---
title: 'China''s Trade Decision is About to Wreck the US Economy'
source: 'https://youtube.com/watch?v=5caU6wQeT1s'
video_id: '5caU6wQeT1s'
date: 2026-08-05
duration_sec: 1067
---

# China's Trade Decision is About to Wreck the US Economy

> Source: [China's Trade Decision is About to Wreck the US Economy](https://youtube.com/watch?v=5caU6wQeT1s)

## Summary

This video analyzes the recent US trade policies, particularly the 100% tariff on Chinese electric vehicles, and argues that these protectionist measures are likely to harm the US economy. It draws parallels to the Smoot-Hawley Tariff Act of 1930, which led to a collapse in global trade, and examines the current impact on automobiles, electronics, and pharmaceuticals. The video concludes with practical advice for consumers to hedge against rising prices.

### Key Points

- **US bans Chinese EVs with 100% tariff and software ban** [00:01] — The US has placed a 100% tariff on Chinese-made EVs and a connected vehicle software ban, effectively keeping them out of the US market. This is framed as a national security measure.
- **Chinese EVs are cheap and impressive** [01:07] — MKBHD reviewed a $42,000 Chinese EV that felt like a $75,000 US car. The BYD Seagull sells for $10-12k with high reviews, highlighting the competitive threat.
- **US launches aggressive tariff campaign** [01:22] — The US has launched one of the most aggressive tariff campaigns in 100 years, covering autos, electronics, steel, aluminum, and pharmaceuticals. The last similar action was in 1930, leading to a 66% collapse in global trade.
- **Tariffs on Chinese EVs raised to 100%** [02:02] — In 2024, tariffs on Chinese EVs were raised from 25% to 100% under Biden, and Trump kept them. A connected vehicle software ban was finalized in January 2025.
- **EV tax credit and software ban details** [02:30] — To qualify for the $7,500 EV tax credit, cars must be assembled in North America and use US battery materials. The software ban prohibits cars with Chinese or Russian-linked software/hardware, citing national security.
- **The 'wall' is multi-layered** [03:11] — Even without the tariff, the software ban and tax credit exclusion would keep Chinese EVs out. This multi-layered approach is why it's called a wall.
- **Average US tariff rates doubled** [03:23] — Average US tariff rates went from 2.4% to 9.6%, the highest in 80 years. The Supreme Court ruled the tariffs invalid in Feb 2026, but Trump reimposed a 10% tariff using a different law.
- **New tariffs on steel, aluminum, copper, and pharmaceuticals** [04:04] — In April, new tariffs were announced on steel, aluminum, copper, and up to 100% on pharmaceutical imports. AI chip export controls also require companies to pay the US for sales.
- **US becoming protectionist** [04:30] — Protectionism uses tariffs and quotas to shield domestic industries. The goal is to bring manufacturing back and reduce trade deficits, but it may not work in practice.
- **Smoot-Hawley Tariff Act of 1930** [05:10] — The last similar attempt was the Smoot-Hawley Tariff Act, which raised duties on 20,000 items. Over 1,000 economists petitioned against it, but Hoover signed it anyway. US imports decreased 66% from $4.4B to $1.5B, and exports to Europe dropped from $2.3B to $784M.
- **Aftermath: Reciprocal Trade Agreements Act of 1934** [06:28] — FDR passed the Reciprocal Trade Agreements Act, leading to 70 years of global free trade, including WTO and NAFTA, as a reaction to protectionism's failure.
- **Impact on automobile sector** [06:57] — No US-assembled car is 100% made in the US. Tariffs on steel and aluminum increase costs for all cars. JP Morgan estimates $41B in year one, rising to $52B by year three, adding ~$3,258 per vehicle. Kelly Blue Book says tariffs add up to $6,000 to cars under $40,000. Audi raised prices $800-$4,100.
- **BYD surpasses Tesla** [08:06] — BYD passed Tesla as the world's #1 EV seller. China is the largest auto manufacturer, with EVs accounting for 70% of global EV production. The US risks falling behind.
- **Electronics prices rising** [08:47] — Morningstar expects durable goods prices to rise 4.5% in 2026. Console makers raised prices: PS5, Xbox, Switch 2 at $450. PC makers warn of 15-20% hikes. TrendForce says a $900 laptop could cost over $1,200.
- **Memory shortage and AI demand** [09:42] — AI data centers create massive demand for memory, shifting production away from consumer chips. DRAM prices are up, and memory makes up 20-35% of device costs. Smartphone and PC shipments are projected down.
- **Pharmaceutical tariffs** [11:14] — On April 2, 2026, Trump signed an executive order imposing 100% tariffs on patented pharmaceuticals. Companies with pricing deals and US manufacturing pay no tariff; others pay 20% or 100%. 14 of 17 major drug companies have deals, reducing prices for some drugs like Ozempic to $350/month.
- **Pharmaceutical supply chain concerns** [12:42] — Over 80% of manufacturing sites for active pharmaceutical ingredients are outside the US, with China and India supplying 70% of APIs. Tariffs could increase prices for antibiotics, cancer, and arthritis drugs.
- **Cost to consumers** [13:24] — The Tax Foundation estimates tariffs cost $1,500 per household in 2026; Yale's Budget Lab says $600-$1,300. Consumers are paying more for many goods.
- **US falling behind in trade deals** [14:05] — While the US builds walls, other countries make deals: India-EU agreement, Canada-China EV deal. US imports from China declined by $135B, but imports from other Asian nations increased by $100B, shifting reliance.
- **Historical lesson** [15:12] — Smoot-Hawley taught that walls lead to retaliation. Countries will trade without the US, making the US weaker.
- **Advice for consumers** [15:26] — Three hedges: 1) Buy big-ticket items soon before prices rise. 2) Ask about generic alternatives for brand-name drugs. 3) Avoid impulse purchases and consider international stock exposure to hedge inflation.
- **Inflation and stock market** [16:34] — Trade policies are causing inflation, decreasing purchasing power of cash. The stock market is near all-time highs due to AI, but the economy may not be as strong, with mass layoffs.

