Volatility continues to sweep across asset classes after the Trump administration’s “reciprocal” and retaliatory tariffs took effect last night, ratcheting American import taxes up to levels last seen in the immediate aftermath of the Civil War.

The freezing of trade flows between the US and China bears a stark resemblance to the breakdown in relations between the West and the Soviet Union that led to the Cold War. US tariffs on imports from China have soared: with the average tariff rate sitting close to 20 percent ahead of Trump’s inauguration, and 10 percent added in February, another 10 percent in March, 34 percent last week, and an additional 50 percent last night, the total effective levy imposed on all products from China has climbed to more than 125 percent. Chinese retaliatory measures, some announced this morning, should increase tariffs on US products—which make up a far smaller share of its overall import volumes—to 84 percent, and will likely be paired with new intellectual property restrictions, blacklists, and additional export controls on critical materials in the days to come.

Taken in combination with the other “reciprocal” tariffs announced last week, US trade levies now exceed those seen in any other major economy in the world. Estimates vary depending on the calculation methodology used—product exclusions will reduce the burden in certain areas, it is clear that the import mix will shift as American buying habits change, and the Trump administration is highly likely to make further adjustments—but the theoretical weighted average tariff rate applied on US imports has moved above the 30 percent threshold, putting it on par with some of the globe’s poorest and most backward countries.

Bond markets are suffering neck-snapping volatility, reminiscent of the mayhem that accompanied the pandemic’s spread in early 2020. Ten-year US Treasury yields—which typically move fairly sluggishly and act as a global benchmark for mortgage and loan rates—fell to 3.89 percent in Monday’s session, only to hit 4.59 percent during last night’s session. Interpretations vary for the exodus from US debt, including an unwind in levered “basis trades” among hedge funds, deliberate selling from China, or a reappraisal of the safe haven appeal previously embedded in American financial markets, but no single explanation seems sufficient.

It is clear, however, that the ‘US exceptionalism’ trade that was once the biggest story in global financial markets is self-destructing. The greenback is down a little more than 6 percent this year, marking its worst performance this century, while also breaking its long-standing tendency to act as an offset when other markets are under pressure. For a variety of reasons, investors are bailing out of American financial markets, implying that the US “exorbitant privilege”—which propped up government borrowing and consumer spending for decades—could be weakening. The US could soon find itself running smaller trade and financial imbalances, but at the cost of much lower growth rates.

Volatility expectations in currency markets are soaring, rapidly approaching heights last hit during the collapse of Silicon Valley Bank in 2023. With interest rates, monetary policy settings, trade measures, and economic growth expectations shifting dramatically across much of the global economy, cross-asset correlations are breaking down, and investors are running scared. Safe-haven currencies—like the Japanese yen, Swiss franc, and euro—are outperforming at the moment, but we are bracing for reversals as the selloff in US fixed income spreads to hit other global markets in the hours ahead.

Against this backdrop, it’s clear that economic data released through the back half of the week should be considered extremely stale. Minutes taken during the Federal Reserve’s last meeting, due for release later today, should be ignored by markets, given that they reflect a very different time and circumstances. US inflation prints tomorrow and Friday are already well past their sell-by dates, given that underlying prices, import volumes, and consumption baskets are likely to shift dramatically in the coming months.

For now, at least, there’s only one show worth watching in financial markets, and it is being directed from the Oval Office.