Ep. 2178 - SHOWDOWN: Trump Stares Down China
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What caused the recent stock market drop related to US-China trade policies?
Well, folks, we're going to get to the continued chaos in the markets in just one minute. What does it all mean? What does the incipient China-U.S. trade war actually mean? This is what real media looks like. The Daily Wire delivers hard-hitting news led by facts, not feelings. We will cut through the noise with unapologetic truth. When you become a Daily Wire Plus member, you unlock all of it. Ad-free podcasts, the best in investigative journalism and premium entertainment that is reshaping culture. America needs bold voices now more than ever. Join the fight today at dailywire.com slash subscribe. There's a lot of puzzlement yesterday. among certain quarters, about why exactly the stock market dropped precipitously after that massive run-up that happened on Wednesday.
So as you recall, President Trump decided that he was going to reverse many of the sanctions, tariffs that he had placed on foreign nations as of Wednesday morning, 12.01 Wednesday morning. Within 13 hours, he had reversed the vast majority of those, but he also put a 125% tariff China and retained a 10% baseline tariff against everybody else. While the markets responded to the avoidance of the car crash that would have been the imposition of all those tariffs all at once, based on this bizarre formula, the markets reacted to President Trump's postponement with joy and soared almost 3,000 points in the Dow Jones Industrial Average. And then yesterday, there was a massive sell-off. And so people were kind of puzzled.
Wait, aren't we out of the woods? And the answer is the markets were now pricing in what exactly President Trump is doing. We now have a policy. That policy is going to be much more consistently applied. You're not going to see as much variation, vacillation, back and forth. And so the markets are trying to price in that risk. And that is why U.S. stocks, according to The Wall Street Journal, fell sharply on Thursday as investors sorted through a global economic outlook that remains uncertain despite drastic improvements over the past 24 hours. The declines accelerated after the White House said the tariffs imposed on China by President Trump in his second term actually added up to 145%, not 125%.
Stocks paired those losses a little bit in afternoon trading. The Dow Jones Industrial Average finished down about 1,000 points. Again, none of that should be particularly surprising. What is a little bit surprising is that the bonds, the bond yields, for example, have been increasing precipitously at the same time, meaning that the market for bonds is really soft right now. 30-year bond yields are up to about 5%, which is a very, very high rate. And that is happening because people are divesting from American investments overall. And it is not just stocks. It is also, typically, if stocks go down, bonds tend to go up in their price, meaning the yields are smaller. If stocks go up, then bond yields tend to increase because the price of bonds is going down.
But when you buy a bond, essentially what you're buying is a long-term investment that is going to pay off a certain amount at the end. And it's not a particularly high amount, typically speaking. So if you are risk-seeking, you're going to buy stocks rather than bonds. If you have a lot of faith in the American economy, you're probably going to buy stocks rather than bonds. If you're a little nervous, you're going to buy bonds rather than stocks. If people aren't buying either, what that means is that they don't believe either that the stock market is going to continue to increase at rapid rates or that that the bond market is going to be a problem because America is not going to pay back our debts.
So that is just a sign of lack of faith in the American economy overall. Another sign of that lack of faith is the decline in the DXY dollar index. So that dollar index is a way of measuring the relative strength of the American dollar versus a basket of foreign currencies. As Mohamed El-Erian of Allianz points out, the DXY dollar index is currently trading below 100, a level last seen in early 2022. Unlike past moves, this year's sharp dollar depreciation is fueling worries about an erosion in international confidence in the dollar and in U.S. assets as a whole. And part of that, again, is due to the fact that when you actually cut off international trade, the U.S.
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