MON · MAY 18, 2026 · ISSUE #022

📌 TODAY'S TOPIC

Trump just left Beijing after the most important US-China summit in a decade. A tariff truce extended. 200 Boeing planes sold. The effective US tariff rate still sits at 15.8% — the highest since the 1930s. To understand what just happened, you first need to understand what tariffs actually are.

🔍 WHAT IS IT?

A tariff is a tax on imported goods. When a product crosses the US border, the importer pays a percentage of its value to the US government. A 25% tariff on a $100 imported widget means the importer pays $25 to US customs before the widget can be sold.

That sounds simple. The economics are not.

The first question everyone asks is: who pays the tariff? The answer, consistently across economic research, is that the cost falls primarily on domestic consumers and businesses — not on foreign exporters. Around 80–85% of tariff costs were absorbed domestically — either US corporations took the hit, or they passed it on to customers, or a mix of both. The foreign country loses some export revenue. But the American importer, and ultimately the American consumer, bears most of the cost.

The Trump tariff story in 2026 has a dramatic twist. On February 20, the Supreme Court ruled 6–3 that IEEPA — the International Emergency Economic Powers Act, which Trump had used to impose sweeping tariffs on nearly all trading partners — does not authorize tariffs. IEEPA measures accounted for roughly 61% of the year-to-date increase in US tariffs. Overnight, the legal foundation for the majority of Trump's tariffs collapsed.

Trump's response was swift. He imposed a new universal 10% tariff using Section 232 national security authority — a more legally durable but less flexible tool. He then announced tariffs of up to 100% on pharmaceutical imports. The Trump tariffs are the largest US tax increase as a percentage of GDP since 1993 — amounting to an average tax increase of $1,500 per US household in 2026.

The effective US tariff rate now stands at 15.8% — compared to 2.3% at the end of 2024.

And then came Beijing.

This past week, Trump flew to China for the first US presidential visit in nearly a decade. The summit produced a tariff truce extension — neither side will escalate further for now. China agreed to buy US oil, 200 Boeing aircraft, and increase agricultural purchases. But the structural reality hasn't changed: US tariffs on Chinese goods still stand at 47.5%, up from 3.1% before Trump's first term. China's tariffs on US goods stand at 31.9%, up from 8.4% in 2018. Two-way goods trade between the two countries fell to $415 billion in 2025, down sharply from its 2022 peak of $690 billion. A truce is not a resolution. The tariff era is not over — it has paused.

📖 INTERESTING HISTORY

Tariffs are as old as governments. But the modern story of how America went from free trade champion to tariff heavyweight is one of the most dramatic reversals in economic policy history.

The Smoot-Hawley Warning
In 1930, Congress passed the Smoot-Hawley Tariff Act — raising tariffs on over 20,000 imported goods to record levels. The stated goal was to protect American farmers and manufacturers during the Great Depression. The actual result: US trading partners retaliated with their own tariffs, global trade collapsed by 66% in three years, and the Depression deepened. Smoot-Hawley is the canonical example of how tariff wars, once started, are hard to stop and easy to escalate.

The Post-War Free Trade Era
Horrified by Smoot-Hawley, the post-war world built a global trading architecture designed to reduce tariffs. The GATT — General Agreement on Tariffs and Trade, signed in 1947 — and its successor the WTO progressively lowered barriers over decades. By 2016, the average US tariff rate was just 1.6%. Global trade had grown from 5% of global GDP in 1950 to 30% in 2016. The conventional wisdom was that free trade, whatever its distributional problems, made everyone richer in aggregate.

The 2018 Trade War — The Dress Rehearsal
Trump's first term tested that consensus. His 2018 tariffs on Chinese goods — starting at 25% on $34 billion of imports, eventually expanding to cover hundreds of billions — triggered Chinese retaliation, disrupted global supply chains, and raised prices for American manufacturers dependent on Chinese inputs. Empirical studies of the 2018–19 trade war concluded that tariff costs were borne primarily by US consumers and that this depressed both US and global growth. The trade war paused but never fully resolved — the Biden administration kept most Trump-era China tariffs in place.