### Conclusion

The video concludes that US protectionist trade policies, while intended to boost domestic manufacturing, are likely to increase consumer prices, reduce global competitiveness, and lead to retaliation, echoing the failures of the Smoot-Hawley Tariff Act. Consumers are advised to make purchases sooner, consider generics, and hedge against inflation.

## Transcript

vehicles that you can buy globally is not for sale in the US. Not because the requirements to be an electric vehicle, but because the US government has placed a 100% tariff on EVs coming from this country they're made in, in
addition to a connected vehicle software ban. And if you've seen any car content know that I'm talking specifically about Chinese EVs. In fact, MKBHD or Marques
made a video on his channel at the end of 2025 reviewing a Chinese EV, and >> Yo, have you seen these Chinese electric cars? If they ever came to the US, they would cook everything that we have here. They
are too good, they have too much tech, and they are too cheap to not dominate And so, I figured I should get my hands on one and actually figure out if that's >> Now, if you watch that video until the end, he is ultimately impressed by the
car and states that the car he tested specifically is a $42,000 car that feels like it would have cost $75,000 if it was made in the United States. And there are other models of Chinese EVs that cost even less. Famously, the BYD
Seagull sells for about 10 to $12,000 and comes with very high reviews. But, this video isn't just about cars, it's about a decision that the United States trade with one of its biggest trading partners, and increasingly with the rest
year, the US has launched one of the most aggressive tariff campaigns in the past 100 years on sectors like automobiles, electronics, steel, aluminum, and now pharmaceuticals. The last time America made a decision like
this was back in 1930, and the result was that global trade collapsed over 66% video, we're going to walk through what's actually happening and what tried something like this, and what it
might cost you. Of course, it'll be done in a friendly and warm way, even if the I promise that you'll at least be informed by the end of this video. So, the trade decision I want to cover first today is the 100% wall on Chinese-made
electric vehicles. Starting in 2024, the US raised tariffs on Chinese-made EVs from 25% all the way up to 100% under the previous administration of Joe Biden. Now, after Trump took office in November of 2024, he kept those tariffs
at 100% and on top of that, there was a connected vehicle software ban that was finalized in January of 2025. There's also the EV Tax Credit Act. So, in order to qualify for a $7,500 EV tax credit in the United States, your car needs to be
assembled in North America and use battery materials from the US or software ban, on the other hand, basically just states that any car or vehicle using Chinese or Russian-linked software or hardware would not be
allowed to be sold in the United States. This boils down to national security at their data somehow ending up in the hands of the Chinese or Russian governments. It's kind of like the same story of the TikTok story that you heard
had to be spun off to an American company in order to keep existing within data going to China. So, even if you removed the tariff of 100% tomorrow, the software ban would still keep Chinese EVs out of America. And that's why it's
called a wall. There's a 100% tariff, which heavily disincentivizes foreign companies from selling here, as well as the software ban and the exclusion from tax incentives. Now, the Chinese EV wall is one thing, but it's actually just one
piece of a much bigger pie that is the shift in US trade policy as of the last couple of years. We currently also have tariff rates on every single US trading partner to the point where the average US tariff rates went from 2.4% to 9.6%
across the board, and that's the highest it's been in 80 years. In February of 2026, so this year, the Supreme Court stepped in and ruled six votes to three was using to enforce these tariffs weren't valid. The Supreme Court
basically said that the president didn't have the legal authority to impose most them got thrown out. But, the very next day, Trump used a different law to put a 10% tariff right back on everything. Then, in April, he announced a new round
