As happens in a trade war, the other side has fired back.

This morning, Chinese authorities announced they will impose a 34% tariff on all U.S. goods beginning on April 10.

From China’s Finance Ministry:

China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner.

Such a cancellation appears unlikely. Here’s President Trump’s response on Truth Social:

CHINA PLAYED IT WRONG, THEY PANICKED – THE ONE THING THEY CANNOT AFFORD TO DO!

Later in the morning, Trump redirected his attention to Federal Reserve Chairman Jerome Powell, writing:

Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!

Powell does not appear likely to immediately comply. Earlier today, speaking in Virginia, he said:

We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy.

In the meantime, investors are running for cover.

As I write Friday morning, stocks are continuing yesterday’s freefall; all three major indexes are lower by more than 3%.

Yesterday, the small-cap Russell 2000 benchmark entered a bear market (20% down from its most recent high). Today, the Nasdaq is on pace to enter a bear market.

Technology stocks, in particular, are getting nailed as many of them have huge exposure to China.

Stepping back, let’s shine light on two questions that many investors have asked recently…

• Where, exactly, did President Trump’s tariff rates come from?
• Based on the answer, how do our trading partners “right the wrong” so we can get back to normal?

The official explanation is that the new tariffs are based on an aggregate number from the White House representing, “the combined rate of all [foreign countries’] tariffs, non-monetary barriers, and other forms of cheating.”

Let me stop you from trying to make sense of this mathematically.

The new levies have far less to do with actual tariffs and far more to do with something else…

The trade deficit between the U.S. and each respective trading partner.

To make sure we’re all on the same page, a trade deficit is just the difference between imports and exports. For example, if a country imports $100 worth of goods and exports only $80 worth, it has a trade deficit of $20.

It appears the Trump administration began with the trade deficit the U.S. has with each of its trading partners, calculated what percentage of imports those imports represent, then used that as a basis for tariffs (halving the result to arrive at the final “reciprocal” tariff percentage).

This was the administration’s approach to address perceived trade imbalances and unfair practices.

There are some logical problems with this approach

For the first one, let’s begin with Israel.

It places a 0% tariff on U.S. goods. Despite this, the Trump administration just imposed a 17% tariff on Israeli imports.

If the Trump administration’s focus was on addressing nosebleed tariffs and unfair trade practices, why not recognize Israel’s 0% tariff?

Now, a detractor might say, “No, we still must address the unfair trade deficit.”

If that’s the core issue, we should address the apparent inconsistency with what just happened with the U.K.

While there have been fluctuations in the goods trade balance, our overall trade relationship with the U.K. includes significant services trade. This results in a U.S. trade surplus when considering both goods and services.

However, the Trump administration just imposed of a 10% tariff on UK imports. This seems inconsistent with our stated goals.

Again, a detractor might say “But still, we had a goods trade deficit with the U.K., so this is fair.”

Okay, but context is required. The U.S. economy has shifted away from “goods” and more toward “services” over the last many decades.

According to Prosperous America, “U.S. manufacturing has fallen from 21-25% of GDP in 1950s to about 10% today.” Meanwhile, according to StatBox, in 1990, “services” contributed about 60% to the U.S. GDP. This share increased to nearly 80% by 2020. It’s likely continued climbing over the last four years.

Is a focus on our “goods” deficit really the best way to measure trade “fairness”?

Why our trade deficits exist

While there’s no “one size fits all” explanation, we often have trade deficits with many trading partners for a big, common reason…

Foreign citizens are poorer than U.S. citizens. So, they cannot buy everything we export. Especially not in a relative sense to how much U.S. citizens can buy of foreign products.

Plus, their overall economies are much smaller than that of the U.S. It’s not an economic apples-to-apples comparison.

Take Bangladesh, which is now looking at a 37% reciprocal tariff.

According to the Growth Lab at Harvard, in 2023, Bangladesh’s 170 million inhabitants had a GDP per capita of $2,651.

Does it make sense to be indignant that the Bangladeshi people aren’t buying their fair share of the new iPhone 16 Pro, retailing for about $999?

It’s not shocking that we run a trade deficit with them.

Plus, are trade deficits always bad?

I would wager that you have a rather sizeable trade deficit with your grocery store.

Is that a problem for you? Or do you recognize and appreciate the value exchange that takes place?

The biggest problem with all this…

If trade deficits – not tariffs – are at the heart of Trump’s plan, how do smaller countries fix this so that we can return to normal trading?

Trump’s solution appears to be for foreign countries to relocate their manufacturing to the U.S. But this presents a major problem for many of our trading partners.

