The Return of Trade Wars
Trade wars are back. Following Donald Trump’s renewed stance as U.S. president in 2025, his administration is escalating tariff measures that once defined his first term. This new round is broader, more aggressive, and framed not only as economic strategy but as national security policy. The consequences could ripple across global markets, shaking the very foundations of post-WWII free trade architecture.
While protectionism isn’t new, the scale and rhetoric this time are amplified. In this article, Hatchworks examines what’s changed, who the new targets are, and what the lasting macroeconomic effects could be for investors and global supply chains alike.
Trump’s 2025 tariff agenda
The return of Donald Trump to the presidency in 2025 came with a familiar — and more forceful — playbook on trade. On April 2nd, during a speech he dubbed “Liberation Day,” Trump announced an aggressive expansion of U.S. tariffs that has caught allies and adversaries off guard. Unlike the first wave in 2018–2019 that primarily targeted China, this time the scope is far wider, both in country coverage and sectoral impact.
In addition to a flat 10% universal tariff on all imports to the U.S., Trump rolled out an extensive list of country-specific “reciprocal” tariffs on 57 nations. These targeted duties are calibrated based on what the administration sees as unfair trade practices or persistent imbalances, and they vary dramatically — from 20% on European Union (EU) exports, to a staggering 46% on goods from Vietnam.
China, already strained by years of trade friction with the U.S., saw an additional 34% tariff applied to its exports, pushing the effective rate above 50% when including existing duties. Japan, India, Thailand, South Korea, and other critical players in U.S. supply chains have also been hit with steep tariffs, prompting swift reactions from their governments and corporate sectors.
Among the most striking developments is the announcement of a 104% tariff on Chinese imports. This move signals not only a direct challenge to China’s growing dominance, but also a willingness to escalate protectionism well beyond previous thresholds. The unprecedented figure raised concerns across global markets and drew sharp rebuke from Beijing, which called it an act of economic aggression.
These measures have raised alarm across the globe, with trading partners scrambling to respond diplomatically and economically. They also signal a broader decoupling movement in U.S. foreign economic policy — one that prioritizes reshoring, domestic manufacturing, and insulation from perceived geopolitical vulnerabilities.
The backlash begins
The international response to Trump’s tariff escalation has been swift — and predictable. Major U.S. trade partners have not only condemned the measures, but many have also begun exploring or enacting countermeasures. China, already at the forefront of America’s trade crosshairs, retaliated with its own steep tariffs on U.S. agricultural and industrial goods. These mirror-image policies bring echoes of the 2018 trade conflict but are unfolding in an even more fragile post-pandemic global economy.
European officials have expressed outrage over the 20% tariffs slapped on EU exports, warning of potential legal action at the World Trade Organization and considering their own retaliatory tariffs on key American goods. There’s talk in Brussels of targeting symbolic U.S. industries such as bourbon, motorcycles, and tech components — tactics designed to hurt economically while drawing political attention.
Even close U.S. allies like Mexico, Japan, and Canada are reassessing their trade relationships. These countries had previously benefited from stable supply chains into the U.S. market, but now face uncertainty. Officials from Mexico, whose economy is tightly interwoven with American manufacturing through the USMCA, have called for urgent diplomatic talks to avoid further disruption.
What makes this episode unique is the sheer breadth of affected countries. With over 57 nations facing tariff increases, the scope of retaliation could reshape bilateral trade flows on a scale not seen in decades. This kind of domino-effect policy raises the risk that tit-for-tat escalations evolve into a larger-scale breakdown of the global trade framework.
Currency devaluation
One defensive tactic countries might employ in response to tariffs is currency devaluation. The logic is simple: if your exports are facing high tariffs, a weaker currency makes those exports cheaper in dollar terms, partially offsetting the cost burden. But this strategy, while tempting, carries considerable risk — particularly in today’s interdependent financial system.
Take China, for example. In theory, Beijing could let the yuan depreciate to make its exports more competitive. But doing so could trigger capital outflows, destabilize Chinese markets, and increase the cost of importing commodities, many of which are priced in U.S. dollars. For an economy already navigating a fragile property sector and subdued consumer confidence, these side effects are dangerous.
Currency devaluation also has broader international repercussions. It can spark currency wars, force central banks to intervene, and stoke inflation — especially in emerging markets. For countries with substantial dollar-denominated debt, a weaker currency makes repayment more expensive, straining fiscal balances.
In short, while devaluation may offer short-term relief, it introduces long-term instability. Most economies today depend on investor confidence, capital access, and monetary predictability. Undermining these pillars to gain a fleeting trade edge could be more damaging than the tariffs themselves.
The supply chain shock
Just as global supply chains were beginning to recalibrate post-COVID — and after years of geopolitical tension — a new wave of tariffs threatens to reignite widespread disruption. For businesses already grappling with AI adoption, supply chain disruption, and labor shortages as stated in our last article, the added uncertainty of punitive tariffs compounds an already complex operating environment.
