Sinolink: Significant Rise in Risk of "Stagflation" in the United States, Global Equity Markets Adjusting in Resonance

Sinolink released a research report stating that, based on the experience of Reference Tariff 1.0, this round of Trump 2.0 tariff policy will likely accelerate the "hard landing" or even "stagflation" in the United States. Looking at the latest implementation of "counter tariffs," the risks of U.S. inflation rising and growth declining may be far greater than during the previous trade friction period, with the risk of "stagflation" significantly heating up. This is mainly based on the broader scope of additional tariffs and larger tariff rates already confirmed, which may significantly raise U.S. import tariff rates; possibly leading to "retaliatory" tariffs from trading partners, with larger negative implications for the U.S. economy; the Federal Reserve's interest rate cuts being constrained by the level of inflation; under high tariff barriers, global trade activities contracting, economic prosperity declining, will also drag down U.S. growth momentum. Sinolink's main points are as follows: Event On April 2nd local time, U.S. President Trump signed two executive orders at the White House concerning so-called "counter tariffs," imposing a 10% "baseline tariff" on all countries, which will take effect at 12:01 am Eastern Time on April 5th; imposing personalized higher "counter tariffs" on countries with the largest U.S. trade deficits, which will take effect at 12:01 am Eastern Time on April 9th. At the same time, some goods will not be subject to "counter tariffs," including steel, aluminum products, automobiles and automobile parts that are already subject to section 232 tariffs, copper, pharmaceuticals, semiconductors, wood products expected to be subject to section 232 tariffs soon, as well as gold, silver, and energy products not available in the U.S. Additionally, Canada and Mexico will temporarily be exempt from the impact of "counter tariffs," and goods that comply with the U.S.-Mexico-Canada Agreement (USMCA) will continue to receive tariff exemptions. The intensity of "counter tariffs" significantly exceeded market expectations, with the U.S. "stagflation" risk significantly heating up, and global equity markets in resonance adjustment. The levying of "counter tariffs" this time far exceeded market expectations. In addition to the 10% "baseline tariff," the U.S. also considered each country's tariffs and non-tariff barriers to the U.S. to determine what they believed was a comprehensive "tariff" level, and then imposed retaliatory tariffs on countries with large U.S. trade deficits based on this "halved" calculation. For example, China 34% (based on a halved 67%, where the 67% in brackets represents the U.S.'s perceived "comprehensive tariff level" charged by China on the U.S.), EU 20% (39%), Vietnam 46% (90%), Japan 24% (46%), etc. The 10% is a "bottomline tax rate," meaning that countries with a calculated "comprehensive tariff level" below 20% only need to levy a 10% "counter tariff." Furthermore, it is worth noting that the "counter tariffs" are additional to the existing tariffs; for example, Chinese tariffs of 34% have been further added on top of two consecutive 10% tariffs earlier this year, meaning that the additional tariffs imposed by Trump on China since taking office have reached 54%. In summary, according to Bloomberg Economics, a series of new "reciprocal tariffs" may raise the average U.S. import tariff rate by about 17% to 22%. Some Asian economies and the EU, which have large trade surpluses with the U.S., face significantly higher levies under the "counter tariffs," reflecting Trump's three major goals of increasing fiscal revenue, reducing trade deficits, and promoting the reshoring of manufacturing. The unexpectedly high implementation of "counter tariffs" may be a "starting point" for a new round of trade negotiations. On one hand, the U.S. has shown a relatively mild attitude towards Canada and Mexico in this policy, indicating to a certain extent that countries willing to negotiate may be able to avoid the maximum "counter tariffs." On the other hand, CNBC reported earlier that U.S. Treasury Secretary Mnuchin told lawmakers that Wednesday's tariffs were a "ceiling" and that countries could take measures to reduce tariffs. Asset Implications U.S. stocks are expected to enter a comprehensive and trending downward channel; global trade will be impacted by the imposition of tariffs, combined with the exacerbating effect of the U.S. economic recession on global prosperity, with a potential "rise in the east and fall in the west" not likely until the earliest third quarter or possibly even fourth quarter. In the domestic market, the previously recommended three types of assets gold stocks + innovative drugs + growth-oriented dividends are suggested to be increased in allocation at present. Risk Warning The confirmation of a "hard landing" in the U.S. economy may exceed market expectations.