WSJ What’s News - China Hits U.S. Goods With 125% Tariff

Episode Date: April 11, 2025

A.M. Edition for April 11. Beijing unveils another round of trade countermeasures against Washington, saying its latest duties on U.S. products will make them no longer marketable in the country. Rathbones’ Ed Smith joins us to discuss how investors can prepare for the road ahead after a volatile week for markets. Plus, the WSJ’s Benoit Faucon previews high-stakes U.S.-Iran nuclear talks. And the Supreme Court orders the return of a man mistakenly deported to El Salvador. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Correction: The White House on Thursday said U.S. tariffs on China add up to 145%. An earlier version of this podcast incorrectly referenced 150% tariffs on China. (Corrected on April 11) Learn more about your ad choices. Visit megaphone.fm/adchoices

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Yeah, it's a big deal. The Ford It's a Big Deal event. Visit your Toronto area Ford store or Ford.ca today. Yet more trade countermeasures as China ups its tariffs on US goods to 125%. We'll look at how investors can prepare for the road ahead after a volatile week in markets. Boardrooms are dumbstruck by what's just happened and they yearn for clarity. This reprieve doesn't really give that much clarity. So I think business investment spending and hiring is going to be on ice.

Plus, the rest of the day's news as the US and Iran prepare for nuclear talks and the Supreme Court orders the return of a man mistakenly deported to El Salvador. It's Friday, April 11th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. Global markets are on pace to end the week on a rocky note as trade tensions continue to weigh on the economic outlook.

This morning China announced it would raise its retaliatory tariff on U.S. goods to 125 percent effective tomorrow, matching the latest duty imposed by the White House. Beijing signaled it's now done matching each US tariff increase, saying American imports are no longer marketable under current levels. Speaking at a meeting with Spain's Prime Minister in Beijing, Chinese leader Xi Jinping said today there'd be no winners in a tariff war, but added he was not afraid of the fight to come. Meanwhile, the Trump administration has kicked off a high-speed effort to negotiate ad hoc

deals with more than 70 countries hoping to escape higher tariffs. A push that's playing out as lawmakers on Capitol Hill are eager to see deals reached that can avoid this week's tariff-induced stock sell-off. People with knowledge of the discussions say many of the offers from countries to negotiate with the White House are just preliminary calls and not fleshed out economic proposals. Markets in Japan and South Korea have ended the day in the red. European indexes are falling in morning trading. U.S. futures are pointing to a lower open while gold has soared to an all-time high.

And in the latest test for markets, a number of US financial institutions are set to report first quarter earnings this morning, including JP Morgan Chase, Wells Fargo, and Morgan Stanley. The US and Iran are scheduled to meet tomorrow for high-stakes nuclear talks in Oman. I asked the journal's Benoît Faucon, who's in Oman, what to expect as Trump's special envoy for Middle East issues Steve Witkoff and Iran's foreign minister prepare to meet face to face. The Iranian wants to be back to the 2015 nuclear pact, which is curbing the enrichment of their CBN program and get sanction relief in exchange. The US has a bigger view. They minimum wants no nuclear

weapon and they'd like to discuss the ballistic program. There's been initial statements from the US saying that they wanted even the civilian program to be dismantled. We basically are in a chess game and the end game is quite open-ended. Benoit, this all sounds a bit exploratory, and yet President Trump has threatened to take military action against Iran if no deal is reached. I'll also point out we've reported that some Western officials now see Iran as part of this axis called CRINC, China, Russia, Iran, North Korea, that is now united in defying Western sanctions. In light of that, what is Iran's urgency to make a deal? I think Creeki is not enough.

For Iran, it's not enough. They had a little bit of breathing space with both China and with Russia, no other commodities, drones or banking. But it's never been a replacement for having an economic relationship with the West, which is really something guarded by the dollar and the American banking system. And the evidence of that is basically since Trump was elected, the currency has fallen by 40%.

So that Grink's alliance is a partial alternative, it's a bond aid, but it doesn't resolve the long-term issues that Iran is facing. And back in Washington, the Supreme Court has told the Trump administration to seek the return of a migrant mistakenly sent to a Salvadorian prison, rebuffing government claims that it need do nothing to remedy its error. Thursday's order directed the government to take steps to bring Kilmar Abrego Garcia back to the U.S. from a maximum security facility it sent him to in March.

