Collateral damage: This ain’t your garden-variety trade tantrum
|Market volatility continues as investors try to digest everything that has transpired on the trade front. After a brief respite from equity selling on Wednesday — thanks to the Trump Administration’s 90-day pause on the most onerous reciprocal tariffs (excluding China) — the trade war quickly refocused and intensified on Beijing. The U.S. doubled down, jacking its minimum tariff rate on China to a jaw-dropping 145%. China responded in kind with a 125% hit on U.S. exports.
The result? We’re now staring at a weighted average U.S. import tariff rate of 28% — the highest since 1901. Let that sink in.
If these tariffs stick, U.S.-China trade flows are headed straight for the shredder. U.S. import reliance on China has already collapsed to pre-2003 levels, with the share down to just 11%. This isn’t theoretical anymore — the rerouting has begun.
Meanwhile, the VIX is clinging to elevated levels in the high 30s, and the S&P 500 is down roughly 9% this year. At one point, when the tape was bleeding 15 % from that high water mark, it started to look eerily reminiscent of the 25 % drawdown we saw between early 2022 and late 2023, when recession fears and rate hikes were peaking.
But here’s the kicker — the real damage isn’t in equities. It’s in the bond market, where cracks are widening fast. A fresh $6 trillion budget blowout over the next decade isn’t exactly helping. Foreign and domestic confidence in Washington’s ability to manage its fiscal house is quickly evaporating.
The dollar’s feeling the pressure too — down more than 5% from its January highs. The traditional safe haven bid? Missing in action.
Yields are climbing — not because of inflation, but because investors are demanding fatter real returns for holding long-dated U.S. IOU’s. The 10-year has spiked by 22 bps in just a month. The 30-year? Up 34 bps. This is about trust, not CPI.
Credit spreads are exploding. High-yield corporate paper’s getting torched, with spreads widening by nearly 180 bps since February. The fear is real, and it’s being priced into every corner of the curve.
This isn’t just tariff noise. This is about a shifting global order, decaying fiscal discipline, and a bond market that’s suddenly lost its anchor. If we stay on this track, we’re not just watching a trade war — we’re watching the architecture of post-WWII global finance get stress-tested in real time.
And if that doesn’t get your attention, it should.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.