The Supreme Court Twist
The February 2026 Supreme Court ruling was a landmark. For decades, presidents of both parties had used IEEPA — a 1977 emergency powers law — to impose economic sanctions. Trump stretched it further than any predecessor, using it to justify sweeping tariffs on allies and adversaries alike. The Court's 6–3 ruling that IEEPA does not authorize tariffs represents the most significant judicial check on presidential trade authority in modern history. It forced a reset — but Trump rebuilt the tariff wall within weeks using alternative legal authorities.

The Beijing Chapter
The summit builds on Trump and Xi's meeting late last year in South Korea that led to a thaw in the trade war — with both countries scaling back tariffs and China agreeing to halt export restrictions on rare earths. China comes into this meeting far more confident than in 2017, when it feared even a small rise in US tariffs. In the last year, Xi has been able to push back and neutralize much of Trump's actions. The balance of leverage in the US-China trade relationship has shifted meaningfully — and the Beijing summit reflects that new reality.

💡 WHY IT MATTERS TO YOU

The tariff debate is not abstract. It shows up in your prices, your job market, and your investment portfolio — and the Beijing summit this week changes some of the near-term calculus.

Your wallet — the $1,500 household tax
The Trump tariffs amount to an average tax increase per US household of $1,500 in 2026. This is not a bill you receive — it is embedded in higher prices across thousands of products. Procter & Gamble raised prices on 25% of its products due to tariff impact. Dollar Tree, Gap, American Eagle — retail across America is repricing around tariff reality. The consumer who shops at these stores pays the difference.

The Beijing truce — what it means for prices
The tariff truce extension from the Beijing summit means no immediate new escalation with China. That provides near-term price stability on Chinese goods — electronics, clothing, furniture, appliances. But existing tariffs of 47.5% remain fully in place. The truce is a ceiling on pain, not a reduction in it.

The pharma risk — still coming
The most significant new tariff front is pharmaceuticals. Trump has signaled tariffs of up to 100% on imported medicines by mid-to-late 2026. The US imports roughly 80% of its pharmaceutical ingredients — primarily from India and China. A 100% tariff would not bring manufacturing back to the US overnight. It would raise drug prices significantly for American consumers before any new domestic production comes online.

The Boeing and soybean deals
China agreed to buy US oil, 200 Boeing aircraft, and increase purchases of agricultural products. For Boeing — which has struggled with production issues and lost market share to Airbus — 200 aircraft orders from China is a significant lifeline. For American soybean and beef farmers, renewed Chinese purchases ease the pressure from years of trade war disruption. These are real economic wins from the summit.

Are they working?
The honest answer depends entirely on what "working" means. If the goal is raising revenue — yes. If the goal is protecting specific industries — selectively, with significant collateral damage. If the goal is reshaping global supply chains — partially, slowly, and at significant cost to consumers. According to the IMF, a universal 10% rise in US tariffs, accompanied by retaliation from the eurozone and China, could reduce US GDP by 1% and global GDP by roughly 0.5% through 2026. The Beijing summit suggests both sides understand the limits of escalation. Whether that understanding holds is the defining trade question of the next year.

📊 THE NUMBER TO KNOW

3.1% → 47.5%

US tariffs on Chinese goods — before Trump's first term and today. Despite the Beijing summit truce, tariffs remain at their highest level since the 1930s. Two-way US-China trade fell from $690 billion in 2022 to $415 billion in 2025. The summit paused the escalation. It did not reverse the decade of decoupling.

⏭ NEXT ISSUE — WEDNESDAY, MAY 20

"The Beijing Summit — What Trump and Xi Actually Agreed To"

Two days. Two leaders. The world's two largest economies. On Wednesday we go deeper on the Beijing summit — what was agreed, what was avoided, what Xi's Taiwan warning means for global markets, and why the meeting matters far beyond tariffs.

Thanks for reading MWF Macro.

Twenty-two issues in — and the story keeps evolving. The trade war that started with tariffs in 2018 reached a new chapter in Beijing this week. Forward this to someone who's been wondering why their grocery bill keeps rising.