Consider some Asian and Latin American countries – they’ve built their economies around being manufacturing hubs. If companies relocate to the U.S., these countries could experience deindustrialization, similar to what happened in parts of the U.S. when manufacturing moved offshore in previous decades.

It’s unlikely that the governments of those countries will be thrilled with a mass manufacturing relocation. And so, if they block such a course of action, how does this trade war end?

Plus, it’s not as if plants spring up overnight. We’d need a decade to build up the infrastructure.

Clarifying a big point here, my pushback against tariffs isn’t political. And I’m not anti-Trump.

But I am anti-recession – especially recessions that are unnecessary and self-inflicted.

How serious is the recession risk?

On Monday, both Goldman Sachs and Moody’s Analytics raised their probabilities of a recession.

Goldman upped the odds from 20% to 35%. Moody’s went from 15% at the start of the year to 40%.

Well, in the wake of the tariff news, the betting markets are raising the odds of a recession even higher.

Kalshi is a regulated betting platform that enables wagering on economic outcomes. It’s often accurate as it crowdsources the perspectives/research of thousands of people (or more), not just, say, a small research team at an investment shop.

As you can see below, at the beginning of the year, bettors placed just 17% odds on a recession in 2025. As I write Friday, that number is now 60%.

Now, yesterday, legendary investor Louis Navellier looked squarely at this risk. And while he won’t rule out a recession, he believes that even if one were to occur, enormous growth would be on the other side.

To begin unpacking this, here’s Louis from yesterday’s Accelerated Profits Flash Alert podcast:

Is this going to cause a recession?

I don’t know.

I do know the trade imbalances are going to cause Gross Domestic Product (GDP) to be negative in the first quarter, but we don’t have all the signals of a recession. I don’t think anybody should be surprised.

But as I noted a moment ago, recession or not, Louis believes this will eventually result in economic growth:

Once the dust settles and the market realizes the effects of this mega-wave of onshoring, the U.S. economy could be primed to boom.

What we are witnessing is a profound transformation of the way we do business. The goals of the tariffs have always been the same: level the playing field on trade, increase tax revenue, and ultimately create a massive wave of onshoring to the United States…

The reality is that once everything is in motion, I expect growth to accelerate drastically.

Backing up, Louis’ optimism begins with the Treasurys market

Yesterday, the most important number in the global investment market – the 10-year Treasury yield – dropped as much as 19 basis points as investors fled to safety.

The decline is continuing as I write Friday. The 10-year Treasury yield has fallen below 4.00%, now trading at 3.91%.

Louis sees a brewing tailwind.

Back to his podcast:

If there is a silver lining in what we’re seeing, it’s collapsing Treasury yields. It means the Fed is going to have to cut rates a lot more.

Regular Digest readers know that Louis has been adamant that the Fed will enact four quarter-point interest rate cuts this year. Behind that prediction is a series of falling dominos beginning with foreign economic weakness.

Here’s what Louis wrote back in March:

The reality is several European economies are in dire shape, and the ECB needs to cut rates a few more times this year in order to help shore up these economies.

More rate cuts are good news for the U.S., as it will cause U.S. market rates to decline as foreign capital flows to U.S. Treasuries – and that will pressure the Federal Reserve to cut rates.

To make sure we’re all on the same page, when the ECB cuts interest rates, European bond yields typically fall. European investors see reduced cash flows on those holdings and sell their bonds to buy higher-yielding U.S. Treasuries.

This buying puts upward pressure on U.S. Treasuries prices. And since bond prices and yields are inversely correlated, this means downward pressure on yields.

If you’ve followed Louis for a while, you’ve likely heard him say “The Fed doesn’t like to fight market rates.” So, if these market rates drop, the Fed is likely to feel greater pressure to lower short-term rates.

That would be supportive of our economy and stock market.

The tariff news is likely to accelerate this process

Trump’s new tariffs are awful news for the economies of the Eurozone and our other trading partners.

So, unless tariff deals are made, foreign economies are in for even more pain…which means more resuscitative rate cuts from foreign central banks…which means lower treasury yields…which means lower rates from the Federal Reserve.

Back to Louis:

The euro and the British…economies are in recessions…

Interest rates are collapsing everywhere, including America, but they’re collapsing in Europe and Asia faster than they are here.

When all the dust settles, everybody goes back to the dollar because we have the highest rates, and we are cutting the slowest of all central banks.

What about the risk that Trump’s new tariffs will be inflationary?

Louis believes higher prices from tariffs are likely to be offset by a stronger dollar.

