„This is now the second instance where markets are trading tariffs as backfiring on the US, not on the rest of the world.“
Financial markets suffered a rerun of their swoon in April, when “Liberation Day” tariffs shocked global investors, signaling that his latest China duties may end up hurting the U.S. more than their intended target.
On Friday, President Donald Trump said he will impose an additional 100% tariff on China and limit U.S. exports of software, after China restricted its exports of rare earths.
The S&P 500 sank 2.7%, its worst selloff since April 10. Meanwhile, the U.S. dollar index plunged nearly 0.7% as Treasury yields fell, while gold prices surged more than 1.5%.
“Markets are again thinking that the US holds the shorter straw in the tariff fight with China,” Robin Brooks, a senior fellow at the Brookings Institution, wrote on Substack on Saturday.
China has a stranglehold on rare earths, producing more than 90% of the world’s processed rare earths and rare earth magnets. That has served as a key source of leverage over the U.S.
The divergence between the dollar and gold is notable because stock market selloffs historically have sent investors to the dollar as a safe haven.
