Tariff Rift
Sean King

President Donald Trump’s announcement of sweeping import tariffs—what he dubbed “Liberation Day”—has caused the expected ruckus in global financial markets. And rightly so. This isn’t some light policy tweak. It’s a full-blown trade regime reset.

As of April 5, a universal 10% baseline tariff on all imports into the United States will go into effect. Days later, a raft of reciprocal tariffs—as high as 49% on Cambodia and 54% on China—will begin rolling out country by country.

Predictably, investors didn’t take the news well. As of the market open, the S&P 500 is down 3.25%, the Nasdaq is down 3.87%, and the Russell 2000 ETF (IWM) is down 4.20%. Headlines around the world screamed “global trade chaos.”

But behind the noise, something remarkable happened in the bond market: the 10-year U.S. Treasury yield dropped, signaling a flight to safety and expectations of looser monetary policy ahead. And if you’re like U.S. Treasury Secretary Scott Bessent, former Soros CIO and a prominent Trump economic backer, that’s precisely the point.

Let’s get to what’s happening beneath the headlines. The mainstream financial press is chasing the obvious—but wrong—narrative.

The Trade Imbalance That Was Always There

The Trump administration’s rationale for the new tariffs is “economic self-defense.” It argues that the U.S. has been a free lunch provider for global exporters while receiving little in return.

And, frankly, they’re not wrong.

Here’s a rough snapshot of the tariffs other countries charged on U.S. goods before the announcement:

• China: 15–20% average, with some goods much higher.
• European Union: 3–5%, but 10% on autos, up to 30% on some agricultural goods.
• India: 17% average, up to 100% on vehicles.
• Vietnam, Thailand, Bangladesh, Cambodia: 10–25%, often higher on finished goods.
• Japan and South Korea: Lower nominally, but with heavy non-tariff barriers.
• Taiwan: ~6%, but often high in key categories like steel.

In contrast, the U.S. charged low single-digit tariffs on most imports, and zero in some sectors.

These countries and trade blocs screaming “Retaliation!” have some gall, right?

Trump’s move—especially the “reciprocal” element—aggressively attempts to rebalance this situation. Instead of endless trade negotiations, he’s opting for brute force: slap a tariff on everything, then tailor higher rates to specific offenders.

To paraphrase Rick Blaine from Casablanca: It’s not subtle but might be effective.

Why Scott Bessent Loves It

The immediate consequence of these tariffs, outside of hurt feelings in Brussels and Beijing, is economic friction. Tariffs act like a tax. They raise prices, slow global trade, and typically spark inflation.

Yet Scott Bessent, Trump’s economic whisperer and one of the savviest macro investors around, is thrilled.

Why? Because higher tariffs = slower growth = lower interest rates.

As equities sold off, yields on the 10-year Treasury yield dropped from yesterday’s high of 4.236% to 4.066%, an over 4% drop. In fixed income, that’s a big single-day move,

That’s the endgame for Bessent, as lower rates grease the wheels for the real economy.

From the March 20th Rude:

Targeting the 10-year yield shows a preference for fixing the “real economy”—where people live, work, and borrow—over boosting asset prices that only benefit wealthier individuals with stock holdings.

It’s not all for the people, though. The U.S. government’s borrowing costs are the Treasury yields. So, lowering the 10-year yield will reduce the interest burden on the national debt, freeing up the budget for other things like infrastructure building or tax cuts.

Bessent wants to lower yields without relying on Fed cuts, which would stoke inflation. By focusing on the 10-year yield, he will directly control long-term rates, offering a more precise tool than broad monetary policy shifts that might juice the stock market and increase consumer prices.

Remember, former Treasury Secretary Janet Yellen left Bessent $7 trillion in U.S. Treasury debt that needs to be refinanced this year. He simply can’t issue long-term debt (which Yellen should’ve done when long-term rates were near zero instead of issuing short-term paper) at elevated interest rates. Yields must fall for him to do it.

The Market Sell-Off: Just Noise?

The overnight equity futures markets’ reaction was predictable… but may be overcooked.

Yes, tariffs increase uncertainty. They’ll hurt profit margins for multinationals that rely on cheap imports. And yes, sectors like semiconductors, autos, and retail will feel the pain.

But this isn’t 2008. Or even 2020. There’s no credit crisis, no pandemic, no systemic blow-up.

Instead, this is more like a global reset of supply chains and pricing power.

In the short term, input costs rise. But longer-term, domestic producers gain pricing leverage. U.S.-based manufacturers could see margins improve, especially in commodities and intermediate goods.

