the most aggressive trade policy the United States has ever seen was set in motion last week and it was called Liberation Day which we might as well rename liquidation day at this point on April 2nd President Trump unveiled that reciprocal tariffs would be set forth on more than 150 countries putting a minimum of 10% tariffs on all imports from any of these countries on this particular list in addition to higher tariffs for select countries like China at 34% Vietnam at 46% and countries like South Africa at 30% these reciprocal rates are to go into effect at 12:01 a.m on April 9th coming up and that's in addition to the baseline 10% tariff that went into effect for all these countries on April 5th most notably so far China retaliated with their own tariffs last Friday a 34% tariff on imports of all US products starting April 10th which happens to be Mandy Moore's birthday don't ask me how I know that this sparked a deep fear that the US is headed into a global trade war with other countries and basically sent the stock market plummeting now over the weekend while we did have some countries like India Vietnam and Taiwan zeroing out their tariffs with the total list of 50 countries calling to negotiate the stock market still hated the threat of a full-blown trade war the S&P 500 opened down 4% then traded up 2% and then back down to about -2% at the time of this recording this was mostly due to a rumor that there would be a 90-day pause on tariffs which turned out to be not true now the latest is that Trump is threatening new 50% tariffs on China if they do not remove their retaliatory tariffs from Friday and this is going to be really dangerous the S&P 500 saw drops of 5% on Thursday and close to 6% on Friday and it was the first time we saw backto-back days where the Dow dropped more than 1500 points so yes pretty crazy stuff here now from the peak of the S&P 500 back in February we are actually now officially in correction territory for the S&P and bare market territory for the Nasdaq a correction if you remember is a drop of at least 10% from all-time highs and a bare market is more than 20% the NASDAQ has dropped more than 20% since it peaked back in November around 22% and so therefore bare market now simply put the Chinese tariffs had a huge effect on the market because we import a lot from China $438 billion as of 2024 whereas we export $143 billion worth of goods to China this creates a deficit between the United States and China and with $438 billion or more worth of goods subject to higher taxes in the form of tariffs this is very spooky for markets and the threat of retaliatory tariffs from one of the countries we import them most from is causing a lot of panic in the stock market so what's going on here and why does it seem like the US wants a trade war with the entire globe there are multiple theories one is that the US wants to assert its dominance another is that Trump wants to emphasize this America first approach and the strongest theory at play right now is that Trump is intentionally doing this he wants to intentionally crash the market in order to lower interest rates as a byproduct of that which is a very high-risisk strategy that we'll talk about later but first let's actually break down the Liberation Day tariffs and the controversy surrounding last week's event the day of the tariff announcement many people were confused on how we landed on the tariff rates for all these 150 countries listen in on Trump as how he describes what he's going to charge China if you look at that China first row China 67% that's tariffs charged to the USA including currency manipulation and trade barriers so 67% I think you can for the most part see it 67% is what he said China charged us and it didn't take long for the internet to realize that not only was this inaccurate it was almost calculated in too much of a basic way it's actually not a measure of trade barriers it's more of a measure of the trade gap between China and the United States if we read this tweet from Guyer Capital he says that the tariffs charged to the USA is simply the nation's trade deficit with the US divided by the nation's export to the United States so take Vietnam which has a 90% tariff rate as listed on the Liberation Day list vietnam exports $136.6 6 billion to the US it imports $13.1 billion worth of goods from the US and that means the total deficit is $123.5 billion the deficit divided by exports is the 90% rate that is being reflected here from there the United States was like "All right let's just take half of that and then slap that tariff onto Vietnam." And that's basically how it was calculated so these tariff rates are definitely overblown for context many of the world's largest economies have an average trade weighted tariff rate below 5% china's tariff rate was closer to 3 or 5% according to visual capitalist you can also see that America's weighted average of tariffs is 2.2% here and that was the average that we were charging as a country before all of these policies started to go into effect the average tariff rate countries charge the United States was close to 7 or 7.5% so yes that means there was a tariff imbalance from most of the countries to the United States but now what's happened is that the US has gone way too far the other way and now all the US tariffs to other countries is a minimum of 10% all the way up to 34 40 45% for some of these countries and this naturally brings a ton of questions what do we hope to achieve by placing tariffs on these countries what does it mean for your wallet and what does it ultimately mean for the stock market earlier on in the video I mentioned three specific strategies so let's actually talk about those the first strategy or theory here is that the US wants to assert its geopolitical dominance according to Tanvi Ratna on Twitter who spent her career at the intersection of geopolitics economics and technology this is what she says she says that before tariffs Trump's team signaled a global order reset pulling back from NATO cooling EU ties and opening up diplomatic space with Russia and Saudi Arabia tariffs now serve as leverage to renegotiate terms based on America first policy and that we should expect a lot of bilateral deals in the coming months that's where countries will play ball with the United States and we hope to trade lower tariffs for strategic concessions on trade security and industrial policy this whole thread is a really good read on Twitter and I'll reference more of it shortly but I will also leave it linked down below for those of you that want to read the whole thing the next strategy or theory of why even have these tariffs is more from a protectionist angle famously we had a protectionist era of policy in the United States from 1861 to the early 1930s the primary goal of tariffs then was to shield American industries from foreign competition and to also raise revenues for the government during the civil war which started around this time this protection era lasted 72 years until you guessed it the great depression and that's where tariffs actually became a problem for the US economy because foreign countries retaliated with their own high tariffs causing global trade to collapse by nearly 2/3 this showed the United States at the time that extreme protectionism was counterproductive to growing the economy and so in 1934 the Reciprocal Trade Agreements Act was put