From eggs to iPhone: An unprecedented trade war bloodbath on the middle class Wallet

Source: Silica Rabbit

Trillions of Funds Urgently Flee! How Can Chinese and American Venture Capital Survive in Crisis?

An indiscriminate attack on tariffs sparked a global domino reaction, and US President Donald Trump, on his 100th day in office, told the world that he was back.

On April 3, Trump announced the "reciprocal tariff" rates for the United States, involving more than 180 countries and regions. China, the European Union, Vietnam, Taiwan, Japan, and India are the top five on the "reciprocal tariff" list. They are not the countries with the highest tariff rates, but still rank at the top, indicating where Trump's intention lies with this round of U.S. tariffs.

(Image source: CNBC Top Five Countries in U.S. Tariff Policy)

It is worth noting that the reciprocal tax rate does not represent the total tax rate on a country's import and export products, but is only one of them. Taking China as an example, the new tariff rates imposed on China will be added on top of the existing 20% tariff, which means that the actual tariff rate charged on China during Trump's term is 54%.

The White House announced that a 10% baseline tariff for all countries will take effect on April 5, while a series of larger "personalized" tariffs will take effect on April 9. Interestingly, the day after the tariffs were announced, Trump hinted, "Everyone is welcome to negotiate."

First give a big stick, then throw out some sweet dates. Trump clearly applied the typical business tactics of a businessman to the governance of the country's economic trade. But obviously, in a globalized economy, it is impossible for Trump to make decisions all by himself.

China has taken the lead in retaliation by imposing an additional 34% tariff on all imported goods originating from the United States, based on the currently applicable tariff rates. Similarly, the existing bonded and tax exemption policies remain unchanged, and the newly imposed tariffs will not be exempted. The European Union will implement the first round of retaliatory tariffs against the U.S. starting April 15.

Some people also choose to "show goodwill to survive." As early as a week ago, the Vietnamese Ministry of Finance announced a reduction in tariffs on U.S. liquefied natural gas from 5% to 2%, a reduction of tariffs on U.S. imported cars from a range of 45% to 64% down to 32%, and a reduction in ethanol tariffs from 10% to 5%.

On April 7, as the benchmark tariffs established by the United States officially took effect, global stock markets experienced a "Black Monday." The Korea Composite Index opened down over 4%, while the Nikkei 225 Index fell nearly 2%. In the domestic A-share market, the Shanghai Composite Index opened down 4.46%, the Shenzhen Component Index opened down 5.96%, and the ChiNext Index opened down 6.77%.

(As of the market close on April 7, global indices changes Source: Yahoo Finance)

According to statistics, the market value of US stocks evaporated by about $6.6 trillion within two days, equivalent to the entire annual fiscal revenue of the US government. The market value of the seven major American tech companies evaporated by $1.84 trillion overnight.

A black swan called "Tariff" is creating waves globally, affecting both businesses and individuals without exception. What kind of impact will this storm have on the venture capital market? How will it affect entrepreneurs in China and the United States? What kind of shock will ordinary people's lives experience? When the future becomes unpredictable, how should we respond to such a turbulent business society?

01 Venture Capital: IPO Recovery Delayed Again, Valuation Bubble Set to Burst

April 3rd marks the dividing line for this year's US stock market IPOs and the pause of the AI frenzy.

Prior to this, AI infrastructure provider CoreWeave successfully went public, taking advantage of the AI boom and temporarily alleviating its debt crisis. Meanwhile, ticket seller StubHub and consumer loan institution Klarna, both preparing to hit the Nasdaq, saw their stock prices plummet due to the announcement of tariff plans and chose to postpone their IPO plans. Fintech unicorn Chime also paused its IPO process.

The delay in the IPO means that opportunities for venture capital to exit directly are reduced. Ethan Batraski, a partner at early-stage venture capital firm Venrock, expects a recovery in IPOs to occur in the second half of this year or next year. However, with the current tariff policies in place, the "IPO window period has been pushed back by 6 to 12 months."

But he believes that Trump's tariffs have a greater impact on mid-term and later-stage funds. For funds focused on early-stage investments, "this is not important. Our vision is 10 to 15 years, and I believe this is still the best time in history to build companies."

