Wall Street Expects Trump's 'Massive' Tariff Hike Threat Against China To Hurt US More, Says Expert: 'Dollar Is Not Looking Healthy'
News Summary
President Donald Trump's Friday threat of "massive" tariff hikes against China led to a significant downturn in US equity markets, with the Dow, S&P 500, and Nasdaq Composite all closing in the red, the latter seeing the largest fall at 3.6%. This market reaction mirrored a similar sell-off in April due to "Liberation Day" tariffs. Robin Brooks, a senior fellow at the Brookings Institution, stated that markets perceive the US as being at a disadvantage in the tariff dispute with China, suggesting tariffs are backfiring on the US rather than the rest of the world. The US dollar index fell 0.7%, contributing to a nearly 9% year-to-date decline, while gold prices surged 53% over the same period. Brooks argues the dollar's vulnerability is greater now than in April, highlighting that its failure to act as a safe haven despite a sharp S&P 500 fall, coupled with rising gold prices, indicates the dollar is "not looking healthy." Trump also expressed concerns on Truth Social regarding China's "hostile" actions, specifically their plans to impose export controls on rare earth elements, which are critical for various industries.
Background
The US and China have been engaged in trade tensions since 2018, with President Trump's administration maintaining a hawkish trade stance following his re-election in 2024. Previous "Liberation Day" tariffs (announced in April 2025) had already triggered market volatility and raised concerns about global supply chains and economic growth. The Trump administration is widely expected to continue using tariffs as a tool in its foreign and economic policy. The persistent weakening of the US dollar and the strong performance of gold as a safe-haven asset reflect broader investor anxieties about global economic stability and geopolitical risks. Rare earth elements, crucial strategic resources, have emerged as a central point of contention in the US-China technological and trade rivalry, particularly regarding supply controls.
In-Depth AI Insights
Why do markets perceive the US as holding the "shorter straw" in the US-China tariff fight? - Market reactions to the Trump administration's tariff policies suggest investors are more concerned about the negative impacts on the US economy—such as inflationary pressures, increased corporate costs, and dampened consumer demand—than on China's economy. - The dollar's failure to strengthen as a safe haven, coupled with its persistent depreciation, reflects wavering international investor confidence in US economic fundamentals and policy stability. This contradicts the traditional pattern of dollar strength during geopolitical tensions. - China, as a global manufacturing hub, may be perceived as better able to absorb tariff shocks by leveraging subsidies, seeking alternative markets, or utilizing its dominance in critical supply chains like rare earths, making the US strategy appear self-defeating. What are the long-term implications of sustained dollar weakness and surging gold prices for global asset allocation? - The dollar's status as a global reserve currency could erode, prompting central banks and investors to diversify into other major currencies or hard assets like gold. This would accelerate a de-dollarization trend within the global financial system. - Gold's robust performance signals growing concerns over rising inflation expectations, escalating geopolitical uncertainties, and sovereign debt risks. Investors are increasingly viewing gold as a core hedge against these systemic risks, indicating a higher-risk, more volatile macro environment. - Over the long term, this could benefit emerging market currencies and commodity-based economies, as a weaker dollar makes their exports more competitive and eases their dollar-denominated debt burdens. How might China's rare earth export control threat reshape global tech supply chain dynamics? - China's rare earth export control threat is a direct countermeasure to US tariff policies, designed to leverage its dominant position in critical mineral supply chains. This will compel the US and its allies to accelerate diversification and localization of rare earth supply chains, a process that is both time-consuming and costly. - In the short term, US high-tech industries reliant on Chinese rare earths (e.g., EVs, wind turbines, defense) will face increased costs and potential supply shortages, potentially leading to production slowdowns and innovation hurdles. - Over the long term, this will accelerate the "decoupling" and regionalization of global tech supply chains, fostering multiple independent, self-sustaining regional supply blocs, thereby increasing global trade friction and technological barriers.