into place that's a mouthful and it began the free trade era the US was now going to practice reciprocity as the main way of doing business this era was status quo from 1934 all the way to 2018 when Trump started implementing tariffs on China now for the most part we still operated under a free trade agreement and reciprocity until of course this year and another theory as to why we are pursuing this aggressive trade policy was detailed by Tonv rottna in the same thread from earlier and was actually one that Donald Trump himself appeared to agree with when he reposted a Tik Tok video supporting the same theory and that theory is that he wants to intentionally crash the stock market in order to lower bond yields the context here is that since the United States has a huge debt problem $9.2 trillion dollars in debt that needs to be paid off or refinanced in the year of 2025 that the aggressive tariff policy is how he's planning to combat that so here's how the plan works since $9.2 trillion needs to be refinanced in 2025 just a near50% interest rate drop would represent $50 billion in savings over the next 10 years and the method to do this is to literally manufacture uncertainty according to Tonvi and in other words Trump might be wanting to willingly crash the stock market in order to flood money into long-term treasuries if money floods into long-term treasuries this should push the prices of bonds upwards since there will be more demand for them now you have to know that the price of bonds and yields actually have an inverse relationship so as more demand for bonds goes up the bond prices go up and then yields will come down lower yields would allow the government to possibly refinance the $9.2 trillion in debt coming due we are already kind of seeing this reflected in the 10-year Treasury rate as of the weekend it was sitting around 4% down from 4.77% from the high in January this policy in addition to the Doge spending cuts could help reduce the deficit then the idea is that because tariffs make imports so expensive that this should give room for US producers to step in and be incentivized to produce competitive products here that is if the policy actually sticks around for a while there are also supposed benefits of geopolitical leverage with this move and the takeaway here is that if we can lower yields this actually eases our federal debt crisis the tariffs will jumpst start domestic growth and geopolitics will be rewritten in America's favor and this is quote disruption by design with enormous stakes big juicy ribeye stakes i'm just kidding that's not the type of steak we're talking about now Trump's latest post to True Social also are in line with this strategy he posted urging Jerome Powell to lower interest rates stating that this would be a perfect time to cut interest rates and that post was written on Friday the day when China put reciprocal tariffs in place now this strategy is well super risky if it doesn't work out the US will have to deal with more inflation across the board since tariffs will increase the prices of goods indefinitely retaliation among other major economic countries like China are a huge possibility it's already happened with China but it could also happen with other big countries this becomes a huge game of chicken and as of right now JP Morgan believes if the tariffs are sustained a recession is imminent not only for just the United States but the entire world if inflation actually increases due to the policies not working out or taking too long to work out the Federal Reserve might actually raise interest rates which would just make the debt problem worse so what is my take in all of this i think that this huge Liberation Day announcement is basically a huge bet and negotiation tactic trump's the kind of person that is not afraid to stick to what he says no matter how unreasonable it might be and he's using the leverage that the US has in the global economy in order to bully around other countries in order for them to comply now since he's so erratic other countries probably have to take him more seriously than if it was just your average politician imposing tariffs uh because with Trump they actually have to consider that it could be a real threat now after 2 years back toback where the stock market was up over 20% each year valuations and bond yields just got really high i was in the camp that this couldn't last forever if you check out my investing video from 2024 talking about my investing plan for 2025 I wanted to have a little bit more cash on hand for opportunities because I just thought the market was trading very frothy and at very high valuations i personally just didn't think that the gains would be erased this quickly these tariffs will likely make the prices of goods go up a lot of what we consume especially if those goods are from other countries if you're coming at this from an investment angle I think the name of the game for your portfolio is just simply to survive if you're investing for a long period of time say 10 20 30 40 years from now it's likely that you won't really have to worry about the short-term volatility that we are experiencing and perhaps this is an opportunity for you to buy more the volatility index or the VIX was up close to 45 last week and typically after it reaches that level we see the market on average being positive 75 to 83% of the time between 1 day and 2 weeks after that point so if you do have some extra cash laying around you may want to dollar cost average slowly as prices drop and then it's just about hoping that these policies don't last forever because if they do we could see further pain now my opinion on American factories actually starting to produce more things in the United States and avoiding international supply chains would be that these tariffs would actually have to stay in place for years companies like Ford can't just change where they make cars overnight and they might not want to hire a bunch of headcount if they know that these tariff policies are just going to change tomorrow in terms of what types of scenarios I'm going to be looking out for I think that if multiple countries enter a prolonged trade war I would put chances of a recession at more than 50% and definitely upwards of 75% but that's just my gut feeling in terms of what economic indicators to pay attention to in the coming months we should definitely monitor the 10-year bond yield we should see how Q1 GDP comes in at the end of April and we should probably also monitor what the Federal Reserve does if the Fed starts lowering interest rates or the economic data we get back is a step in the right direction we know that the policy might be working similarly if countries start coming to terms quickly with the US we know that these policies might be working as an example Vietnam had already called the United States last Friday and wanted to work with us to reduce tariffs to zero if the Fed cuts rates like Trump wants his plan might actually work but nobody knows how long he'll keep these tariffs going so right now it's just like a giant experiment using our economy as the lab wish I had better news for you guys i plan to keep you guys more updated as time passes so make sure to subscribe to this channel so that you can get more videos like this in the future but until then I will see you guys in the next video or a future video on my channel all right peace