The Rundown - Deep Dive: Why Trump is Waging an All-Out Trade War Against China

Episode Date: April 13, 2025

The U.S. and China just launched the most explosive trade war in decades. Tariffs are hitting 145%, markets are in chaos, and even the bond market is blinking red. In this weekend's deep dive, we break down what triggered the escalation, how China’s WTO entry set this all in motion, and why CEOs, economists, and politicians are scrambling to keep up.The content of the video is for general and informational purposes only. All views presented in this show reflect the opinions of the guest and the host. You should not take a mention of any asset, be it cryptocurrency or a publicly traded security as a recommendation to buy, sell or hold that cryptocurrency or security. Guests and hosts are not affiliated with or endorsed by Public Holdings or its subsidiaries. You should make your own financial and investment decisions or consult respective professionals. Full disclosures are in the channel description. Learn more at Public.com/disclosures.Past performance is not a guarantee of future results. There is a possibility of loss with any investment. Historical or hypothetical performance results, if mentioned, are presented for illustrative purposes only. Do not infer or assume that any securities, sectors or markets described in the videos were or will be profitable. Any statements of future expectations and other forward-looking statements are strictly based on the current views, opinion, or assumptions of the person presenting them, and should not be taken as an indicator of performance nor should be relied upon as an investment advice.

Welcome to the rundown for another weekend deep dive. Today, we are talking about the trade war breaking out between the two largest economies on the planet, the U.S. and China. These two economic powerhouses went tit for tat on tariffs this week, both countries jacking up tariffs to historic levels, throwing global supply chains and markets into total chaos. So now everyone from economists, investors, and CEOs are asking the same question, what is going on? Well, in this episode, we're going to try to answer some questions, like what triggered this escalation, who gets hurt, who might actually benefit, and whether this ends in a new global trade order. Or maybe Donald Trump is just playing 4D chess. That's what we're talking about today. Let's dive in.

On Wednesday of this past week, President Trump announced a surprise 90-day pause on the sweeping reciprocal tariffs that targeted U.S. trade partners across the globe. These tariffs were originally announced on April 2nd, Liberation Day, and just one week later, the president changed his mind, sort of. Now, the initial reaction to this decision was euphoria. Everyone breathed a sigh of relief after that announcement, and the markets went to the moon. It had one of its best days ever. But then everyone realized that not all the tariffs were being paused. In fact, a 10% blanket tariff is still in effect on all imports coming into the U.S.

Not to mention the 25% tariffs on steel, aluminum, and autos that Trump put into effect last month, that's still active too. And then you have China. Trump decided to crank up the heat on one of the U.S.'s biggest trading partners. Reciprocal tariffs on China were initially set at 34% according to the infamous poster board that Trump held up on April 2nd. Well, today, tariffs on China have been jacked up all the way up to 125%. And then once you factor in the multiple layers of existing tariff,

Chinese goods are now faced with a total tariff rate of 145% according to the White House. Trump has singled out China by calling them an economic enemy and accusing Beijing of not playing by the rules. Now, China has already clapped back this week. They're slapping a 125% tariff on U.S. imports. So in a matter of eight days, the two biggest economies in the world are now engaged in a full-on trade war. I mean, at this point, the only thing moving freely between these two countries are passive-aggressive press releases. Now, it's not all great in the U.S. either. If you add up all the tariffs that are in effect right now, the effective U.S. tariff rate is 25%.

This is according to the Budget Lab at Yale. That takes into account rolling back the reciprocal tariffs on every country except China. So that means the tariff rate in the U.S. is now at the highest it's been since 1909. and it's a staggering jump from just a 2.4% it was at the end of 2024. And this constantly changing tariff policy has thrown the markets into a whiplash and increased uncertainty. Now, there are some people out there like billionaire hedge fund manager Bill Ackman that think that all of this was part of the plan. He called the pause brilliantly executed and he declared it as a strategic win. According to Bill Ackman, this was the art of the deal in action.

Others don't really see it that way. Several economists and reporters were quick to point out that the global economy wasn't off the hook just yet and that this new tariff plan was still a major escalation. Now, if that wasn't enough drama already, there's already controversy about potential insider trading. See, on Wednesday morning, President Trump posted on Truth Social that it was a great time to buy. Then a couple hours later, he announced a tariff pause, which sent the markets soaring. Trump's political opponents like AOC and Elizabeth Warren were quick to point out that something sketchy might be going on, and they're calling for an investigation of insider trading.

