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Illustration: Aïda Amer/Axios

President Trump raised tariffs on $200 billion worth of Chinese goods Friday morning to 25%. The president also is expected to tax nearly all of China's imports as punishment for Beijing’s attempt to "renegotiate" a trade deal.

Why it matters: Having long priced in a happy ending to the trade war, the market will need to reassess U.S. businesses and the state of the U.S. economy. Further, supply chains may need to be rethought and entire businesses may have to be re-evaluated.

  • UBS Global Wealth Management's CIO Mark Haefele announced the bank would reduce risk exposure, noting further escalation could lead to a 10–15% decline in U.S. equities and 15–20% fall in the Chinese market.
  • "Trade-exposed sectors could suffer the most, including technology, industrials, and energy," he said in a note.

Details: Lingling Wei and Bob Davis of the Wall Street Journal report that Beijing was emboldened by the perception that the U.S. was ready to compromise because of Trump's lobbying for rate cuts by the Federal Reserve, a sign the U.S. economy is weak and in need of stimulus.

What's next? The global economy is so complex and interdependent that the second-, third-, and fourth-order effects are effectively unforeseeable.

  • The first-order effects of Trump's tariff hikes will be felt by any U.S. companies importing goods from China, since they’re going to have to pay the tariffs.
  • Second-order effects would include things like U.S. companies passing increased costs on to U.S. consumers, as well as retaliatory tariffs from China on U.S. goods.
  • Third-order effects might include U.S. companies relocating operations to Vietnam and other Asian countries if they think these tariffs are going to be here to stay. But at this point we’re in the realm of speculation. 

The big picture: On the U.S. side, the big question will be whether Trump is serious about taxing all incoming goods from China or whether he will continue to give carve-outs for products like the iPhone, as he did when he first began announcing tariffs last year.

On the Chinese side, authorities will likely target U.S. industries with political importance. Ahead of the 2018 midterms it was Harley-Davidson motorcycles, whiskey, cranberries, soybeans and pork, which hit — among other places — the home states of Senate Majority Leader Mitch McConnell and then-House Speaker Paul Ryan.

  • Expect tariffs this round to be just as targeted, and for the Chinese government to start taking aim at U.S. businesses that operate in China with home bases in important swing states.

Go deeper: Trump is wrong on how China tariffs work

Go deeper

2 hours ago - World

Scoop: Iran preparing to enrich weapons-grade uranium, Israel warns U.S.

Iranian President Ebrahim Raisi holds a press conference. Photo: Presidency of Iran handout via Getty

Israel has shared intelligence over the past two weeks with the U.S. and several European allies suggesting that Iran is taking technical steps to prepare to enrich uranium to 90% purity — the level needed to produce a nuclear weapon, two U.S. sources briefed on the issue tell me.

Why it matters: Enriching to 90% would bring Iran closer than ever to the nuclear threshold. The Israeli warnings come as nuclear talks resume in Vienna, with Iran returning to the negotiating table on Monday after a five-month hiatus.

Biden: Fight against Omicron won't include "shutdowns or lockdowns"

Photo: Mandel Ngan/AFP via Getty Images

President Biden on Monday said that the new coronavirus variant, Omicron, is "a cause for concern, not a cause for panic."

Driving the news: Biden said later this week the administration will be releasing a strategy on how "we're going to fight COVID this winter. Not with shutdowns or lockdowns, but with more widespread vaccinations, boosters, testing and more."

Updated 4 hours ago - Politics & Policy

Omicron dashboard

Illustration: Aïda Amer/Axios

  1. Health: WHO says Omicron poses "very high" risk — Fauci says Omicron variant will "inevitably" be found in U.S. — U.S. restricts air travel from 8 countries over Omicron concerns.
  2. Politics: Biden says fight against Omicron won't include "shutdowns or lockdowns."
  3. States: New York declares state of emergency amid concerns over Omicron.
  4. World: Omicron adds urgency to vaccinating worldWHO warns against travel bans on southern African countries — First North American Omicron cases identified in Canada.
  5. Variant tracker: Where different strains are spreading.