Global Trade Nuclear Explosion 72 Hours: How Trump's "Tariff Tsunami" Tears Apart Wall Street Consensus

Author: Jinze

When the S&P index confidently pulled out a bullish line in Friday's early trading, traders were still unaware that Washington's midnight fax machine was churning out astonishing documents that would rewrite the script of globalization— the Trump administration, with a single piece of paper, pushed the trade war between the United States and other countries into a "mutually assured destruction" nuclear deterrence phase.

Following the article from the day before yesterday , the relatively mild tariff scenario I had anticipated did not occur; instead, there was a comprehensive tax increase, with only the energy sector exempted, and Canada did not back down, immediately retaliating with a 25% equivalent tariff on $155 billion worth of U.S. goods.

This triggered the U.S. tariff cross-retaliation clause, indicating that the situation is escalating, so the expectation for Canada to quickly kneel has also diminished significantly. However, both China and Mexico have threatened retaliation, though they have not yet made clear announcements, leaving some room for de-escalation between these two countries and the U.S. (though the likelihood is low).

It has been previously stated that the market has underestimated the tariffs, as Trump had initially said he would impose tariffs on his first day in office, yet nearly two weeks have passed without action, and he initiated a 301 investigation, which is at least a few months to a year-long inquiry. Therefore, most analysts firmly believe that imposing tariffs on allies is a "maximum pressure" negotiation tactic, and the tax increase is a matter for months down the line.

CNN's summary is excellent, providing another perspective that illustrates how policies are communicated verbally, with vague expectations, which explains why there was not a widespread belief that tariffs would be "comprehensive" and why there was no pricing for it:

The violent rebound of U.S. stocks last week, with indices returning to high levels, confirms that this impact was not priced in; had there been a drop last week without a rebound, it might have been better.

The real focus on this possibility began in the latter half of Friday. Thus, there was no time to price it in. The weekend's plunge in cryptocurrencies fully illustrates how the market is gradually beginning to pay attention to this matter and how delayed it has been.

On Monday, the U.S. stock market's gap down and the simultaneous decline in both stocks and bonds were inevitable; if gold also falls, it would indicate a liquidity crisis, leading to overselling, which would present a good buying opportunity.

The marginal impact on China is smaller than that on allied countries, as China already has an average tariff of 20-30%, so an additional 10% is manageable. In contrast, Mexico and Canada's average tariffs are in single digits, making the marginal changes much larger. Therefore, the decline in the Chinese stock market may be limited.

Additionally, in conjunction with the policy, Trump also posted a message urging everyone to "tighten their belts" to get by, which will further reinforce the market's expectation that high tariffs may persist for a longer time:

Therefore, against the backdrop of insufficient pricing, each additional day that high tariffs are maintained will generate more negative impacts over time: the longer it lasts without constructive contact or signs of retaliation from other countries, the more likely these tariffs will be viewed as permanent—resulting in increasingly negative market reactions.

For those optimistic about the future, three directions should be noted: first, whether there is progress in negotiations and reconciliation with China, Mexico, and Canada; second, whether there are any injunctions from U.S. courts; third, Trump has certainly noticed the market's concerns about the economy—will he introduce some favorable policies, such as loosening regulations, providing liquidity assistance, and reducing other taxes, like personal income tax? If any of these can be implemented, it should help stop the decline.

To further explain the second point, in fact, Trump’s imposition of tariffs on Saturday cited the "International Economic Emergency Powers Act" (IEEPA), which theoretically allows the president not only to arbitrarily change tariffs but also to freeze the assets of any foreign individuals or governments. Moreover, this freezing can extend beyond domestic assets to international ones (requiring foreign cooperation), effectively giving Trump unilateral control over the life and death of all countries. (The arbitrary invocation of such legal provisions provides legitimacy to unconventional means, only further solidifying the global decoupling from the U.S. and undermining the long-term credibility of the dollar.)

However, since the IEEPA has historically been used mainly for economic and financial sanctions, this is the first time it has been used to impose import tariffs. Therefore, relevant parties (such as U.S. import and export businesses claiming their interests are harmed) may seek temporary injunctions, and the courts are likely to support the president's actions. Thus, the coming days will be a significant test of Trump's power, potentially leading to additional market volatility.

Some group members believe that this situation is akin to the temporary prohibition of the birthright citizenship signed by Trump on his first day, as this is an internal political conflict, while the current issue is a unified external conflict, so the courts cannot interfere. "In such international games, one cannot bind their own hands." I agree with this, but it is also important to note that the possibility of court intervention is not zero; it could even be a coordinated effort with Trump, where the latter instructs U.S. importers and businesses to file lawsuits, and then the courts pause for a period, minimizing economic impact while exerting maximum pressure on opponents. Of course, this scenario is not highly likely.

In any case, keep an eye on this point; if there is news, a violent rebound is certain.

However, I personally feel increasingly that he genuinely wants to use tariffs to subsidize personal income tax, as the U.S. indeed did not have personal income tax a century ago, and Trump believes the economy can still develop very well.