"We previously thought that the liquidity market would open by 2025." Tomasz Tunguz, founder of Theory Ventures, an early-stage software investment company, mentioned that this round of tariffs "will definitely" affect venture capitalists, "If investors see that there are no companies in the market capable of moving towards IPO or being acquired for over a year, I expect corporate valuations to decline."

Vikram Chaudhery, a partner at the venture capital firm Genoa Ventures, stated that later-stage venture capital and private equity funds, along with their limited partners, have become increasingly cautious when signing new deals, to the point that "the capital we previously thought might be available now is not flowing."

When policy directions change rapidly, companies often adopt a wait-and-see attitude. Due to the uncertainty in the macroeconomic and regulatory outlook, it is difficult for companies to quickly adapt to the market while planning for the future in advance. Anna Levine, founder of venture capital firm E1 Ventures, stated that some investors will delay Series A funding until the tariff exemption terms are clarified.

This is also true for new funds that are raising money. In the past week, at least two limited partners have stated that they have paused new investments or fundraising for venture capital firms until the economy stabilizes.

At the same time, some funds primarily focused on the Canadian, Mexican, or Chinese markets may be slightly affected, with private equity funds "facing valuation pressures and slower transaction completion speeds." Some investment institutions may also advise companies reliant on international trade to engage in "scenario planning" and develop more flexible supply chains.

(Image: Bloomberg, FactSet, CICC Research Department)

Eric Bahn, co-founder of early-stage venture capital firm Hustle Fund, suggests that startups should be more cautious with their spending and purchase hardware such as laptops or phones before prices rise. "The safest approach is to assume that your last (venture capital) round was indeed your last round for some time." He also talked about "making full use of artificial intelligence to alleviate cash burn pressure and improve efficiency."

Software companies may not be spared either, as some clients who spend millions of dollars on software each year are postponing deals with Microsoft, Salesforce, SAP, Oracle, and ServiceNow, choosing to wait and see how the market develops, and reducing their cost expenditures.

Other forms of investment are also slowing down, and some investors from wealth management groups are re-evaluating their portfolio companies, concerned about the operating businesses responsible for their wealth. According to Fintrx data, family offices completed only 40 direct transactions in March, a year-on-year decrease of 45% and a month-on-month decrease of 22%.

However, some investment institutions have still avoided this tariff crisis. Mitchell Green, founder and managing partner of growth equity investment firm Lead Edge Capital, stated in an email that the company has invested in Zoom and Spotify. "We primarily invest in high-margin digital businesses, so we are not currently very susceptible to the direct impact of tariffs."

Emergence Capital general partner Jake Saper (Jake Saper) stated that software startups and logistics startups that can help improve visibility in enterprise supply chains can benefit from tariffs.

Hans Swildens, the CEO and founder of investment company Industry Ventures, stated that another industry that may benefit is companies developing international shipping and port software. Swildens mentioned that these companies provide software to help importers manage tax and legal compliance, and new tariffs could open up new revenue streams for them.

"If venture capital firms can find startups that can help companies adapt to tariff changes, they may reap substantial rewards. But they could also lose everything," he said, "that's venture capital."

02 Hard Technology Becomes a Hard-Hit Area: Facing Multiple Tariffs, Companies Halt Deliveries, Prices May Soar

The recent U.S. tariff policy may make the hard technology industry one of the "hard-hit areas" in the United States, and ultimately, some consumers may bear the cost.

Taking the automotive industry as an example, Trump announced a 25% tariff on all imported cars and a 25% tariff on certain auto parts. Some have calculated that if these taxes are fully passed on to consumers, the average price of imported cars could increase by $12,500.

In response, global automotive companies have reacted differently.

First is Tesla. All cars sold by Tesla in the North American market are produced in factories located in Fremont, California, and Austin, Texas. This also means that Tesla does not need to pay the 25% automobile import tax. However, about 20% to 30% of the auto parts used in Tesla's production are imported, so Tesla cannot completely avoid the impact of tariff changes.