Here’s his illustration:

There’s a 10% minimum tariff on everything. Two-thirds of U.S. goods come in duty-free – I guess that’s over – so your bananas now have a 10% tariff, for example.

Okay, well, if the dollar strengthens as I anticipate and remains strong, you won’t see that 10%.

That’s what happened with the previous tariffs that they passed.

Let’s flesh this out to make sure we’re all on the same page.

That 10% tariff on imported bananas ordinarily would mean that they now cost 10% more before other factors are considered.

So, let’s say a banana from Mexico costs 100 pesos, and the exchange rate is 1 USD = 10 pesos. So, the banana costs $10.

Louis is arguing that if the dollar increases in value, then the USD/peso exchange rate could go to, say, 1 USD = 12 pesos. So, that same banana now costs about $8.33 before the tariff is applied. But after the tariff, it climbs back to about $10.

So, Louis believes that the stronger dollar and new tariffs will net out, resulting in a relatively stable banana price.

While we hope Louis is right, some of Trump’s new tariffs are multiples greater than 10%, so it’ll be challenging for dollar appreciation alone to offset the full price impact. It’ll be fascinating to watch how that plays out.

What about Trump’s ultimate goal: U.S. onshoring and the rebirth of domestic manufacturing?

Here’s Louis’ prediction:

Everything’s going to be “Let’s make a deal here” soon. And obviously, President Trump’s going to say, “Just onshore and you’ll have zero tariffs.”

And that’s happening.

There’s already $6 trillion in onshoring announced, and that’s without the German auto manufacturers boosting up their U.S. manufacturing.

Louis zeroes in on German auto manufacturers, making the case for why we could see their widespread relocation to America:

[German automakers are] going to be forced by the EU to make all-electric by 2035, and they really don’t make money on electric vehicles significantly.

So, if they want to make money and survive, they might just want to come to America and make vehicles with engines. They can make hybrids and EVs as well.

But the bottom line is they’ll find a welcome mat in America – states will throw incentives at them to expand their plants.

They’ll find cheaper labor. They’ll find much cheaper electricity which you need for manufacturing, and they’ll find a huge market they could sell into.

Basically, your alternative is to onshore big time. So that is what is going to be happening.

Put it altogether and you can see why Louis is optimistic – even if there’s volatility and additional stock market weakness in our immediate future

Turning to your portfolio, how might you respond to the potential for upcoming volatility?

In yesterday’s Digest, we highlighted how adopting a “trading” mindset can help during turbulent markets such as today’s.

We profiled Andy and Landon Swan, the analysts behind our corporate partner, LikeFolio. They use consumer data to spot shifts and trends in spending behavior on Main Street before it become news on Wall Street.

Based on their insights, they place targeted bets during earnings season (which we’re about to start). Here’s Landon with the goal:

Get in on Monday, get out by Friday, collect your cash, and enjoy that weekend.

You can learn more about their approach here.

Let’s highlight another approach today – this time, from Louis. It centers on his market approach in Accelerated Profits.

In this trading service, Louis zeroes in on high-growth stocks poised for rapid price appreciation. He uses his proprietary stock-rating system to focus on top-tier stocks exhibiting exceptional fundamentals and strong momentum.

The goal is to ride their bursts of bullish momentum, then get out of the market with profits, reducing exposure to downward volatility.

And despite how it might feel right now, Louis believes we’re in for plenty of bullish momentum in the coming weeks – especially for his favorite AI stocks:

I expect Trump 2.0 to clear away more red tape and unleash the next wave of innovation in the AI Revolution.

You see, these tariff changes are just one part of a massive convergence that’s taking place between Trump’s policies and the AI Revolution.

As this Trump/AI Convergence happens, I expect it to unlock powerful gains for investors.

Louis believes so strongly in this new market set up that he’s promising his system can help you see at least $100,000 in payout opportunities over the next 12 months, without needing a huge chunk of money to get started.

We’re running long today, but you can learn more about it right here.

Circling back to tariff drama…

Let’s end today with more big-picture optimism from Louis.

I’ll let him take us out:

In the end, the U.S. is going to win because we have the leverage, and that’s that.

Soon, you’re going to see a massive game of “let’s make a deal,” and companies should begin onshoring their production to the U.S.

I encourage you to hang on through this uptick in volatility. Because once the dust settles, it will be time to grow and prosper. 

In the end, the strong dollar will reduce the costs of the imports. It will help keep inflation in check. Our Fed will be forced to catch up with market rates…

So, there’s a lot of fascinating things underway, but I’m expecting a nice reversal in the market sooner than later.

Have a good evening,

Jeff Remsburg