.S. domestic market. Selling more outside the country is less critical. But Trump and congressional Republicans need high tariff rates to help pay for tax cuts that benefit companies and high-net-worth Americans. A 55% tariff, if paid at customs, will disproportionately impact low-income and middle-class Americans.
Many American consumers now will either do without low-cost products from China or pay higher prices. That's hardly something for stock markets to cheer.
David Blond is an international economist, consultant, and novelist (The Phoenix Year Trilogy, the Mobius Inversion). He has been quantifying and modeling the global system of trade and industrial development for more than 50 years.
-David Blond
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June 13, 2025 07:50 ET (11:50 GMT)
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