Continuing Tariff Effects

Today China increased its tariff to goods from the US to 125%. This is in response the tariffs Trump introduced yesterday on Chinese goods.

Stock markets have tanked, bond markets are dropping and surprisingly the US dollar is dropping. All 3 are going to start having a serious impact on the US economy in a very short time.

With the tariffs at this rate, virtually all trade between these 2 superpowers will come to a halt. I can only imagine the enormous impact it is already having on many companies in both those countries.

How long can this carry on? The US buys so many of its products from China and so many US companies manufacture their products in China. What will happen?

If the US dollar continues dropping, will people buy its debt? How will the US continue servicing the interest on its debt? The rate at which the US dollar is dropping is going to erode its status as a reserve currency for the world and its safe haven status. Both these will have devastating effect on the US economy in the long run. The interest the US will have to pay to borrow is going to shoot up to levels which will wreck havoc on its economy.

In Singapore, many companies have factories set up in China to manufacture their goods. If they don’t export to the US that’s fine. But if they do, then they will have serious difficulties.

Banks which have lent to these companies will have to consider their financial viability. Also if banks have lent to finance setting up plants in China, Vietnam, Cambodia or Loas, then they must be worried about the financial ability of these companies to repay with the tariffs so high.

Pain has to be felt within the US before Trump will reverse course. When will that happen?