To this end, Musk has once again wielded his political power. According to the Wall Street Journal, recently, Musk, who has successfully "gained access," directly suggested to Trump: cancel the tariff policy, but Trump bluntly stated it was impossible. Musk then indirectly proposed the establishment of a US-Europe reciprocity zone, which was also rejected.

On April 7, Musk subtly shared a video on his social media account showing the benefits of global trade cooperation through a wooden pencil, implying that he does not support tariff policies.

Tesla is not the automaker most affected by this tariff; it may even be one of the least impacted automakers, as all other car manufacturers are in a worse situation than Tesla.

Some emerging electric vehicle manufacturers, such as Rivian and Lucid Motors, produce electric vehicles in the United States, but their imported components are subject to tariffs. At the same time, these companies have not yet achieved full profitability, which means they are still operating at a loss on each electric vehicle sold, putting greater operational pressure on the businesses. For example, Ford's most popular all-electric Mustang Mach-E and the hybrid pickup Maverick are produced in Mexico, while General Motors produces the Blazer and Equinox electric vehicles in Mexico.

Imported cars are also one of the victims of this tariff. Italian luxury car manufacturer Ferrari General stated that it will raise the prices of some models after April 1, with an increase of up to 50,000 dollars for each ordinary car.

Most electric vehicles from Hyundai Motor Company are produced in South Korea, and the company has promised that existing model prices will not be raised until June 2. Infiniti of Nissan has stated that production of the QX50 and QX55 will be paused "until further notice."

Volkswagen of Germany is launching an emergency plan for the North American market: a complete suspension of the rail transport channel for vehicles in Mexico, while holding back unsold vehicles at European shipping ports. On April 7, Audi of Germany decided to suspend the delivery of new cars to its dealers in the United States.

(U.S. Port Terminal Source: The Information)

The situation is changing, and many automotive companies have quickly responded to the market, starting to plan ahead for the next step.

Stellantis announced on Thursday that it will suspend production at two assembly plants located in Canada and Mexico, affecting 900 workers. The shutdown at the Canadian plant will last for two weeks, while the Mexican plant will be closed for one month.

Swedish Volvo Cars has announced plans to produce more vehicles in the United States and strengthen its regional presence by establishing centers in China and Europe. The company is considering expanding the production of its EX90 SUV in the United States to increase output and reduce costs.

In addition to automobiles, consumer electronics have also been affected. Among them, the most representative is Apple, whose stock price dropped by 19% within three days, resulting in a loss of $638 billion in market value. Reports indicate that Apple transported five planes loaded with iPhones and other products from India to the United States in just three days at the end of March.

Apple has been trying to globalize its layout all along, but whether it's China, Vietnam, India, or even Thailand and Malaysia, these are all key areas affected by the tariffs.

According to the third-party research firm Evercore ISI, 90% of iPhones, 55% of Macs, and 80% of iPads are assembled in China. About 10% to 15% of iPhones are assembled in India. Approximately 20% of iPad production and 90% of Apple wearable products (such as Apple Watch) assembly take place in Vietnam.

Moreover, a significant number of Apple's components come from China, with Chinese suppliers accounting for about 40% of Apple's total supplier count. This also means that even if assembled in the United States, many components will face double tariffs. UBS analysts estimate that the price of Apple's highest-end iPhone could rise from the current $1199 by about $350, an increase of approximately 30%.

In addition, tariffs have led to a partial "standstill" in the aerospace industry. The aerospace sector has always been the largest export industry in the United States, and the delivery time for aircraft contracts can often be lengthy and subject to many variables. Moreover, aircraft are products of globally integrated innovation.

An airplane often hides the global supply chain. For example, the supply chain of the Boeing 787 aircraft assembled in South Carolina extends from Japan to Italy. Howmet primarily provides the key components required for jet airliners to Airbus and Boeing. After the announcement of the U.S. tariff policy, Howmet will no longer provide any products or services affected by the declared national emergency or tariff executive orders.

According to Boeing's data, over two-thirds of the company's aircraft orders in the past decade have come from customers outside the United States. Airbus's jets are currently primarily manufactured in Europe.

