Opinion: Trump's tax hike is the biggest macro risk this year

Feb 02, 2025

Author | Jinze, Chairman of Muse Labs, former Chief Researcher of Binance China

Many people haven’t noticed that the biggest macroeconomic risk of this year, a significant increase in tariffs, will come into effect this Saturday (assuming he doesn’t back down at the last minute).

It seems that Trump is extremely determined to substantially and widely raise tariffs. Starting today, tariffs on Canada and Mexico will be increased by 25%, and on China by 10%. And this is just the beginning; more tariffs are expected to be announced soon.

Previously, many in the market, myself included, thought this was just a negotiation tactic of Trump’s and wouldn’t actually happen. After all, the industrial chain can’t be relocated overnight, and a rapid and widespread tax increase is a lose — lose outcome in the game.

However, it turns out that Trump doesn’t seem to be afraid of economic and market fluctuations. His exact words were, “There may be some temporary, short — term disruptions, and people will understand that.” Based on the experience from 2018–2019, it’s reasonable to expect at least a 10%+ adjustment in the stock market index.

Moreover, after meeting with Jensen Huang, contrary to expectations of some good news for Huang, Trump immediately announced a 100% tariff on Taiwan — made chips.

It’s important to note that TSMC manufactures about 90% of the world’s top — of — the — line chips, and there’s no short — term substitute. Many people, including the market itself (the strong rebound in the past three days), haven’t realized yet (or haven’t priced in this possibility adequately), and this will plunge the economy and the financial market, which is highly dependent on technology stocks, into great chaos.

For example, even with just a 60% tariff increase, the price of an iPhone would increase by $300 — $500. After the tariff hike, companies have two options: raise prices or absorb the costs themselves. If prices go up, it will definitely affect demand; if companies absorb the costs, it will directly impact profits. Terminal products are estimated to see a price increase of 10–30%.

Either choice is bad for stock prices. #AAPL #NVDA #TSMC #DELL #AVGO. Among hardware companies, perhaps only #TXN #SMCI, which are mainly manufactured in the US, might fare a bit better.

I’m not sure if this is still a negotiation ploy by Trump, such as quickly withdrawing the tariffs or exempting some high — volume trading industries. Or he might cut taxes in other areas, like his previous claim to abolish all personal income taxes.

In short, without policy hedges, those who are heavily invested in risky assets need to have a strong heart.

However, it should be noted that the supply chains of the US, Mexico, and Canada are highly integrated, and a 25% tariff is unlikely to last long. The tariff threat is essentially a means of pressure, and the market may overreact. If there’s another “golden pit” created by market drops, it would be a good opportunity to buy on the dip, just like when the Bank of Japan raised interest rates last year. I repeatedly mentioned during various events that it was a golden pit at that time.

Wu Blockchain

Discussion about this post