Good morning! Halfway through the week and markets have whipsawed nonstop. Trump’s levies against the world’s second-largest economy set up markets for more chaos. Was this email forwarded to you? Join 190,000 self-directed investors and sign up here. 

Midnight trade war

When President Trump confirmed the total 104% tariff level on Chinese imports Tuesday following retaliatory measures by Beijing, the stock market erased its gains for the day and finished negative.

The levies were scheduled to begin at 12:01 AM ET Wednesday — just under six hours ago.

The initial news Tuesday rattled Wall Street, pointing to continued chaotic trading for an already hair-trigger market. As of Tuesday, the S&P 500 is down 15.3% in 2025, marking the fourth worst start to a year ever behind 1932, 1939, and 2020.

Still, Treasury Secretary Scott Bessent has tried to talk down the risks in recent interviews.

He told Tucker Carlson last week that he isn’t sure China will be able to retaliate on tariffs, noting that Beijing is currently trying to export its way out of a deflationary recession.

“They’re playing with a pair of twos,” Bessent said in another interview, casting America as the player with the winning hand at the table.

But markets aren’t buying it.

Volatility hovers at extreme levels. On Tuesday, the VIX — Wall Street’s fear gauge — closed above 50, a top 1% finish historically, according to data from Charlie Bilello, chief market strategist for Creative Planning.

Even bonds, the supposed safe haven, aren’t moving as expected. Long-dated Treasury yields are going up instead of down, as if investors can’t decide whether we’re entering a period of 1970s stagflation or 1930s depression.

Tariffs, after all, don’t just introduce new payments.

They shatter long-held assumptions.

They rip open the neat narrative markets crave — that governments will favor stability, that the world order will hold steady, that supply chains will continue humming.

Whether the White House ends up getting its way with tariffs, the move today is more of a tax on certainty than trade.

Bessent remains optimistic. He outlined a “dream scenario” in his conversation with Carlson for the US to manufacture more and consume less, while China consumes more and manufactures less.

“The Chinese have this imbalanced economy with too much manufacturing,” he said.

“And actually, Chinese consumers really get the short end of the stick. Chinese households — they’re caught in what’s called the middle-income trap. Could we do something together where they rebalance, consume more, manufacture less?”

On paper, that sounds plausible.

Yet it’s becoming increasingly obvious that getting there, as Trump & Co. have warned, requires economic pain — especially if the 104% figure holds against China.

To be clear, markets aren’t just reacting to tariff numbers. They are recalibrating for the possibility that the White House actually follows through.

If so, the 104% might not even be the peak.

In that scenario, the only thing more expensive than Chinese imports could be market certainty.

Market snapshot

Elsewhere:

🏦 Bond traders are betting on normalcy. While stocks have tumbled the last week, government debt hasn’t traded like looked like the typical safe-haven asset. That may suggest that bond traders are reflexively pricing in a simple scenario: Short-term economic shock followed by a fast return to status quo. (WSJ)

🇨🇳 China’s in no rush for a trade deal. While dozens of countries are engaging in the Art of the Deal with Trump, Beijing has taken on a tit-for-tat retaliation strategy. Chinese officials reportedly believe that the more pushback the US gets from other nations, the better positioned Beijing will be when it’s time to talk. (Barron’s)

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Rapid-fire:

• US Customs says it’s prepared to begin collecting country-specific tariffs from 86 trade partners starting Wednesday (CNBC)

• The acting IRS chief plans to leave the agency soon (WSJ)

• China’s yuan dropped to a 19-month low against the US dollar (The Street)

• Falling stocks risks curtailing consumer spending, which has held strong for two years (Barron’s)

• Elon Musk and Trump trade advisor Peter Navarro are in a public spat (CNBC)

• Mortgage rates climbed this week to where they hovered six weeks ago (CNBC)

• Jamie Dimon, Bill Ackman, Ray Dalio and other Wall Street titans have urged caution with tariffs (Opening Bell Daily)

Last thing:

About me:

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day, unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else. Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at [email protected].