Tariffs and Global Trade: What Every Investor Should Know

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Tariffs may sound technical, but they impact everything from the cost of your smartphone to stock market swings. Let’s break it down simply.

What Are Tariffs?

Tariffs are taxes imposed by a government on imported goods. They serve three key purposes:

• 🛡️ Protect local industries by making foreign goods costlier

• 💰 Generate revenue for the government

• ⚖️ Balance trade deficits by discouraging imports

But they also raise consumer prices and spark trade tensions.

How Tariffs Affect Global Supply Chains and the Cost of Goods

Impact Area	Effect of Tariffs
Import Costs	Increase, making foreign goods less attractive
Trade Volumes	Decrease, as tariffs act as trade barriers
Global Supply Chains	Get disrupted, leading to costlier production
Export Competitiveness	Drops due to retaliatory tariffs from other countries
Trade Diversion	Firms shift sourcing to lower-tariff countries

Lets look at two such Historical contexts or the previous tariff wars that had an impact in the world.

1.    🇬🇧🇨🇳 The Opium Wars: When Trade Got Ugly Between Britain & China (1839–1860)

The Backstory:

Back in the 1700s–1800s, Britain was obsessed with Chinese tea, silk, and porcelain. The problem? China didn’t really want anything in return. So, the British had a sneaky idea — sell opium (grown in India) to China. It worked… too well. Addiction spread, and China had enough.

When Chinese authorities seized a massive stash of opium in Canton, Britain didn’t take it lightly. They sent in the navy — and that kicked off the First Opium War. 💥

The Outcome:

·       First War (1839–1842) ➝ China lost and had to sign the Treaty of Nanking, giving up Hong Kong and opening key ports to foreign trade.

·       Second War (1856–1860) ➝ More losses for China. More foreign control. And a big hit to national pride.

Why It Mattered:

This wasn’t just a fight over drugs — it was about control of trade. The wars forced China to open up to global commerce on very unfair terms. It marked the beginning of what China now calls the “Century of Humiliation.”

Foreigners got special rights, duty-free trade zones, and legal immunity in many Chinese cities — weakening China's grip over its own economy and territory.

Trade Lesson?

Trade can be a powerful tool — but when it’s used as a weapon, it can reshape entire nations. The Opium Wars are a reminder that economic power has always gone hand-in-hand with political dominance.

2.    🇺🇸🇨🇳 The U.S.–China Trade War (2018–2020): When Two Giants Went Head-to-Head

What Went Down:

In 2018, the U.S. dropped the hammer with new tariffs on Chinese goods — citing unfair trade, IP theft, and that massive trade imbalance. 🚫📦

China? Not one to back down. It fired back with its own tariffs on U.S. exports, especially agriculture. What followed was an economic tit-for-tat that escalated fast.

The $$$ Fallout:

• Over $360 billion worth of goods got caught in the crossfire.

• Global supply chains? Totally shaken.

• U.S. businesses ended up paying more for imports, and guess what — those higher costs hit consumers.

  
  

The IMF confirmed it: American importers (not China) took most of the blow. Not quite the “winning” outcome many expected.

Global Ripple Effect:

This wasn’t just about two countries — the whole world felt it. Markets got shaky, CEOs scrambled to rethink supply chains, and production started moving to Vietnam, India, Mexico, and beyond.

The big lesson? In today’s interconnected world, a tariff on one country hits a dozen others down the line. Trade wars in the 21st century = global headaches.

Takeaway for Investors:

The trade war made it clear: Geopolitics + trade policy = serious market movers. In today’s world, a trade war between two nations hits all.

