What’s going on here?

The US announced sweeping tariffs on imports from over 60 countries based on a methodology that… had analysts pulling out their calculators.

What does this mean?

This latest round of tariffs is two-fold: a baseline 10% levy on all imports from more than 60 countries, along with “reciprocal” taxes as high as 34% for China, 46% for Vietnam, and 49% for Cambodia. Now, the math here was always going to be complicated. The US president not only pledged to match levies imposed on America but also said he’d counteract non-tariff trade barriers – and that impact is tough to summarize in precise figures. So it seems the White House has simply divided each trade deficit by the value of that country’s exports to the US. Method aside, the end result is the biggest US tariff increase in decades. Unsurprisingly, investors quickly dipped out of major indexes.

Why should I care?

For markets: The president played favorites.

The president sees these tariffs as supporting domestic manufacturers. By making imported wares more expensive, he figures, American buyers should be more likely to shop local. That, in turn, would bolster revenue for US firms and create more jobs. So you can see why the president shielded international steel, copper, and aluminum suppliers from the worst of the fees: stateside manufacturers rely on the stuff.

Zooming out: You can run, but you can’t hide.

Nike, Adidas, Lululemon, and Gap moved production from China to Vietnam to dodge targeted taxes. But with Vietnam now pulled into the kerfuffle, these firms – and others like them – face dwindling alternatives and rising costs, which’ll likely be folded into prices for shoppers to cover. Then, cash-strapped customers might decide those new sneakers aren’t worth it. And that could give smaller American companies a chance to steal market share. US firms that are free of international supply chains and have plenty of local customers could skirt most of the taxes, keeping prices relatively stable.

What’s going on here?

China is now expected to be bitten harder by this year’s US tariffs than in 2018, when its constricted economy grew at the slowest rate since 1990.

What does this mean?

Just last week, global banks forecast that China’s economy would end this year within touching distance of the government’s 5% growth target. Today, those projections sit crumpled in the wastepaper basket. America’s new reciprocal tariffs push China’s total rate to 54% – enough to slow its economy by 2.4 percentage points this year, says Citigroup. In other words, those levies could slice the country’s economic growth in half. Economists think the impact will show from next quarter, so the Chinese government had better act fast.

Why should I care?

For markets: Conflict of interest.

To support the economy, the government could greenlight interest rate cuts and sell more bonds to fund major projects. China’s biggest banks might push back on that first one, though. They’re strained, with net interest margins – what banks earn from loans versus what they pay to savers – at record lows. (That’s likely why the government recently handed big banks $72 billion, desperate to help them through this less profitable period.) If interest rates come down further, those margins will be squeezed even more. And if banks don’t have an incentive to hand out loans, pinched Chinese consumers might not spend enough to keep the economy moving.

The bigger picture: Hit ‘em where it hurts.

China’s penchant for making investments in other countries – especially the US – gives it leverage in political and economic negotiations. And the country’s trying to play that ace now, restricting its companies from investing in the US. While tariffs target exports, this retaliation is hitting a different nerve: capital. By halting new US-bound investments, China’s pulling one of the few levers it has left in this economic standoff.