I mean, come on, really, politicians doing insider trading? What does that ever happen? Now, let's go back to the trade war with China, because Trump has had beef with them for a long time now, and he points to a moment in the year 2000 as a turning point. That's when the U.S. granted China permanent normal trade relations, and it allowed China to join the WTO, the World Trade Organization. The thinking at the time was to bring China into the global, capitalistic system, and over time, they'll become more cooperative and more open.

At the time, 25 years ago, China was treated like a developing country in that agreement. So that gave China extra leniency baked into the deal because the West saw China as an underdeveloped, non-threatening player full of promise. China had 1.3 billion people at the time, making that an untapped market for U.S. exports. Well, it didn't exactly play out as expected. China took full advantage of joining the world markets by becoming an export powerhouse. Back in 2001, when China was first added to the WTO, China exported $272 billion worth of goods. By 2024, that number has now become $3.6 trillion. In fact, China now makes up almost a third of all manufactured goods in the world,

more than the U.S., Japan, Germany, and South Korea combined. And all that manufacturing has helped fuel China to become the second largest economy. in the world. So this worked out pretty great for China, but it was devastating for U.S. manufacturers. Entire regions lost jobs, what economists now call the China shock, a wave of industrial decline that gutted towns across the Midwest and it reshaped American politics. So Trump and others blamed China being added to the WTO as the reason for this, but some economists say that misses the point. Yes, China did get a ton of breaks 25 years ago by being added to the WTO, But these economists argue that what really turbocharged China's export engine was internal reforms.

China didn't just meet the WTO requirements. They went further. They slashed domestic tariffs faster than required, which made it cheaper for Chinese factories to import raw materials and pump out finished goods at scale. That resulted in more exports and faster growth leading to deeper trade imbalances. China has now become the U.S.'s third largest trade partner only behind Mexico and Canada. There's nearly $582 billion in annual trade between the two countries. In 2024, China made up about 13% of all U.S. imports. That's nearly $440 billion.

And the U.S. exported $143 billion in goods to China, creating nearly a $295 billion trade deficit for the U.S. Trump has said many times he doesn't like trade deficits, but they aren't always a bad thing. See, the U.S. runs trade deficits because we import cheap goods and focus on high margin stuff like services, software, and finance. Those industries that I just listed off are a comparative advantage for the U.S., which is an idea that countries specialize in what they're best at. The U.S. is really good at financial services and building software.

And a lot of times these services that the U.S. provides to the rest of the world aren't counted for in trade deficit calculations. But the issue that Trump and many critics have about China is a pattern of unfair trade practices. One big issue that's been festering for years is intellectual property theft. We're talking about American companies being forced to hand over trade secrets and proprietary technology to get access to the Chinese market. And even with that, many companies trying to operate in China face major roadblocks. In fact, major big tech companies like Google and meta are banned in China.

Meanwhile, Chinese companies have faced far fewer restrictions setting up shop in the U.S. I mean, just look at the success of Timo, Shien, and TikTok. That imbalance has become one of the biggest complaints from American CEOs, especially in tech, pharmaceuticals, and manufacturing. So when you hear Trump say things like China doesn't play by the rules, that's what he's talking about. Decades of lopsided trade dynamics, IP theft, and blocked access for American companies.

When one side plays by different rules, it stops being capitalism and it starts looking more like economic warfare. So Trump's plan is to potentially blow the whole system up, and put in something new. Something like that hasn't happened since World War II. China joining the WTO back in 2001 was a big deal, not just because it changed trade flows, but because it signaled a shift in the rules of the global economy.

And over the last century, we've really only seen a few moments where the entire global trade order got rewritten. Once was during the Great Depression, and the other one was after World War II. Let's talk about the first one. Back in 1930, during the Great Depression, the infamous Smoot-Hawley Tariff Act went into effect, which raised tariffs on over 20,000 goods

in a desperate attempt to protect U.S. industry. But that ended up backfiring. Other countries retaliated and global trade collapse, and the Great Depression got even worse. And then the other big change happened after World War II, the creation of the Brenton-Wood system, which was a new architecture built around establishing open markets and fixed exchange rates. The whole system was created to avoid another great depression and preventing the kind of nationalism and protectionism that had fueled global conflict like World War II. So now Trump's trying to do something similar. He's trying to rewrite these rules on his own terms.