"The American technology industry could regress by a decade," said an investor. He believes that tariffs are essentially a war, and in the end, all prices will ultimately be borne by consumers, leading to increased inflation.

03 Consumption: No One is Immune Under Tariffs from Eggs to Beer and Coffee

Who would have thought that in 2025, ordinary eggs would become a "luxury item" in the hearts of ordinary Americans.

According to data from the American Egg Board, the average retail price of a dozen eggs increased by 65% in the past year, reaching $4.15, with some areas even hitting $9.

As the global trade market plays its role, with eggs imported from Turkey and Europe helping to alleviate the "egg shortage" in American supermarkets, tariffs will disrupt everything once again. Turkey accounts for 60% of the eggs imported to the U.S., with an additional reciprocal tariff of 10%, while Mexico accounts for nearly 40% of the imported eggs.

In addition to eggs, the coffee that Americans love to drink is also facing double tariffs. This is because the United States does not produce coffee; it mainly imports coffee beans from Colombia, Brazil, Indonesia, and other coffee-producing countries. Now, these countries are all facing new tariff policies, making price increases inevitable.

Not only the coffee beans themselves, but the Trump administration has imposed a 25% tariff on all empty aluminum cans, which will further exacerbate the price increase of coffee products. Other beverages are also not spared from the tariff assault, with all imported canned beer being subject to a 25% tariff. Other daily necessities such as bananas and toilet paper also face the threat of tariffs. Many Americans, upon hearing the news of the tariffs, rushed to supermarkets to start stockpiling.

Some food processing companies are caught off guard by sudden changes in tariffs. Ori Zohar, co-founder of the New York spice company Burlap & Barrel, stated that he does not plan to renegotiate with farmers or raise customer prices. The company primarily sells high-end spices sourced from small farmers around the world, including Vietnam and India, with an annual revenue of $9 million. Now, the company has chosen to freeze hiring and suspend the launch of various new products to stabilize the situation.

Similarly, Krista LeRay, the owner of the canvas embroidery business Penny Linn Designs (Krista LeRay), also stated that absorbing the higher costs brought by tariffs without passing them on to consumers will be "very difficult." The increase in taxes not only affects the prices of raw materials but also impacts the export prices of goods. "Some products have no profit and have to raise prices, and once prices go up, it is very difficult to bring them down again."

Nowadays, in small and medium-sized enterprises in the U.S., they either raise prices and reduce their customer base, or they bear additional costs themselves, leading to a loss in corporate profits. It is foreseeable that once the majority of people's livelihoods encounter difficulties, it may be hard for everyone to invest in some clothing and soft furnishings, and many small and medium-sized enterprises will also face operational difficulties.

Conclusion: Slogan or Signal? The Direction of Tariffs is Uncertain

This massive tariff shock is a "thunderclap" to the global economic market after Trump took office.

When Trump announced the tariff policy, he also laid the groundwork for this tariff policy, finding good excuses like revitalizing manufacturing, helping to pay off U.S. debt, increasing leverage in trade negotiations, reducing the trade deficit, and stimulating the U.S. economy, among others. But in summary, Trump is trying every possible way to "make money."

Where does the money come from? Whether it's from businesses, consumers, or the government itself, it doesn't seem to matter to Trump as long as the problem can be solved; "Tariffs are a panacea for economic problems," Trump said.

Currently, the U.S. Congress is also proposing new legislation to try to limit Trump's power to set tariffs, hoping that Congress will have the authority to abolish tariff policies within 60 days. However, the likelihood of this bill passing is very low. In just 100 days, from Musk to the U.S. Congress, to the millions of people taking to the streets, this newly elected president by the American public has picked up the tariff "mace" to strike at everything.

From the CHIPS Act during Biden's administration, to the repeatedly delayed TikTok ban, and now this tariff policy. The U.S. economy and politics are in turmoil, with many saying, "I don't believe the tariff policy will still exist in two months."

Will the story of "The Wolf is Coming" continue to unfold in the United States? What direction will the tariff policy take? No one can see clearly, but it can be confirmed that the global economic system is entering an unpredictable situation, the global order is gradually collapsing, and Chinese and American venture capitalists may need to be more flexible in facing market changes.