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Bigger US Tariffs on the Way

No Turning Back in the Tariff War

Alright, everyone, welcome back aboard the USS Armageddon—there’s no turning back now in this tariff war. Many countries, including America's closest neighbors, are feeling the impact. Mexico seems willing to adapt, while Canada is pushing back. But a major escalation is coming.

April 2nd: A Major Tariff Expansion

On April 2nd, Trump is set to unleash a new wave of tariffs, targeting both specific industries and entire sectors. In less than two weeks, key industries like automobiles, semiconductors, and pharmaceuticals will face a 25% tariff. Additionally, food imports, lumber, and copper exports are expected to be hit with the same rate.

The Real Purpose Behind These Tariffs

But why is Trump choosing these sectors? It’s not just about generating revenue from American consumers—it’s about reshoring critical industries, no matter the cost. The administration’s goal is to bring manufacturing back to the U.S., even if it means Americans have to pay significantly more for goods.

The American Dream Redefined

Bessen recently stated that the American Dream isn’t about access to cheap products—it’s about protecting industries and creating jobs. Trump is fully embracing this vision, willing to trade short-term economic stability for long-term domestic industry growth. Even if the U.S. economy heads into a recession, he’s unlikely to back down. The plan is to push full speed ahead until U.S. industries return—or the economy hits a breaking point.

Copper Production: A Case Study

Take copper production, for example. The U.S. has the fifth-largest reserves globally but produces only 1.1 million tons per year, lagging behind China, Peru, the Congo, and Chile. Currently, nearly half of America's refined copper supply is imported—around 1 million metric tons annually. Trump’s goal is to change this by making foreign copper so expensive that domestic mining operations can finally compete. But is this strategy viable?

The Hidden Cost: A Lower Standard of Living

Here’s the blunt answer: It’s only sustainable if American consumers permanently accept higher costs and, in effect, subsidize domestic industries by paying more for goods.

China’s Surgical Response

Meanwhile, China is strategically responding. Rather than imposing broad counter-tariffs that could drive up inflation domestically, Beijing is opting for a more precise approach. China has already halted all imports of U.S. liquefied gas (LG) for 40 days—the longest pause in nearly two years—after imposing just a 15% tariff. The result? Shipments have completely stopped.

The Key Difference Between U.S. and Chinese Strategies

This is the key difference between Trump's and China’s strategies. While Trump is forcing Americans to fund reshoring efforts, China is focused on keeping costs low to boost domestic consumption.

U.S. LG Exports to China Plummet

Since 2021, the U.S. has been exporting 400,000 tons of LG per month to China. Now, that number could drop to zero indefinitely. Instead, Beijing is shifting its supply chain to Asia-Pacific and the Middle East—not necessarily because prices are lower, but to weaken U.S. suppliers. By cutting demand, China is driving down revenue for U.S. exporters, potentially delaying or even halting new projects.

China’s Strategy: Expanding Global Ties

And that’s just the beginning. As the U.S. turns inward, China is expanding outward, using its massive energy demand as a bargaining tool to strengthen economic ties. They recently signed a 15-year deal with Australia's Woodside Energy, securing 600,000 tons of fuel annually. While they might be paying more, the strategic benefits outweigh the costs. This deal tightens economic relations with Australia, making it harder for the U.S. to pressure Australia into imposing trade restrictions on China in the future.

Trump’s Strategy Backfire

Trump’s tariffs are inadvertently pushing China and other nations closer together. This is surprising, given that Trump considers himself a student of history. If history has taught us anything, it’s that the U.S. should avoid pushing Russia and China into a closer alliance. Yet, much like Obama’s energy policies unintentionally strengthened their ties, Trump's tariffs may be doing the same.

U.S. Retail Giants in Full Panic

China Cuts Trade While the U.S. Struggles

As China continues to reduce trade with the U.S., the situation is playing out very differently on the American side. Trump has imposed an additional 20% tariff on Chinese goods, but there’s a major issue—most consumer goods in the U.S. come from China. Up to 80% of Walmart’s merchandise, from plastics to computers and smartphones, originates from Chinese factories. As a result, American consumer spending is under immense pressure.

