Editor's note: Last week, U.S. President Trump announced a reciprocal tariff regime, imposing tariffs ranging from 10% to 49% on imported goods from different countries. A tariff of 34% has been set for imports from China. As the Trump administration's tariff regime is finalized, the cascading effects of tariffs on the economy, trade, and even safe-haven assets have become the focus.
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang.
Last week, U.S. President Trump announced a reciprocal tariff regime, imposing tariffs ranging from 10% to 49% on imported goods from different countries. A tariff of 34% has been set for imports from China. As the Trump administration's tariff regime is finalized, the cascading effects of tariffs on the economy, trade, and even safe-haven assets have become the focus. Today, we have invited Professor Chen Fengxiang, visiting professor at City University of Hong Kong, renowned economist Song Qinghui, and Guo Hanbing, postdoctoral researcher from the Chinese Academy of Social Sciences' Institute of Finance & Banking, to provide us with analysis and insights. Hello everyone!
【Anchor】Ms. Guo, what are your views on the specific impacts that the latest tariff regime will produce?
【Guo】The reciprocal tariff measures announced by Trump on April 2 far exceeded market expectations. Not only did they impose a new 34% tariff on China, in addition to the previously imposed 20%, leading to an effective tax rate of 54%, but more critically, this policy also applies the baseline 10% tariff to traditional U.S. allies such as the EU and Japan, directly heightening the risk of fragmentation in the global trading system. Data suggests that inflation in the U.S. is expected to rise by 0.2 to 0.4 percentage points, and cost increases in the automotive and electronics industries are unavoidable, which will simultaneously suppress corporate investment and consumer spending. Current market risk aversion sentiment has already shown a significant increase, with gold prices surpassing $3,160 per ounce, U.S. stock futures plummeting, and the U.S. dollar index weakening. This policy differs significantly from previous localized negotiations, showing characteristics of being comprehensive and high rate, creating structural shocks to the global supply chain.
【Anchor】Well, Professor Chan, regarding the recently announced tariff measures, are there any particular points worth noting?
【Chan】Noticing the latest list, we see that many ASEAN countries are included, and their tariff rates are even higher than those for China. It is essential to note two different aspects here. First, these countries had planned to improve their relations with the U.S. and are relatively smaller nations. Of course, China has seen a phenomenon in recent years where many lower-end processes have shifted to ASEAN countries, with goods entering the U.S. through ASEAN. Therefore, imposing high tariffs on these countries will significantly impact them but will also drive them to rely more on China, since their relationship with China is less affected in this regard. China is indeed a massive market, but the industries that might be impacted are those that originally processed goods in that region. From another perspective, it is crucial to understand that these countries can fill the gaps in China's past low-end industries and products, which are actually what the U.S. needs most. If the U.S. imposes high tariffs solely on China, increasing costs will ultimately lead to a reduction in China's exports to the U.S. However, if Southeast Asia is also subjected to similar tariffs, this will result in a significant increase in the prices of essential commodities in the U.S., which will be a major blow to the general public. It is important to note that the imported goods for sale include both luxury and essential items, and most of what ASEAN and China send to the U.S. consists of essential commodities.
【Anchor】Ok, Mr. Song, to safeguard its legitimate interests, China announced a series of measures on the 4th Beijing time to strongly counterattack with a "combined approach." This includes imposing a 34% tariff on all imported goods originating from the United States, implementing export controls on certain medium and heavy rare earth items, and filing a complaint against the U.S. "reciprocal tariffs" at the WTO.
Earlier, European Commission President Ursula von der Leyen stated that the EU has strong retaliatory measures ready to counter the U.S. tariff regime if necessary. Do you anticipate any countermeasures?
【Song】As von der Leyen mentioned, the EU is likely prepared with strong retaliatory measures and is expected to quickly unveil a list of retaliatory tariffs targeting U.S. exports. However, the EU may act within the framework of the WTO. Japan and South Korea, being closely linked to the U.S. in trade, will likely adopt a relatively cautious but firm opposing stance and seek to communicate with the U.S. Canada and Mexico, as partners in the USMCA, may also take relatively cautious approaches and might utilize relevant provisions in the agreement to safeguard their interests.
