Trump takes the ultimate risk with the global economy

The big picture: With a single stroke of his pen, Trump seeks to re-order the global economy in a way that he believes will create a golden age for U.S. industry.

• A senior White House official called President Trump's announcement of new tariffs yesterday the "most ambitious economic realignment the American people have ever seen." It's hard to disagree.
• In less than 100 days, Trump has made an historic attempt to choke off the flow of foreign goods — or at least make it much pricier for Americans to consume them.
• But there's a reason all those people have recommended a more restrained approach. Prices on imported goods are likely to surge, a recession is possible, and far-reaching ripples in international economics and diplomacy are a certainty.
• Trump, in disregarding those recommendations, touched the hot stove, knowing he risks getting burned.

State of play: It's hard to overstate the scale of the change to U.S. trade policy that has occurred in these still-early days of Trump's term — which dwarfs what occurred over the four years of his previous time in the White House.

• A regime of mostly open markets that was built over eight decades by leaders of both parties has been ripped apart in a relative instant, without so much as a congressional vote. Yesterday's executive action was undertaken using an emergency national security authority.
• When Trump took office in 2017, the weighted average tariff on goods the U.S. imported was around 1.5%, which he roughly doubled to around 3% by the time he left office in 2021.
• After the reciprocal tariffs are implemented on April 9, and counting other measures Trump has already announced, that will jump massively. Early estimates include numbers as high as 21% (via Fitch), or 29% (from Evercore ISI). Those are all the highest in more than a century.

That would translate into a 2.3 percentage point increase to overall inflation this year, per new estimates from the Yale Budget Lab, or about a $3,800 impact for the average household.

Zoom in: The president's 10% global baseline — applying to countries worldwide — is lower than the 20% some in financial markets had anticipated.

• But make no mistake: This is the maximalist scenario economists had feared, with eye-popping taxes on around 60 nations that Trump sees as the worst offenders.

By the numbers: Chinese imports will be subject to 54% tariffs starting next week, a figure that stacks the 34% reciprocal rate with the previous 20% already in effect.

• Including tariffs imposed during Trump 1.0, the average U.S. tax on Chinese imports will be 76%, according to Chad Bown, a senior trade fellow at PIIE.

• Any manufacturers who shifted production to Vietnam to avoid China tariffs are out of luck; that country will now face a 46% tariff.
• Imports from Japan, South Korea and India now face tariffs of upwards of 25%.
• European imports will face 20% tariffs, while vehicles manufactured there are subject to 25% tariffs as of this morning, under a policy announced last week.

Of note: The rates are so high, and the potential damage so great, that some economists don't believe Trump will follow through.

• The reciprocal tariffs don't take effect until April 9, which leaves "the door open to back-tracking and further delay," Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, writes.
• "The speed with which tariffs can be removed also bolsters the case for thinking that a slowdown, rather than a recession, lies ahead," Tombs adds.

The intrigue: Trump officials see this as the best way to settle scores with global leaders, who they feel have gone to great lengths to shut out U.S. goods.

• "In many cases, the non-monetary barriers were worse than the monetary ones," Trump said before listing a slew of accusations like currency manipulation and intellectual property theft.

What to watch: Trump and senior officials suggested a tough path for countries to escape tariffs.

• "This is not a negotiation," a senior administration official told reporters. "This is a national emergency."
• "Any country that thinks that they can simply make an announcement promising to lower some tariffs is ignoring the big central problem of their massive non-tariff barriers," the official said.

The bottom line: For decades, American consumers have benefited from a constant flow of cheap goods manufactured from around the world.

• Be ready to find U.S.-made substitutes, or prepare to pay more.