US stocks fell sharply on Apr. 11 after the White House announced an increase in tariffs on Chinese imports to 145%, up from the previously stated 125%.

This revised rate includes a 20% tariff imposed earlier this year in response to fentanyl trafficking, in addition to earlier “reciprocal” duties.

The Dow fell nearly 1,700 points, while the S&P 500 and Nasdaq lost 5% and almost 6%.

China warned of a trade war if talks are not based on mutual respect and equality.

Trump had ruled out going beyond 125% but now signals openness to meeting Xi.

🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ Modern tariff rates have reached historic extremes

The current 145% tariff rate on Chinese imports represents an unprecedented level in modern U.S. trade policy.

Historical U.S. tariffs before income taxes often exceeded 30%, but today’s rates far surpass those levels and even the controversial Smoot-Hawley Tariff Act of 1930, which is widely cited as a factor that worsened the Great Depression 1.

Analysis from the Federal Reserve Bank of Richmond indicates that these new measures could raise the average effective tariff rate from 2.2% to as high as 17.0%, a dramatic shift that will particularly impact manufacturing and mining industries 2.

J.P. Morgan Research estimates these tariffs could potentially raise $400 billion in revenue but also increase Personal Consumption Expenditures prices by 1-1.5%, creating significant inflationary pressure 3.

The scale of these tariffs explains why markets reacted so severely. Previous trade tension episodes in 2019 caused market drops of about 3%, compared to today’s 4-6% plunge across major indices 4.

2️⃣ Trade wars create symmetrical economic pain despite asymmetrical tariffs

Despite the asymmetry between U.S. tariffs (145%) and China’s retaliatory tariffs (84%), both economies face substantial damage from this escalation.

The World Trade Organization has warned that bilateral trade between the U.S. and China could decrease by as much as 80%, a devastating reduction that would disrupt global supply chains and impact countless businesses 5.