Markets expect Trump’s latest tariffs on China to backfire as gold jumps and ‘dollar doesn’t look healthy’

President Donald Trump said Friday he would do so Imposing an additional 100% tariff on China And limiting US exports of software, after China restricted its exports of rare earth elements.

The Standard & Poor’s 500 index fell 2.7%. Worst sell-off since April 10th. Meanwhile, the US dollar index fell about 0.7% as Treasury yields fell, while gold prices rose more than 1.5%.

“Markets once again believe the United States is the shortest straw in the tariff battle with China,” said Robin Brooks, a senior fellow at the Brookings Institution. Written on the substack on saturday.

China dominates rare earths, producing more than 90% of the world’s rare earth elements and rare earth magnets. This served as a major source of pressure on the United States

The difference between the dollar and gold is notable because historically stock market sell-offs have pushed investors to the dollar as a safe haven.

But just like in the fallout from Liberation Day, this dollar pattern did not continue, and instead gold was the preferred haven from the trade war chaos.

Brooks pointed out that the dollar has been stable in recent weeks even as gold prices rose, recording record high after record high. This ended with Trump announcing tariffs on China on Friday.

He added: “This is the second time that markets have traded tariffs as being counterproductive to the United States, and not to the rest of the world.”

Looking at how stocks, currencies and gold reacted on Friday, Brooks said the overall picture is that the dollar actually looks more vulnerable now than it did in early April.

He particularly noted how low the dollar was when compared to the sharp decline in stocks, which usually boosts the US currency amid a flight to safety.

“The fact that this did not happen and that gold prices are higher than they were on liberation day is worrying,” Brooks warned. “The dollar does not look healthy.”

Before the tariffs erupted, trade talks between the US and China were progressing after Trump reached agreements with the European Union, Japan, South Korea and other major trading partners.

But tensions remain, including the issue of rare earths, while the United States has moved to restrict other countries’ exports of semiconductor-related products to China.

Also this week, the United States announced port fees on Chinese ships, prompting Beijing to impose similar fees on American ships calling at Chinese ports. China has also launched an antitrust investigation into the US chipmaker Qualcomm.

Then on Thursday, China’s Ministry of Commerce said that starting on December 1, a license would be required for foreign companies to export products containing more than 0.1% rare earth elements from China or made using Chinese production technology.

“In other words, the United States can cut China off from chips today, but China can make it very difficult to build the chips and other advanced technologies of tomorrow,” said Michael Froman, president of the Council on Foreign Relations and a former U.S. trade representative. He said in a message on Friday.

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