And recent history is on Trump’s side. The 2018–2019 trade war with China initially caused volatility, but U.S. markets ultimately pushed higher. The Nasdaq doubled between 2019 and 2021. Investors adapted.

Will we see similar performance this time? Maybe not. But we shouldn’t expect a protracted bear market from a simple tariff adjustment. The bottom may be in soon.

The Fed is Subordinate

One of the hidden implications of “Liberation Day” is how it corners the Federal Reserve.

With the 10-year yield falling and economic uncertainty rising, the pressure on the Fed to ease has increased substantially. Even though inflation is still sticky, the Fed faces a different risk: a deflationary shock via collapsing trade volumes.

That could prompt a rate cut in Q3, especially if labor market softness emerges.

And Trump knows it. By implementing tariffs now, he’s giving the Fed the excuse and the runway to start easing.

In effect, Trump simultaneously plays the trade, fiscal, and monetary policy boards.

What Comes Next

Make no mistake: this isn’t a one-off policy move. It’s the beginning of restructuring the U.S. economic model, away from global dependency and toward greater self-sufficiency.

That’s going to create winners and losers.

Winners: Domestic manufacturers, commodity producers, select financials (benefiting from lower long-term rates)

Losers: Multinationals with complex global supply chains, consumer-facing importers, foreign exporters reliant on the U.S. market

Volatility will remain high, the VIX will likely stay elevated, and earnings estimates need revising. Still, we may see an equity rally emerge from this.

If anything, it’s a reminder that trade policy matters again. And that’s because of fiscal dominance. That’s when a country’s debt load is so substantial that monetary policy must fall in line. In effect, the Fed is no longer independent; it’s at the mercy of the U.S. Treasury. Not in my lifetime, at least until now, has the Treasury mattered more than the Fed.

Wrap Up

Remember, America is 13% of the world’s GDP. If consumption is 70% of U.S. GDP, then U.S. consumers dictate just over 9% of the world’s economy. That explains much of the foreign whining.

President Trump’s tariff schedule feels like a market shock. But he’s trying to reposition global trade in America’s favor, stimulate domestic production, and engineer lower interest rates.

For Scott Bessent, it’s a dream scenario: kill the trade deficit, push yields down, and force the Fed to play ball.

The sell-off? It’s collateral damage.

The real story is beneath the surface—where long-term rates fall, capital returns home, and the Fed prepares its next cut.

The era of easy globalization is over, but opportunity may be just getting started.

 

My story starts in Hasbrouck Heights, New Jersey, where I grew up. My childhood was idyllic. I never thought I'd leave the Heights. Well, maybe just for college. When I was searching for colleges, I only looked within a hundred miles or so. I wound up going to Villanova. I stayed there for four years and earned — their word, not mine — a finance degree with a minor in political science. After that, I went to work on Wall Street. I had a menial job at Paine Webber to start, but then I got my first real Wall Street job at Lehman Bros. (before its collapse, of course). I worked there in Global Corporate Equity Derivatives as an accountant, believe it or not. Honestly, I hated the job back then. I didn't know how spreadsheets worked — yes, even with a finance degree. (Now I'm a Microsoft Excel nut. I think it’s one of the most extraordinary things ever invented.) After that, I moved to Credit Suisse, who sent me to London — the center of global operations for banking. I was young. Not only did I love the city for being a Candyland for alcoholics, but I also needed the international experience to cancel out my mediocre grade point average to get into a top 25 U.S. business school. Somehow, though, I stayed for a decade, until I discovered London Business School. There I earned a master’s (HA!) degree in finance. My next job was as a futures broker, which I utterly loathed. When I had enough, I took a year off — pub crawling around London and pissing away my bonus money. Then I figured out that I needed a new job. So I went to work for a company called 7city Learning, where all of the best finance trainers were working. I had no idea about any of that, but imagine walking into the 1927 Yankees locker room and being taught how to hit. I spent my time teaching all the traders exams, the graduate programs of the various big banks and then the CFA Level 1 review courses. Yes, that's the only level I've passed. I hate that exam. I never really wanted to run money anyway. In 2009, my boss asked me to move to Singapore to help build the business in Asia. Then I went to work for another financial training company where all of my friends had migrated. Around the time I was getting bored of Singapore, my old bank asked me to work at talent development for them in Hong Kong. Nearly three years later, I moved to the Philippines, where I started an EdTech startup called Finlingo. Along the way, I’ve racked up a ton of qualifications — I am a CAIA, FRM and CMT, amongst a few other things — but they don't mean anything. All that matters are my experience, my connections and my takes on things. So every day I'm going to do my snarky best to inform and entertain you.

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