of tariffs on steel, aluminum, and copper, plus up to 100% on pharmaceutical imports. In addition to these policies, there's also AI chip export controls, where companies can export AI chips, yes, like the Nvidia
H200 or the AMD MI325X chips, but they must pay the US the sales. And that's somewhat unprecedented. Export controls are being used as a tool for generating revenue and also national security. So, that's
really ultimately ending up with right now is that America is starting to look more and more protectionist. Protectionism is where a government uses tariffs and quotas to shield domestic industries from foreign competition. The
idea being is that if you make foreign products more expensive, people will buy protect American jobs. That was the entire premise of having the tariff in the first place, which was to liberate the US economy from trade deficits and
bring manufacturing back to the United States. And that sounds all somewhat reasonable. I'm all for America first, but does it actually work in practice? the last time we did something like this in the US and that was in 1930. So, back
then, by way of President Herbert Hoover, he passed an act called the Smoot-Hawley Tariff Act. Now, I learned a little bit about this in my AP US history class, but it essentially raised import duties on over 20,000 items that
would come into the US from foreign trade partners. The logic back then for this act was basically the same as it is today, America first, protect American disincentivizes foreign competition. This also came at a very sensitive time
in American history, just 1 year after the Great Depression started in October of 1929. Now, what was fascinating to me was that when I was researching this bill, over 1,000 economists actually signed a petition begging President
Hoover at the time to not sign this tariff act. And the more surprising part was that the president actually agreed. He called the bill obnoxious and opposed the bill. But here's the kicker, he still signed it anyway feeling political
pressure to his own party, his cabinet, and various business partners. So, the bill went into place and while it was initially successful in the period of the five years after the bill was enacted, US imports decreased 66% from
enacted, US imports decreased 66% from $4.4 billion in 1929 to $1.5 billion in 1933. US exports to Europe also dropped from $2.3 billion to $784 million. So, after a period of time by all measures, this bill was considered a disaster and
did not help that fact either. In the early 1930s, the next president, FDR, he passed the Reciprocal Trade Agreements Act of 1934 and the US spent the next 70 years building a global free trade system. This included the World Trade
Organization or WTO, the NAFTA, which is the North American Free Trade Agreement, Trade. All these acts basically stem from how protectionism had failed so miserably back in 1930. So, now that you know that little bit of history, let's
trade policies are actually playing out and what it's costing you. We've already talked about the wall keeping Chinese EVs out in particular, but what about the entire automobile sector in general? Because no car assembled in the United
States is 100% made here. Given the global nature of the automotive some parts of a US assembled vehicle that have parts from another country. Even Tesla, with all of their factories in the United States, will still source
countries. So, when you enact these tariffs on imported steel, aluminum, and foreign cars becoming more expensive, but also domestically produced cars. JP tariffs on vehicles and parts will cost
the industry about $41 billion in year one, rising to $52 billion by year three, which translates to an increase in cost of about $3,258 per vehicle. Kelly Blue Book estimates that for vehicles priced under $40,000,
tariffs are adding up to $6,000 more to the sticker price, and Audi has already raised prices on most of its 2026 lineup between $800 to $4,100 per model. States have also dropped for the remainder of this year, citing problems
with not only tariffs, but the ongoing conflict in Iran and oil prices. All the while, BYD has just passed Tesla as the world's number one EV seller, and China is now not only the largest global auto manufacturer, but their EVs account for
nearly 70% of the global EV production. So, it's my take that these restrictions on trade in this sector specifically are causing us to slowly fall behind. It's kind of like in Settlers of Catan, if you aren't the player trading resources,
