The central question gripping the global economy is whether President Donald Trump’s threat of 100% tariffs on China is a credible policy intention or a strategic feint designed to force a deal. The answer will determine whether the world is heading for an economic catastrophe or a masterfully negotiated settlement, and markets aren’t waiting to find out.
The argument for it being a feint lies in the “escalate to de-escalate” theory, where an extreme, almost unbelievable threat is made to shock the opposition into submission. Proponents of this view suggest the 100% figure is so economically self-destructive for the U.S. that it cannot be the true goal, but rather a tool to “focus minds” in Beijing and accelerate negotiations.
However, the threat’s credibility is bolstered by the administration’s own justification. By labeling China’s rare-earth export controls “very hostile,” President Trump has created a national security pretext for the tariffs, which could make them more politically palatable. Furthermore, the president has a history of following through on tariff threats despite widespread economic warnings.
Financial markets are voting with their wallets, and they are voting for credibility. The staggering $2 trillion loss in U.S. stock value and the nosedive in Dow futures show that investors are pricing in a high probability of the threat being real. The risk of being caught unprepared for a full-blown trade war is too great to assume it is merely a bluff.
China, for its part, is forced to treat the threat as genuine. Its promise of “resolute measures” is the response of a nation preparing for conflict, not one that believes it is part of a negotiation tactic. This reaction, in turn, makes the situation more dangerous, as it creates a pathway to retaliation that could become unstoppable, regardless of the original intent.