Last week, the U.S. announced tariffs that are significantly higher than stock markets expected. Investors priced at a 10% tariff rate. Instead, rates are above 50% in some countries. As global trade stalls at best and freezes at worst, what are the odds of a U.S. recession?
Stock markets are forward-pricing machines. It increased the probability of an economic fallout from impending tariffs. This depends on the response from trade partners. Over the weekend, reports suggested that Vietnam (VNM) would hold meetings with the U.S. president. Over 50 other countries are seeking trade talks.
Few of the discussions matter. China responded quickly to the U.S.’s average tariff rate of 42.1%. Combined with existing tariffs, the rate is over 54%. China retaliated with a 34% tariff on all U.S. goods. China is the third-largest trading partner with the U.S. Mexico is first, with 16% of America’s total trade, followed by Canada at 14%.
Investors need to be wary of holding Chinese e-commerce firms like Alibaba (BABA), PDD (PDD), and JD.com (JD). The U.S. eliminated the duty-free de minimis treatment for low-value imports from China. Americans will no longer get Temu goods tax-free. Expect PDD stock to retest lows not seen since last September 2024.
Your Takeaway
The odds of a recession are growing. The U.S. may hold trade talks. However, the country already embarked on an isolationist policy. This effectively ends global free trade.
