President Donald Trump’s recent tariff exemptions on consumer electronics and semiconductors may reduce the impact on China’s economy by 0.4 percentage points, according to Citigroup.

The exemptions apply to US$100 billion worth of goods, which accounts for over 20% of total US imports from China last year.

This development could lower the effective US tariff rate on Chinese goods to 127.5%, down from a peak of 145%.

China’s Ministry of Commerce welcomed the move but called it a small step, urging the US to do more to eliminate mutual tariffs.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Tariffs have returned to historic levels not seen in over a century

Today’s tariff escalation represents a dramatic reversal of post-WWII trade policy trends.

Current U.S. tariffs have reached an average effective rate of 22.5%, the highest since 1909, compared to the modern average of just 1.6% that had prevailed in recent decades 1.

This marks a fundamental shift away from the low-tariff globalization era that defined international commerce for the past 70+ years, when tariffs steadily declined through international agreements.

The most comparable historical parallel is the Smoot-Hawley Tariff Act of 1930, which raised tariffs on over 20,000 imported goods and is widely considered by economists to have deepened the Great Depression 2.

Even with the recent $100 billion exemption, the remaining tariffs still represent a historically significant level of trade restrictions between the world’s two largest economies.

2️⃣ Tariffs function as a regressive tax that disproportionately impacts lower-income households

The economic burden of tariffs falls heaviest on those least able to absorb additional costs.

Households in the lowest income brackets are projected to face annual losses of $1,700 due to price increases from these tariffs, representing a much larger percentage of their disposable income compared to wealthier Americans 1.

The April 2nd tariffs alone are expected to raise consumer prices by 2.3%, equivalent to a $3,800 loss per household annually across all income levels 1.