He's not waiting for wars or a depression. He's trying to intentionally rewrite the global trade order from the top down by force. His tariffs aren't just a tool. They're leverage meant to reshape alliances, reassert sovereignty and punishments. what he sees as economic betrayal. I mean, look, we know Trump likes to put his names on buildings and golf courses. Well, now he's trying to stamp his name on the global economic order. But he's running into a problem.

And that's the bond market. So Trump has big plans to shift the global economic order. But the markets and a few high-powered voices are pushing back hard. First, there was J.P. Morgan Chase CEO Jamie Diamond. The Wall Street Journal reported that Trump was watching his interview on Fox News, where he said that a recession was a likely outcome because of Trump's tariffs. So Trump took note of that, but ultimately, it might have been the bond market that really caught the president's attention.

This week, unusual pressure started building in the U.S. Treasury market, and it likely played a decisive role in Trump's surprise decision to hit pause on some of the tariffs. So U.S. treasuries are considered a safe haven asset. They're like a feel-good blanket for investors. During moments of market turmoil, investors tend to buy bonds, which are not. causes treasury yields to go down. But that's not what ended up happening. This week, there was a sharp sell-off in treasuries which caused bond yields to go up. The 10-year treasury yield spiked to over 4.5%. That's a big jump from the 3.9% that it was just a few days ago. And that's a sign that investors were losing

confidence in the U.S. government debt being a global safe haven asset. And when the bond market starts freaking out, that's when you really need to start worrying. So the sell-off in treasuries was a warning shot to the and Trump seems to have gotten the message. Bond market is very tricky. I was watching it, but if you look at it now, it's beautiful. The bond market right now is beautiful. But, yeah, I saw last night where people were getting a little queasy. Now, behind the scenes, attention turned to the possible unwinding of the basis trade,

which is a popular strategy where hedge funds borrow heavily to profit from small differences between treasury bonds and futures contracts. Now, usually it's low risk, but when bond prices start falling, fast like they did this week, margin calls get kicked in, forcing funds to liquidate fast, and then creating a feedback loop that worsens the sell-off. So that might have been happening this week as well. All that being said, these tariffs weren't just shaking up the stock market. They were threatening the plumbing of the entire financial system. Now, if you're struggling to keep up with all this, you're not alone. Even some of the most plugged-in economists on Wall Street

have whiplash. Like, just look at Goldman Sachs. They forecasted a baseline recession on Wednesday morning. Then they reversed that call just 73 minutes later after Trump's 90-day tariff pause. I mean, the only time that I've seen that kind of flip-flopping is when I asked my wife what she wants for dinner. But, you know, all of this does show you how serious this moment is. According to Yale's Budget Lab, the tariffs in their current form are expected to cost the average American household $4,400 in lost purchasing power this year. They're expected to lower GDP by one percentage point from a 2% growth down to just 1% percent. growth. That's a $300 billion hit to the U.S. economy. So yeah, there's a lot on the line right now.

Trillions of dollars of global trade are in limbo. Two economic giants are in a trade war, and the markets are screaming for some relief. And the constant changing of these tariff policies sure isn't helping. Like just now on Saturday morning, the White House announced that cell phones, computers, and computer chips are exempt from tariffs. So Tim Cook, man, he does it again. He got the exemption just like he did last time. If you want to learn more about Apple and their supply chain and why they're so reliant on China, go check out our deep dive episode from last weekend. It was a pretty good one.

But yeah, for now, Apple shareholders can breathe a sigh of relief. But ultimately, this constant flip-flopping and tariff policy just leads to greater uncertainty, and it makes it harder for CEOs and business leaders to make long-term decisions. One thing's for sure, though, if you're trying to keep up with all this stuff, you might want to turn on Trump's social media notifications, because these days the next market move might come in all caps. Oh, the other option is for you to leave the doom scrolling to us and just follow our podcast for daily market updates.

And, you know, we'll do our best to throw in a few jokes where we can. It's a tough market, though. Well, all right, guys, that's it for today's weekend, deep dive. Hope you guys enjoyed today's episode. If you did, don't forget to subscribe to the podcast, especially on YouTube and Spotify. We actually filmed these deep dives with video, and you can watch it on YouTube and Spotify.

I highly recommend checking that out. And if you guys have any topics that you think we should cover in future deep dive episodes, let us know in the comments. Thank you guys again for listening. Shout out to Mike and Connor for all the help behind the scenes. And we'll see you guys back here on Monday.