Rising Costs Threaten U.S. Retailers

This goes beyond electric vehicles or solar panels; when the price of everyday essentials rises, backlash is inevitable. Consumers will cut back on spending, which means U.S. retailers, from small businesses to major chains, could see a sharp decline in revenues. Profit margins are also taking a hit.

Costco Feels the Squeeze

Costco is one of the major U.S. retailers under pressure. They reported earnings of $42 per share in the December–February quarter, missing estimates and leading to a 7% drop in their stock price after the earnings report. Now that Trump’s tariffs on Chinese goods have risen to 20%, Costco is in full panic mode, with its profit margins under threat.

Retailers’ Desperate Strategy: Forcing China to Absorb the Costs

Rather than simply accepting lower sales or passing the increased costs on to consumers, U.S. retailers are taking a different approach. Following Walmart’s lead, Costco is pressuring Chinese suppliers to lower their prices and absorb the tariffs.

Can Chinese Suppliers Afford This?

This is a huge ask. Chinese suppliers already operate on razor-thin margins, which is why their goods are so affordable globally. Asking them to absorb a 20% tariff—or even part of it—will be incredibly difficult, if not impossible. The fact that U.S. retailers are making this demand is a clear sign of their desperation and signals that American consumers are reaching their financial limits.

Betting on Desperation: Will Beijing Retaliate?

Retailers like Walmart and Costco are betting that Chinese suppliers will be so desperate to maintain access to the U.S. market that they will slash their prices. Treasury Secretary Scott Bessant echoed this belief on national television, claiming that Chinese manufacturers will “eat the tariffs” and that currency adjustments and deregulation will help keep American prices low.

The Risk of Escalation

But what if Bessant is wrong? Even if some Chinese suppliers lower their prices, it will only escalate the trade war further. The U.S. has many companies operating in China, selling directly to Chinese consumers. Costco, for example, has six stores in China, with over 140,000 members at just one location in Shenzhen.

China’s History of Blacklisting Foreign Brands

If Beijing retaliates, American companies could face serious consequences. China has previously blacklisted brands like Calvin Klein and Tommy Hilfiger, restricting their operations. Worst-case scenario, the Chinese government could impose restrictions or even force U.S. retailers to shut down stores in the country.

Why a Trade War with China Is Complicated

This is what makes a trade war with China so complex. There are countless second-order effects that no one can fully predict. Trump’s tariffs will likely be absorbed by U.S. consumers rather than Chinese suppliers, and American companies won’t want to risk their market share in China—once lost, it may never return.

China’s Consumer Market Is Rebounding

Meanwhile, China’s consumer sentiment is improving. According to Deutsche Bank, 54% of Chinese respondents feel financially better off than a year ago, and 60% expect an income increase. While some sectors of China’s economy, such as real estate, are struggling, retail sales are beginning to recover.

Beijing’s Economic Stimulus Will Boost Consumption

Beijing is preparing to roll out major stimulus measures and reduce regulatory red tape, further boosting domestic spending. This makes the Chinese market an increasingly attractive opportunity for American companies—just as Trump is making it harder for them to operate there.

U.S. Tariffs Have Backfired

As China’s economy gains strength, Trump’s push for domestic manufacturing may weaken the U.S. market instead. His goal of reducing the trade deficit could ultimately harm domestic spending and retail growth.

Investors Are Fleeing U.S. Markets

Global investors are already reacting. According to Bank of America, the era of "U.S. exceptionalism" may be over, and March saw a massive 40-percentage-point drop in fund managers investing in U.S. markets. Instead, they are moving their capital into Europe, the U.K., and emerging markets, including China. Investors are preparing for a potential U.S. recession, recognizing that Trump’s trade war is real this time.

A New Era of Economic Decoupling

One thing is clear: The U.S. and China are decoupling in a big way. The old era of globalization and economic cooperation is fading. We are now operating in a volatile and unpredictable global economy.

What’s Next?

Will Trump continue his tariff war to the very end? How will China respond in the coming months? Let me know your thoughts in the comments.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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