New Tariffs, New Risks: Key Market Shifts

As many traders and analysts alike may have been expecting, Donald Trump’s return to the White House and the attendant policy changes have sent ripples across the global economy from Wall Street to Shanghai. Let’s take a look at how the opening volleys of a potential trade war between the world’s two largest economies are affecting key economic sectors:

New Administration, New Trade Troubles

On Tuesday, 4 February, U.S. President Trump’s previously announced tariff measures against Canada, Mexico, and China went into effect. These latest trade policy measures have sparked significant debate among policymakers and market participants. Significant effects on trade, inflation, and global market dynamics have already been noted. In particular, his decision to impose a 10% tariff on all Chinese imports marks a sharp escalation in economic tensions between the U.S. and China, with potentially far-reaching repercussions over both the short and the long term.

One of the most notable changes involves the closure of the 'de minimis' exemption, which previously allowed packages valued under $800 to enter the U.S. duty-free. This exemption had gone a long way toward facilitating the rise of Chinese e-commerce giants like Shein and Temu, enabling them to ship low-cost goods directly to American consumers without additional taxes or duties. By removing this provision, Trump’s administration aims to curb the rapid influx of inexpensive Chinese imports, a move welcomed by some domestic retailers but likely to drive up costs for online shoppers. Research suggests that the elimination of the de minimis rule could result in $11.4 billion in additional costs for consumers, disproportionately affecting households toward the lower end of the socioeconomic spectrum.

Financial markets have reacted cautiously to the tariffs so far. While Trump delayed imposing a 25% duty on goods from Mexico and Canada after negotiating temporary concessions, the levies on Chinese imports took immediate effect. In response, China has launched an antitrust probe into Alphabet, reflecting Beijing’s willingness to retaliate against U.S. trade measures. Investors fear that heightened trade tensions could exacerbate inflationary pressures, potentially influencing the Federal Open Market Committee’s (FOMC) interest rate decisions in the months ahead. 

However, as of the time of writing, market sentiment toward key U.S. indices seems to be remaining stable. By the ring of the closing bell on Wall Street yesterday, the S&P 500 was up by over 0.7%, while the tech-heavy Nasdaq and the Dow Jones Industrial Index (USA 30) had improved on their opening figures by nearly 1.3% and 0.3%, respectively. (Source: Yahoo Finance)

As legal challenges to the tariffs loom, the long-term effects of Trump’s trade policy remain uncertain. However, in the short term, the new levies are already reshaping global supply chains and economic relationships, with the consequences potentially already visible in one of Big Tech's most hotly-anticipated earnings releases:

Alphabet Sinks Amid Chinese Fallout

Alphabet (GOOG), the parent company of Google, released its fourth-quarter earnings report on 4 February 2025, revealing a mixed bag to investors. The company reported an earnings per share (EPS) figure of $2.15, slightly exceeding analysts' expectations of $2.13. However, revenue came in at $96.4 billion, falling just short of the anticipated $96.6 billion. While advertising revenue outperformed projections at $72.4 billion, Alphabet’s cloud segment failed to meet expectations, generating $11.9 billion versus the forecasted $12.1 billion.

One of the most significant takeaways from the report was Alphabet’s dramatic increase in capital expenditures, jumping from $57.9 billion in the previous year to a planned $75 billion for the year ahead. Much of this spending is aimed at expanding the company’s AI capabilities as competition in the sector intensifies.

Meanwhile, Alphabet is facing fresh geopolitical and regulatory challenges. Following President Trump’s recent decision to impose a 10% tariff on Chinese imports, China has announced an antitrust investigation into Google—widely seen as a retaliatory move. Additionally, Alphabet must contend with emerging AI competition from China-based DeepSeek, whose new models are proving cost-efficient and technologically competitive with leading Silicon Valley firms.

As regulatory scrutiny mounts and geopolitical tensions escalate, Alphabet finds itself in a complex environment. While its advertising business remains strong, challenges in cloud revenue growth, increased spending, and external pressures may weigh on investor sentiment moving forward.

Conclusion

All in all, the markets could be in for a bumpy ride as we move further into 2025. With the outcomes of the United States’ radical shift in international trade policy yet to be fully understood, traders will have to wait for further reports and indicators to get a better handle on what changes may be in store around the Pacific Rim and beyond, although past performance does not reflect future results.