【Anchor】Ms. Guo, how do you assess the potential countermeasures or responses from relevant countries or regions?
【Guo】The EU has made it clear that it will take strong retaliatory measures. These measures may include, for example, litigations through the WTO, reciprocal tariffs, or industrial subsidies, as a response.
Specifically, the EU may impose tariffs on U.S. agricultural and energy products while promoting the procurement of European-made weapons to reduce overall dependency on the U.S. Other countries, like South Korea and Japan, may respond to the impacts with measures such as currency depreciation, for instance, by promoting a stronger yen or restructuring industrial layouts like the automotive industry to mitigate the impact. On this front, it is important to be vigilant about the risk of fragmentation in the global trading system, as the policies of various countries may diverge, and international multilateral rules could be weakened.
【Anchor】Goldman Sachs previously raised the probability of a U.S. economic recession occurring in the next 12 months to 35%, up from the previous expectation of 20%. Professor Chan, how do you assess the impact of the tariff regime on the U.S. economy?
【Chan】It should be noted that the U.S. has imposed tariffs on nearly 200 countries globally, so the impact is worldwide, leading to a clearer potential for a global recession. Furthermore, the U.S. itself is facing political and economic shocks as a result. By imposing tariffs, American consumers are bound to bear the brunt of higher prices for goods. Even regarding automotive parts, costs may further increase in the second phase, leading to a rise in overall costs for the U.S., and inflation will be hard to avoid. Under high inflation, the question arises: should interest rates be increased or not? If rates are raised, the burden of the already heavy U.S. debt will not decrease. Regardless of how you calculate it, we return to the basic point that after tariffs are imposed, American citizens will suffer, and chaos will ensue globally. The only potential benefit for the U.S. government might be increased revenue, but will this actually help reduce U.S. debt? This represents a classic chicken-and-egg dilemma; when the entire society is hurt and businesses cannot make money, what good do increased tariffs do? Key discontent among the populace will gradually emerge in such an environment. The question remains whether Trump's tariff imposition is merely a display of his personal privilege and strength, or if it reflects deeper sentiments within the U.S. Ultimately, one hopes for a shift in attitude, or a performative expression of a certain strong stance might lead to some kind of change in the end.
【Anchor】Mr. Song, what do you think? Do you believe the risk of a U.S. economic recession will further escalate?
【Song】If the Trump administration implements reciprocal tariff policies, I believe it will significantly increase the downside risks to the U.S. economy. Not only will it further drive-up inflation and hinder economic growth, but it will also damage corporate confidence and investment, potentially causing severe impacts on specific industries. Given that the U.S. economy has already been facing risks of recession, this tariff regime is likely to become the last straw that breaks the camel's back, pushing the U.S. economy into recession within the next year. This assessment aligns closely with Goldman Sachs's evaluation of recession risks for the U.S. economy.
【Anchor】Mr. Song, under the uncertainty brought about by the tariff regime, market risk aversion has led to gold prices hitting new highs recently. After the implementation of the tariff regime, will market risk aversion ease or further escalate, and how will this affect gold prices moving forward?
【Song】After the implementation of the tariff regime, the uncertainty faced by the market is likely to increase rather than decrease, which will further intensify market risk aversion. As a result, gold, as a safe-haven asset, is expected to continue being supported in price and may even rise further. Of course, the movements of gold prices are driven by multiple factors. Investors need to closely monitor not only the tariff regime but also other economic and geopolitical changes. The recent surge in gold prices is indeed related to a decline in investor confidence in traditional safe-haven assets like the U.S. dollar and U.S. Treasury bonds. In the context of increased global uncertainty, seeking a diversified hedging strategy is a rational approach for investors. Gold, as an important alternative safe-haven asset, has become significantly more attractive.
【Anchor】Ms. Guo, how do you view the future changes in market sentiment and fluctuations in gold prices?