The administration maintained its only error was sending him to El Salvador rather than to a third country, and that federal courts had no power to command officials to retrieve him once he was in custody of a foreign government. Coming up after a whirlwind week for investors, is policy risk here to stay? How likely is a recession and is now a good time for action or patience? Rathbones' Ed Smith joins us to take on those questions after the break. As we near the end of one of the most topsy-turvy weeks for global markets in recent memory,

how should investors view the road ahead? With reciprocal tariffs on pause, can we afford to put our recession worries on hold as well? Or could universal 10% levies be enough to shake confidence and dent growth forecasts? To take on those questions and more, I'm joined by Ed Smith, the Co-Chief Investment Officer at Rathbones Investment Management. Ed, I guess the big question right out of the gate, can investors afford to put policy risk behind them? That risk was really what had been driving unease around the world in recent days. Well, over the last few weeks, we've seen this really tight relationship between the level of the S&P and a daily measure

of trade policy uncertainty that's drawn from Newsflot. And when we had the 90-day reprieve announced from the White House, you obviously saw this huge rally in markets. But actually that trade policy uncertainty index only came back a little bit. And so we're not surprised that actually yesterday, the market gave back some of those gains. And I think the next 90 days are still going to be full of uncertainty. And I think that's going to put a ceiling on how far markets can climb back. How do you assess the disruption caused going forward here by 10% universal tariffs as well as these now a hundred plus percent tariffs on China Compared to maybe that worst-case scenario some investors were thinking of a few days ago Have we really on balance stepped down in terms of the disruption as we end the week if you think pre-liberation day? estimates of the

Effective tariff rates on US imports imports going into that seem to stop out at around 15%. Whereas with the 10% tariffs on everything, the tariff now on China, and some of the 25% sectoral tariffs, we're actually still beyond that upper bound of those previous estimates. It's a little difficult to exactly figure out what the effective tariff rate is, but we think it's somewhere between 16 and 21%. And that's going to hurt. The Fed's targeted measure of inflation by around about 1%. It sounds like it would be unwise, given what you've just said then, for investors to rule

out the recession risks that were really starting to dial up in recent days or slower growth expectations? Yeah, I think that's right. So, on the morning after liberation day, we raised our recession odds to 45%. Then we had escalation, probably taking it higher. We're now back to, we think, around 40% recession odds. And whilst there are definite upside risks that could get us to decent growth this year if we get a lot of fiscal stimulus, assuming bond yields then don't spiral. But our base case, our most likely case is that growth is still going to slow meaningfully this year, that the next couple of quarters are going to be hard in particular as business investment probably goes on hiatus.

And so we're looking at probably sub 1% growth in the US this year. Got it. It seems like consumer confidence measures, business confidence measures will be pretty crucial in the next few weeks to determine how jittery everyone remains after what we've just been through. Yeah. Consumer sentiment indices used to have a really good relationship with consumer spending. They were pretty good at forecasting the next quarter ahead's

spending. But since 2016, actually, and particularly since 2020, there's been no statistically significant relationship between consumer sentiment or consumer confidence and an actual consumption in the US. More and more of the spending is being done by the very wealthiest households, particularly as they become so much wealthier in the US. Stock markets have boomed, properties have boomed, and the richest quintile now own a record 73% of household wealth. So consumer spending could slow down if we get more stock market losses, but you're probably talking about you need a sort of 30% peak to trough fall before that negative wealth effect really

kicks in. The key channels for us to watch is business investment and those confidence surveys which have retained a bit better of a relationship still. Our network intelligence from corporate boardrooms is that boardrooms are dumbstruck by what's just happened and they yearn for clarity. This reprieve doesn't really give that much clarity. So I think business investment spending and hiring is going to be on ice. Given that, how do you weight US equities after what we've just been through? Investors hearing that boardrooms are dumbstruck doesn't exactly inspire a ton of confidence if they don't know what the future holds. Yeah, I mean, we're certainly not bullish, but we have got room to

go further underweight than we are. It is important to remember that we've had bigger peak to trough falls than this in 2018, 2020, 2022. And the global equity market has shows a lot of resilience. In over 80% of rolling three year periods, equity market returns are positive. The median bounce back over the 12 months following a 10% correction is 15%. I'm saying these statistics because the base case should always be equity markets are going to do quite well. Or kind of a return to investing basics there in an environment in which it seems like emotions are running pretty high among investors. Folks maybe had to sell positions at a loss in recent days, feeling like the bottom was

about to fall out and now maybe regretting that decision. Others frustrated maybe that they didn't get in on Wednesday's rally and I don't know, looking for other moments to strike. I think definitely yeah I mean we find that our clients are pretty well trained over the last few years they've seen a lot of major correction but more broadly in the market there is going to be this whip sawing volatility is likely to stay very high it's on a head trigger whenever there's a truth posted on truth social run. And I think you are going to see a lot of bad decision making. So it's really important to have a

framework that means that you don't make emotive decisions. You only make sort of rational, cool headed ones. Ed Smith is the Co-Chief Investment Officer at Rathbone's Investment Management. Ed, thank you so much for being with us on What's News. My pleasure. And a heads up before we go, an earlier version of this show made reference to 150 percent tariffs on China. As of this morning, U.S. tariffs on China stand at 145 percent.

And that's it for What's News for this Friday morning. Today's show was produced by Kate Bullivant. Our supervising producer was Daniel Bach. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Otherwise, have a great weekend. Thanks for listening.