Module 2 • Tariffs (2025) → Capital/FX Tension (2026) • Practical Dashboard

What this module is really about

2025 felt like a goods-policy story (tariffs, sourcing, prices). 2026 risk increasingly shifts toward a money-and-capital story: capital flows, FX management, reserve choices, and funding conditions.

Plain-English takeaway: “Tariffs are visible and political. But capital markets move faster than goods. When countries start fighting over funding, reserves, and exchange-rate competitiveness, the ripple effects hit rates, jobs, and asset prices.”

Why students should care (career + life)

Trade policy becomes margin pressure, risk management, FX exposure, and cost of capital.

Job market

Rotates

Winners/losers shift across sectors.

Borrowing costs

Sensitive

Yields feed into auto, credit card, mortgages.

Paycheck reality

Real vs nominal

Inflation decides whether you feel “richer.”

Investing

Regime matters

FX + inflation changes stock/bond tradeoffs.

Class edge: If you can explain inflation, 10Y yield, dollar strength, credit spreads, and financial stress, you will sound credible fast.

1) 2025 Tariff Results: what shows up first (and why students feel it)

Use these as “results buckets.” Give one real-life example for each.

Prices

↑

Tariffs behave like a tax wedge; pass-through varies by substitutes and market power.

Supply chains

Re-route

Mexico/Vietnam/India substitution; redesign BOMs; buffer inventory.

Retaliation & uncertainty

Targeted

Uncertainty reduces investment (option value of waiting).

Jobs

Mixed

Protected pockets may gain; downstream users face margin squeeze.

Class sentence: “Short run (0–18 months) is mostly prices, delays, and retaliation. Long run (2–5+ years) depends on whether real capacity/investment moves.”

2) Lessons learned

The most important idea is incidence: who really pays depends on elasticities and time.

Incidence & elasticities (the “who pays?” engine) Core

Who pays?
Consumers vs importers vs exporters depends on demand elasticity and supply alternatives.

What adjusts?
Prices vs quantities vs sourcing vs FX depends on constraints and time-to-build capacity.

Class-ready line: “In the short run, tariffs show up as price pressure and margin compression. In the long run, the effect depends on re-optimized supply chains and investment relocation.”

3) Why 2026 becomes a “capital war” story

A trade fight hits goods flows. A capital fight hits funding, reserves, and interest rates—and those touch everything.

Simple claim: When growth is pressured and politics are tense, countries care more about who funds whom, in which currency, and at what interest rate.

Trigger

Tariff fatigue

If frictions persist, adjustment migrates into FX/rates/capital markets.

Mechanism

Capital flows

Yield differentials + risk premiums move FX fast.

Policy tools

Rates + funding

Intervention, swap lines, macroprudential tools, capital controls.

Student impact

Rates + jobs

Loan rates, hiring pace, real wages, asset prices.

4) “Capital war” in one diagram (in words)

Channel	What changes (often)	Why it matters
Settlement & invoicing	Some trades settle in non-USD / local currency arrangements.	May reduce incremental USD demand at the margin (usually gradual).
Reserve diversification	Central banks rebalance toward other assets (EUR, gold, RMB, etc.).	Affects marginal Treasury demand and long-run narrative about monetary order.
Funding conditions	Dollar funding stress can spike in risk-off episodes.	Raises volatility; policy responses can be fast and nonlinear.
Interest-rate clearing	If Treasury demand falls, yields adjust to clear the market.	Higher yields feed through to loans, valuations, and hiring decisions.

Key sentence: “If Treasury demand weakens, yields rise unless offset by private demand, weaker growth (flight-to-safety), or a central bank balance-sheet response.”

Ray Dalio: “Capital war” fears

Bridge from tariffs (goods) to money-and-capital order.

Prompt (2 minutes): What does “monetary order breaking down” mean in practical terms? Name one channel: reserves, funding stress, yields, FX management.

How to prepare (students can do this)

A practical routine for market literacy (10 minutes/week).

Weekly routine (10 minutes) Practical

Step 1: Rates (10Y direction)

Step 2: Spreads (IG/HY widening?)

Step 3: Dollar (USD strengthening?)

Step 4: Jobs + wages (real income)

Step 5: Stress (liquidity/volatility)

Class translation: “I watch yields, spreads, and the dollar as a quick read on financing conditions and risk appetite, then map that to margins, spending, and hiring.”

5) Practical dashboard: what to watch (and what it means)

Open any indicator to see: definition, sources, current value, high/low range, and class-ready takeaway.

Current snapshot: (auto-generated below)

Data timestamp —

Watch closely if —

Hint: Pick one indicator and explain: (1) what it measures, (2) why it moves, (3) who cares, and (4) what it implies for jobs/loans/investing.

Quiz (10 questions) — The 10 Indicators

Multiple choice with instant feedback (A/B/C). Use this to check your dashboard interpretation skills.

Directions: Click an answer choice. You will see the correct answer and a short explanation immediately.

Indicator links (FRED / sources):

CPI PCE 10Y USD IG OAS HY OAS Payrolls Unemployment Wages WTI ISM PMI Trade Stress

Exit ticket (2 minutes)

If 2025 was the “tariffs and goods flow” year, why does 2026 look more like a “capital flow and monetary order” year? Use at least two of: capital flows, reserve diversification, yield differentials, financial stress, FX management.

Homework (Due with Exam 1)

Keep it simple. Use the dashboard + one paragraph of your own reasoning.

A) Quick questions (answer in 1–3 sentences each)

1) 2025 Tariffs: short run vs long run

Give one short-run effect and one long-run effect of tariffs, and explain why the timing differs.

2) Capital flows and rates

Explain how weaker demand for Treasuries could affect yields and then loan rates for households.

3) Dollar strength

If the USD strengthens, who tends to benefit and who tends to suffer? Give one example of each.

4) Credit spreads

Why do widening high-yield spreads often show up before layoffs and slower hiring?

Submission: Put answers A1–A4 at the top of your document. Keep each answer short.

B) 300-word reflection: “Current conditions + my adaptability plan”

Write ~300 words (±50 is fine). Use at least 3 indicators from the dashboard.

Prompt (copy/paste into your document) 300 words

Part 1 — Current conditions (150–200 words):
Using the dashboard, describe today’s environment. Reference at least 3 indicators by name (example: 10Y yield, inflation, credit spreads, jobs, financial stress). Explain what each suggests and whether they tell the same story or different stories.

Part 2 — My adaptability plan (100–150 words):
Explain what you will do over the next 6–18 months to stay adaptable if uncertainty rises. Include:

1 skill investment (Excel/Power BI, Python, market literacy, sales/relationship skills)
1 financial habit (emergency fund, reduce variable-rate debt, inflation-aware budgeting)
1 career move (internship strategy, networking, industry choice, certifications)

Required sentence:
“If conditions tighten (higher yields/spreads), I will respond by __________ because __________.”

Required sentence:
“If conditions ease (lower stress/spreads), I will take advantage by __________ because __________.”

Grading: clarity (40%), correct use of indicators (40%), practical plan (20%).

Bonus (optional): “One chart, one sentence” +2 pts

Pick one dashboard series link (FRED/ISM/etc.), screenshot the chart (1Y view is fine), and add one sentence explaining what changed and why it matters.