【Guo】Three key tailwinds underpin gold prices. First, there is an increasing expectation of a U.S. economic recession, with U.S. Treasury yields declining, which highlights gold's advantage as an inflation hedge. Second, the risk of stagflation is intensifying; if U.S. economic growth slows while inflation remains high, gold's value preservation function will undoubtedly strengthen. Third, the creditworthiness of the dollar is being undermined, leading to a surge in global central bank demand for gold. The amount of gold purchased in the first quarter of 2025 has already reached a historic high. In the short term, the uncertainty surrounding tariffs could continue to push up gold prices, but we need to be wary of technical corrections triggered by signals of policy easing. In the long term, gold's hedging properties remain superior to those of the dollar and U.S. Treasury bonds.
【Anchor】Mr. Song, the surge in gold prices—does it relate to the declining hedging properties of the dollar and U.S. Treasury bonds, which are also considered safe-haven assets? How should we view the hedging properties of the dollar and U.S. Treasury bonds currently and in the future?
【Song】While the dollar and U.S. Treasury bonds are still important safe-haven assets at the moment, their hedging properties may face challenges from various factors in the future. I believe that the fundamental global status of the dollar is unlikely to change fundamentally in the short term, but in the long term, it may face a relative decline. Of course, this is likely to be a slow and gradual process influenced by multiple factors. Therefore, investors need to closely monitor changes in global economic, political, and financial realities and adopt flexible strategies to address potential risks.
【Anchor】Ms. Guo, the World Gold Council has noted that central banks increasing their gold holdings directly reduces the circulating supply in the market, creating price support. Does this further weaken the hedging properties of the dollar as a safe-haven asset?
【Guo】The fundamental change in the dollar's status depends on three key variables. First, whether the U.S. can control debt and inflation while maintaining economic growth resilience. Second, whether currencies like the euro and yen can provide stable alternatives. Third, the progress of digital currencies and regional currency cooperation. In the short term, the dollar remains the primary global safe-haven asset, but in the long term, a trend toward multipolarity may emerge. My advice to investors is that they should prioritize portfolio diversification. First, increase gold holdings to hedge against tail risks, while moderately allocating to eurozone and emerging market assets, such as Chinese bonds and Southeast Asian debt markets. Additionally, it is important to watch for trading opportunities amid fluctuations in U.S. Treasury yields. We need to be cautious of the potential market turmoil caused by the disorderly depreciation of the dollar and the insufficient policy coordination among countries, which could lead to risks of competitive devaluation.
【Anchor】Mr. Song, do you believe that cryptocurrencies have begun to exhibit hedging value, and can Bitcoin stabilize its position as "digital gold"?
【Song】I believe that the hedging efficiency of digital currencies, in the current environment, cannot yet compare to that of traditional precious metals. As we know, while Bitcoin does not rely on any central institution or government for issuance and management, theoretically avoiding direct influence from the policies and political risks of a single country, I've observed recent data showing that under certain market conditions, the price movements of digital currencies (including Bitcoin) have become more correlated with risk assets like stocks. This undoubtedly weakens their characteristics as independent hedging assets. When traditional markets decline, Bitcoin may also fall, failing to serve its effective hedging purpose. In short, I believe digital currencies resemble high-risk, high-reward speculative assets rather than a very stable hedging tool. Overall, gold has a long history as a hedging asset, with thousands of years of proven performance, demonstrating protective and hedging functions during numerous economic crises and geopolitical turmoil. In contrast, Bitcoin and digital currencies have a relatively short history, and their performance under extreme market conditions still needs further verification.
【Anchor】Under the current circumstances, Mr. Song, has gold become a necessity in the investment portfolio for ordinary investors?
【Song】Against the backdrop of the backlash against globalization, the importance of gold in investment portfolios has significantly increased, approaching a role that could be seen as increasingly essential, though not absolutely necessary. Gold itself does not generate interest or dividends, and I believe the cost of holding gold is based on the potential missed returns from other assets. For younger investors with a higher risk tolerance seeking high returns, there may be no need to allocate too much to gold. In addition to gold, other assets may possess some hedging attributes as well.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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