are doing the trading. And if China is willing to trade with countries like Canada, the UK, and Mexico while we sit behind the wall, we increase our chances of Catan and global trade eventually. So, that's the automobile sector, more
expensive across the board, and I feel like we're falling behind. But, it electronics is another big sector that's got to get even more expensive. Morningstar expects durable goods prices of electronics, toys, tools, and small
appliances to rise 4.5% in 2026, and we can already see some of this becoming evident. Last year, all three major video game console makers raised their prices so Sony raised the PlayStation 5 prices in August of 2025, Microsoft
raised Xbox Series prices in October, and the Nintendo Switch 2 launched at $450, which was a $150 jump from the Switch 1. In addition, all five major PC manufacturers, including Lenovo, Dell,
HP, Acer, and Asus, have warned of 15 to 20% price hikes heading into the second half of 2026. TrendForce, a major industry research firm, found that a mainstream $900 laptop could see its a cost increase by nearly 40% meaning that
same laptop could cost you over $1,200 by the end of this year. Of course, tariffs aren't the only reason this is going on. There's also a massive memory shortage going on right now because AI data centers, they create so much demand
demand is causing companies like Samsung or Micron to shift production away from those types of chips, the consumer chips, and more towards the AI chips. probably do the same. If all the AI chips are in demand and that's actually
I'm going to obviously shift my resources to making AI chips rather than consumer chips. The analogy here is like if I owned a supply store during the Gold Rush in the 1850s and all of a sudden, I see shovels selling at 10
probably going to carry a lot more shovels at my general supply store the demand is. But as a result, the people that are wanting jeans, the take a look at some of these charts from
the Wall Street Journal. Not only does memory as a percentage of manufacturing costs of a device make up typically 20 to 35% for most consumer electronics, the average contract prices of DRAM and memory are up as well. In addition, you
have worldwide smartphone and PC shipments projected to be down this year. The US also has tariffs on semiconductors from Chinese suppliers. working against creating chips for consumer devices plus the additional
tariff. Therefore, the entire supply chain for electronics is already hamstrung and I feel like the prices to consumers are just going to get worse. as bad as the newest sector that is
that is the pharmaceutical sector. On April 2nd, 2026, exactly 1 year after the Liberation Day tariffs, President Trump signed an executive order imposing 100% tariffs on patented pharmaceutical products and their active ingredients.
affect a lot of generic drugs, but here's exactly how it works. So if a drug company has signed a pricing deal with the administration and is building manufacturing in the United States, they won't pay a tariff. If you're a company
you haven't finished yet, the tariff is 20% and then it goes up to 100% in 4 single deal at all with the administration, it's just going to be a flat 100%. Now the interesting part here is that 14 out of the major 17 drug
the administration and a lot of the pricing deals actually look pretty good. For example, Ozempic or Wegovy, which are the GLP-1s, used to cost patients over $1,000 a month and they're going to be now available for around 350 a month.
Some drugs like insulin from Novo Nordisk will be capped at 35 bucks a bit prior to the April 2nd, 2026, but still it was in effect. Eli Lilly also Zepbound, which has already dropped to 300 to 350 dollars a month after working
problem and the bigger concern is that a lot of the US pharmaceutical supply production, especially from countries like China or India. According to the FDA, more than 80% of the manufacturing sites for active pharmaceutical
ingredients are located outside of the country and that China and India together supply more than 70% of the active pharmaceutical ingredients used in US drug manufacturing. And just like the car sector, if a drug has any active
country, they will pay that country's tariff rate. But the part that's really are currently exempt from tariffs for now, the White House said that they will drugs end up getting hits, important drugs like antibiotics, cancer
arthritis medication, that might go up in price as well. I just don't know what going to be in the future. So we can clearly see that the trade strategy or the trade decision that is around national security and protectionism ends