In the U.S., manufacturers that rely heavily on foreign inputs now face rising costs. These costs are unlikely to be absorbed entirely by companies; rather, they will be passed on to consumers. As a result, higher prices for everything from smartphones and washing machines to cars and medical equipment.
Retailers that depend on finished goods from Asia and Europe are similarly affected. With tariffs applied to a broad set of countries, the cost of sourcing goods has risen sharply. Companies are now reconsidering supply chain configurations, searching for “friendlier” partners or onshoring production — moves that require time, capital, and long-term strategy.
Emerging markets that have long depended on exporting to the U.S. face new hurdles. Countries like Vietnam and Thailand, which had benefited from the initial U.S.-China trade war by absorbing some of China’s displaced manufacturing demand, now find themselves targeted directly. Their exports are suddenly less competitive, raising questions about growth, employment, and foreign investment.
Winners and losers
As with any sweeping policy shift, there are clear beneficiaries and casualties. Trump’s aggressive tariff approach is designed to favor certain U.S. industries — but its side effects will be felt across a broader economic landscape.
Domestically, sectors like steel, aluminum, chemicals, and infrastructure stand to benefit. With imported alternatives now more expensive, these U.S.-based producers enjoy greater pricing power and renewed competitive advantage. The administration has made no secret that it hopes to boost employment and investment in these traditional industries as part of a broader reindustrialization strategy.
Firms involved in AI hardware, defense tech, and certain categories of renewable energy may also benefit, provided they operate largely within U.S. borders or source from exempt countries. These companies are seen as strategically important and could even receive additional incentives under future federal programs.
However, the list of those at risk is considerably longer. Exporters of goods ranging from soybeans to semiconductors face increased barriers in foreign markets. Consumer-facing companies that rely on low-cost imports must choose between absorbing higher input costs or passing them onto customers. Sectors like agriculture, retail, and automotive are already warning of compressed margins and slower growth.
For global investors, the map is shifting quickly. Geographic exposure matters more than ever, and country-specific risks are rising. The ripple effects may reach credit markets, equity valuations, and cross-border capital flows.
Market whiplash
Markets have been on a rollercoaster ride as U.S. trade policy continues to evolve rapidly. After initially reacting with sharp declines to the 104% tariff on Chinese imports, sentiment took a dramatic turn when President Trump announced on April 9 a 90-day pause on tariffs for most countries — excluding China. While the general import tariff was temporarily held at 10% for U.S. allies and partners, the duty on Chinese goods was raised even further to a staggering 125%.
The move triggered a massive relief rally. The S&P 500 jumped 7.8% in a single session, clawing back a portion of its earlier losses and lifting hopes that the broader trade confrontation may be less severe than feared. However, the selective escalation against China sent a clear message: the U.S. administration views Beijing as the central economic adversary.
Despite the stock market rebound, the bond market told a more cautious story. Long-term U.S. Treasury yields continued to rise, defying expectations of a flight to safety. This suggests that investors are still bracing for inflationary pressures, supply chain instability, or even stagflation, given the uneven application of tariffs.
Volatility remains elevated. The VIX, Wall Street’s fear index, stayed above historical averages even after the stock rebound, signaling lingering investor uncertainty. In short, while the immediate crisis may have eased, markets are still pricing in a high level of geopolitical and policy risk.
Trump’s partial reversal may reflect a tactical recalibration rather than a retreat. For investors, this moment underscores that policy-driven volatility is not only back — it may be the new normal.
Treasury Secretary Scott Bessent has sought to ease concerns, arguing in recent interviews that China lacks the economic firepower to sustain meaningful retaliation. He’s positioned the U.S. as holding the stronger hand, pointing to China’s deflationary pressures and export dependency. “They’re playing with a pair of twos,” he said in a recent interview.
Yet markets remain unconvinced. The worry is not only about tariffs themselves, but about what they represent: the erosion of predictability in global policy. Tariffs disrupt the assumption that governments will act in favor of stability, that trade relationships will hold, and that supply chains will remain intact. In short, the most damaging import right now may not be Chinese goods — but uncertainty.
Bessent has floated a long-term vision where the U.S. manufactures more and consumes less while China rebalances toward domestic consumption. While this may sound theoretically sound, the immediate pathway to that equilibrium appears lined with economic pain.
Hatchworks view
At Hatchworks, we believe the recent escalation in tariff policy reflects more than a shift in trade dynamics — it marks a broader reordering of global market assumptions. Investors are no longer pricing just earnings and inflation — they’re adjusting to geopolitical shocks and policy-driven volatility. In this environment, clarity is rare and resilience is key. We see a market recalibrating not just around economics, but uncertainty itself.
Source: https://www.foxbusiness.com/media/scott-bessent-blasts-chinas-retaliatory-tariff-play-losing-move
Disclosure: Hatchworks is an investor in a range of equities, gold, bonds, bitcoin and other assets on a proprietary basis. The information provided in this document is not investment advice nor is it a solicitation to invest in any asset. For webinar, social media appearances you may send an email to info@hatchworksvc.com.
