Trump's tariffs are about to officially take effect, and the test for the global economy is just beginning

The radical measures taken by the Trump administration in the United States to reshape the global trade landscape are pushing the U.S. into a new phase of protectionism filled with uncertainty, posing severe challenges to the global economy. Whether this policy can revitalize American manufacturing as expected remains to be seen, but the potential risks of inflation and shocks to the financial markets are becoming increasingly evident.

According to media reports on Thursday, the comprehensive tariff policy in the U.S. began to take effect after midnight New York time on Thursday. Previously, the U.S. Customs and Border Protection had been given a week to make necessary adjustments. After months of chaotic threats and reversals, almost all of America's trade partners will face higher tariff barriers.

It is estimated that the new tariffs will raise the average tariff rate in the U.S. from last year's 2.3% to an astonishing 15.2%. According to CCTV News, on July 31 local time, the White House issued an executive order to reset the "reciprocal tariff" rate standards for certain countries: countries listed in Attachment 1 of the executive order will be subject to individual rates, while those not listed will uniformly apply a 10% rate; if any country or region circumvents tariffs through third-party transshipment, their goods will be subject to a 40% transshipment tax. The White House announcement stated that the new tariffs will take effect on August 7.

This move has raised alarms in the financial markets. Analysts from major Wall Street institutions have warned that investors should prepare for a market correction. Morgan Stanley, Deutsche Bank, and Evercore ISI all pointed out in reports on Monday that the S&P 500 index may face a short-term decline in the coming weeks or months.

Tariff Details Remain Unresolved, Global Supply Chains Under Continued Pressure

Since Trump first announced and then suspended tariffs in April this year, the global economy has been shrouded in turmoil, with countries engaging in months of tense negotiations with the U.S. This uncertainty has led to widespread anxiety among businesses regarding supply chain disruptions and rising costs.

Now, the broad framework of the new tariffs has been established, and most economies have accepted the reality that high tariffs will persist in the long term. Many countries have committed to investing hundreds of billions of dollars in the U.S. in exchange for lower tariff rates.

However, key details of Trump's plan remain unresolved, creating ongoing uncertainty for global supply chains.

For example, the tariff exemptions for automobiles from the European Union, Japan, and South Korea have yet to be legislatively confirmed, and until then, automobiles will still face higher costs. Countries like the European Union, Japan, and South Korea, which have reached agreements with Trump, continue to negotiate behind the scenes with U.S. officials for further reductions in key export sectors. Additionally, specific details regarding investment commitments and adjustments to market access policies have yet to be announced.

Meanwhile, some countries' last-ditch efforts to secure more favorable conditions have failed. The President of Switzerland left Washington on Wednesday without successfully reducing the 39% tariff they face. According to CCTV News, on Wednesday, Trump signed an executive order imposing an additional 25% tariff on goods from India in response to India's continued "direct or indirect imports of Russian oil." Currently, tariff negotiations with the United States' largest trading partners—Mexico and Canada—are still being conducted independently on a separate track. Trump has also vowed to soon announce tariff plans targeting key industries such as pharmaceuticals. CCTV reported that Trump has announced approximately 100% tariffs on chips and semiconductors.

Economic Alert: Tough Times Ahead

Trump insists that high tariffs will significantly reduce the trade deficit and force companies to relocate manufacturing back to the United States. However, critics argue that this move could lead to uncontrollable inflation and shortages of goods on store shelves.

Although the overall economic impact has yet to manifest, recent economic data has raised red flags. Reports indicate that July's employment data showed the most severe downward revision in U.S. job growth since the COVID-19 pandemic. At the same time, due to slowing consumer spending and businesses adapting to changes in trade policy, economic growth in the U.S. has already slowed in the first half of this year.

Currently, the unemployment rate remains low, and prices have not surged, partly because businesses have so far absorbed most of the increased costs. However, experts warn that this situation is unlikely to last. Wendy Cutler, Vice President of the Asia Society Policy Institute and former U.S. trade negotiator, stated: “There are signs that tougher times are ahead. Many companies built up inventories before the tariffs took effect.” She believes that since businesses are unlikely to sustain lower profit margins for long, “price increases are almost inevitable.”

Tariff Revenue Growth and Manufacturing Prosperity are Contradictory

Despite facing numerous challenges, Trump insists that his measures will usher in a new economic golden age and dismisses economic data that does not align with his narrative. He has also praised the growing tariff revenue, even suggesting that it could lead to tax refund checks for some Americans. Data from the U.S. Treasury Department shows that tariff revenue surged to a record $113 billion in the nine months ending in June.

However, it remains unclear whether another explicit goal of the plan—bringing production back to the U.S.—has made progress. Brad Jensen, a professor at Georgetown University's McDonough School of Business, pointed out the inherent contradictions between its policy goals. He stated that achieving both tariff revenue growth and manufacturing job prosperity is difficult.

“The two cannot be true at the same time,” he explained, “If domestic manufacturing rebounds, then we wouldn't have so much tariff revenue,” because imports would decrease. This fundamental contradiction raises a significant question mark over the long-term viability of Trump's trade agenda.

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