up snowballing into tariffs across one sector and then another sector and then another. Cars are already more expensive, electronics are becoming more next. So, let's talk about what all of this actually costs you as a consumer
Foundation estimates that tariffs currently in effect amount to roughly $1,500 in additional costs per American household in 2026. And Yale University's Budget Lab puts it at between $600 and $1,300. Whichever number you use, it's
paying more for a lot of goods, not just today, either. The whole argument was that these policies will bring manufacturing back home to the US, but I would actually argue that when the US is
the past, it actually makes us weaker because countries will trade without us. For example, some of the biggest trade deals of the year so far have been the agreement with India. The conclusion there is that India will eliminate or
reduce tariffs on 97% of EU goods and that the EU will eliminate tariffs on that the EU will eliminate tariffs on 89.5% of Indian imports over 7 years. Another big trade deal is that Canada struck a deal with China to cut tariffs
on electric vehicles, the very same EVs that we don't have access to. And in that deal, China agreed to cut tariffs on Canadian canola oil. But in America, quote, "Imports from China have declined by $135 billion in the last year
relative to 2024. However, imports from the 13 other Asian nations included in a billion. So, it seems like even if we have reduced our reliance on some countries imports, we are just shifting that
it is still early. Some of these factory investments could pay off in 5 or 10 years, but as of right now, we're paying higher prices. I think that we are falling behind in key technologies and the rest of the world is making deals
Act taught us anything, it's that once you start incorporating walls and countries are going to retaliate, and that's just the natural reaction of other nations. So, what can you actually do about it as of right now? Are there
to hedge against these trade policies? I think there are three. Number one, if whether that's a car, laptop, or cell phone, I would say just to do it as soon will get you a better deal. Prices are all projected to go up in the second
half of 2026 and not down, so I'd definitely look at buying things sooner on any type of branded medication, I would talk to your doctor about generic alternatives. Generic drugs will hopefully stay tariff exempt. Now, if
a good thing, but if you don't have the best health insurance and you're also dependent on some type of brand named pharmaceutical drug, I would definitely hospital just to know what the implications of the costs are going to
to really think about your consumption of everything. US trade policies and tariffs are just essentially consumption taxes. The more you consume of imported goods, the more you're probably going to pay. So, on this channel, I like to buy
quality. If you can avoid impulse purchases in a tariff environment, I think that's not only a good financial mindset to have, it's just a practical perspective, I think that these trade policies are going to cause inflation. I
mean, they already kind of have. And so, that means if you're sitting in cash right now, your purchasing power is decreasing as we speak. One way to hedge markets and adding some international stock exposure can help you hedge
know what the effects of these policies personally just not optimistic on keeping America gated from the rest of point out that the stock market is really great because of all the progress
in the AI space. For example, the S&P 500 is near all-time highs. However, I'm not the economy and many people are arguing that the economy isn't doing as great. We're seeing mass layoffs across many different companies right now as
expensive. So, I'm just really not confident that everything is just going to be perfect and dandy for the next few years as many stock market bulls are. Of comments on what you think if you have a counterpoint or similarly if you
resonate with this video, let me know down below. Again, thank you for joining This was a little bit of a different one compared to the stuff I usually put out. like this video right here on Japan's debt bomb that I covered just a couple
market news, I think you would enjoy that video. So, I'll see you guys in that one or a future one on the channel. All right, peace out.