A Glimpse of the current situation (Timeline) 

January 20, 2025	Donald Trump won elections for the U.S. Presidency.
February 1, 2025	Trump signs executive order to impose 10% tariffs on China, 25% on Mexico and Canada.
February 3, 2025	Trump announces 30-day pause on 25% tariffs on Mexico and Canada.
February 4, 2025	10% tariffs on all Chinese imports come into effect. China responds by imposing 15% tariffs on US coal and liquefied natural gas (LNG) and 10% tariffs on crude oil and agricultural machinery, large displacement cars and pickup trucks, taking effect February 10.
February 10, 2025	Trump announces 25% tariffs on steel and aluminium imports from all countries.
February 13, 2025	Trump announces an investigation being undertaken by his administration to levy "reciprocal" tariffs on other nations.
March 4, 2025	Trump levies additional 10% tariff on China, and 25% tariff on Mexican and Canadian imports with some exceptions. China counters with 10 to 15% tariffs on US agricultural products that take effect March 10.
March 12, 2025	25% steel and aluminium tariffs take effect for all countries. China will pay more than 25% due to already existing tariffs on steel and aluminium, which will make this 45%.
March 26, 2025	Trump announces 25% tariffs on automobiles taking effect April 3 and auto parts no later than May 3.
April 2, 2025	Trump announces a package of so-called "reciprocal" tariffs on dozens of nations, including China which was set to see tariffs increase to 34%. Trump also announces a 10% tariff for all imports to the US, with exceptions for Mexico and Canada. For countries due to see "reciprocal" tariffs imposed, the 10% universal rate will go into effect on April 5 and will be deducted from the reciprocal tariff rate set to go into effect April 9.
April 3, 2025	25% tariffs on cars come into effect.
April 5, 2025	10% universal tariffs go into effect putting China's tariff rate at 30%.
April 7, 2025	Trump counters China's retaliatory tariff, threatening a 50% tariff in addition to the full 34% reciprocal rate if China did not back off.
April 9, 2025	Trump hits China with an additional 84% levy across all imports, raising the total to 104%. China announces retaliatory tariffs of 84% on imports of US goods, further escalating the trade war between the world's two largest economies. Trump raises tariff to at least 145% on Chinese imports effective immediately. Trump announces 90-day pause on "reciprocal" tariffs for nations except for China. The 10% universal tariff, however, remains in effect.
April 11, 2025	China increases its retaliatory tariffs on US imports to 125%. sector-specific levies on semiconductors will arrive in “probably a month or two.” And other, non-"reciprocal” tariffs that tax some electronics, notably from China, remain.
April 14, 2025	Trump says he might temporarily exempt the auto industry from tariffs he previously imposed on the sector, to give carmakers time to adjust their supply chains. Separately, the Commerce Department says it’s withdrawing from a 2019 agreement that had suspended an antidumping investigation into fresh tomato imports from Mexico. That termination, set to take effect July 14, means most tomatoes from Mexico will be subject to a 20.91% tariff.
April 29, 2025	Rebates announced for US-assembled vehicles using foreign parts. Trump signs executive orders to relax some of his 25% tariffs on automobiles and auto parts — aimed at easing import taxes for vehicles that are made with foreign parts, but assembled in the US. For one year, the administration says it will provide a rebate of 3.75% relative to the sales prices of a domestically-assembled car — a figure reached by putting the previously-imposed 25% import tax on parts that make up 15% of that price. And for the second year, the rebate would equal 2.5% of the sales price, applying to a smaller share of the vehicle’s parts.
May 3, 2025	The latest round of Trump’s auto tariffs takes effect. The previously-announced 25% levies now apply to a range of imported auto parts.
May 4, 2025	Trump threatens a 100% tariff on foreign-made films, while claiming that the movie industry in the US is dying.
May 6, 2025	U.S. trade deficit hits record $140.5B; China–U.S. talks scheduled in Switzerland
May 7, 2025	Fed holds rate at 4.3% due to tariff uncertainty
May 8, 2025	U.S.–UK trade deal announced: Lower tariffs on cars, steel, and ethanol; EU warns of retaliation. Britain said the deal will cut tariffs on UK cars from 27.5% to 10%, with a quota of 100,000 UK vehicles that can be imported to the US at a 10% tariff. It also eliminate tariffs on steel and aluminum. Separately, the European Union published a list of US imports that it would target with retaliatory duties if no solution is found to end US President Donald Trump’s tariff war.

Rahee Shah