US President Donald Trump abruptly suspended tariff increases on most countries for 90 days, sparking a global market rally. But in a sharp escalation with China, he raised duties on Chinese imports to 125%, blaming Beijing for showing a “lack of respect.”
The twin moves reflect Trump’s unpredictable approach to trade—tempering global tensions while doubling down on his feud with Washington’s top economic rival.
After days of market volatility, Wall Street and Asian markets surged following Trump’s announcement of a 90-day halt on tariff increases for nearly all nations. However, just hours after Beijing unveiled retaliatory tariffs of 84% on US goods, Trump raised the stakes against China. Beijing’s countermeasures came into effect on Thursday afternoon (04:01 GMT), further escalating the standoff between the world’s two largest economies.
Meanwhile, Trump denied any policy reversal, telling reporters, “You have to be flexible.” He added, “People were jumping a little bit out of line, they were getting yippy, a little bit afraid,” referencing a sports term for a loss of composure.
The US President cited the “very tricky” state of the US bonds market as a factor in his decision, noting a spike in bond yields during a broader stock sell-off—typically a warning sign as US government debt is seen as a safe haven during uncertainty.
Despite the rising tensions, Trump predicted eventual deals with all countries, including China. “A deal's going to be made with China. A deal's going to be made with every one of them,” he said, though he added that Chinese leaders “don’t quite know how to go about it.”
The US President also said he “can’t imagine” raising tariffs on China beyond current levels.
Bloomberg reported that China’s top leadership was due to meet Thursday to discuss further economic stimulus to counteract the trade war’s growing impact on its already vulnerable economy.
Markets react to the tariff war
Markets have been on a rollercoaster since Trump unveiled sweeping global tariffs last week on what he termed “Liberation Day.”
A baseline 10% tariff was imposed on all countries from Saturday, with higher rates targeting key trade partners like China and the European Union starting Wednesday.
In a surprise statement on his Truth Social network, Trump later authorised a 90-day pause on the increased tariffs, while retaining the 10% baseline. He said more than 75 countries had reached out to negotiate and refrained from retaliatory action.
Japan, which faced a 24% tariff under the so-called reciprocal measures, welcomed the pause but still “strongly” urged Washington to reconsider other duties, particularly on steel and auto exports.
The European Union responded earlier with countermeasures targeting over €20 billion worth of US products—ranging from soybeans to motorcycles and beauty products. However, the bloc did not retaliate against the 20% “Liberation Day” tariffs that took effect on Wednesday.
Markets responded positively. The S&P 500 surged 9.5% to 5,456.90, rebounding from a week of sharp declines.
Asian markets also rallied on Thursday, with strong gains in Hong Kong, Tokyo, Taipei, Sydney, Jakarta, and Singapore. Shanghai stocks rose too, despite Trump’s increased tariffs on China.
Trump has justified the tariffs as a means to revive US manufacturing by pressuring companies to relocate operations back to the United States. He has repeatedly accused China of excessive production and “dumping” cheap goods in foreign markets.
As tensions mount, China’s Ministry of Culture and Tourism advised travellers on Wednesday to “fully assess the risks” before visiting the US.
Meanwhile, here's where things stand in the US-China trade war.
What actions has trump taken so far?
Trump announced on Wednesday that tariffs on Chinese imports would be raised to 125%, calling out Beijing’s “lack of respect”. This marked the latest escalation in a growing tit-for-tat conflict between the two economic giants.
Earlier that day, a previous round of US tariffs took effect, raising duties on Chinese goods to 104%. In addition to these sweeping measures, China remains subject to targeted tariffs on steel, aluminium, and automobile imports.
How has china responded?
China has pledged to “fight to the end” and has matched each of Trump’s escalations with reciprocal tariffs.
In response to the 104% US tariffs, Beijing announced its own hikes—from 34% to 84%—effective Thursday. It also lodged a complaint with the World Trade Organization (WTO), accusing the US of “bullying” tactics.
By Thursday morning, China had not responded to the 125% tariff hike.
However, its countermeasures have begun to extend beyond trade, with official warnings to citizens about the risks of travel or study in the United States. Despite harsh rhetoric, Beijing continues to advocate “equal dialogue” to resolve the dispute.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, said China had sent a “clear signal” that it would not retreat, adding there was “(no) quick and easy way out” of the conflict.
Haibin Zhu, chief China economist at JP Morgan, echoed that sentiment, stating “the bar for a possible deal is high.”
How vulnerable is China to US tariffs?
The US and China are major trading partners.
In 2024, China exported over $500 billion worth of goods to the US—representing 16.4% of its total exports, according to Chinese customs data. Meanwhile, it imported $143.5 billion in US goods, dominated by agricultural products such as oilseeds and grains, alongside oil, gas, pharmaceuticals, and semiconductors.
China's substantial trade surplus with the US—$295.4 billion in 2024 according to the US Commerce Department—has long drawn Trump’s ire.
Beijing’s reluctance to provoke a breakdown in trade is partly due to the importance of exports to its economy, especially as it grapples with a fragile post-Covid recovery, a debt crisis in the property sector, and weak domestic consumption.
While exports hit record highs in 2024, an intensifying trade war may undermine growth prospects, forcing China to rely more heavily on domestic stimulus to sustain economic momentum.
What impact will US tariffs have?
The head of the WTO Ngozi Okonjo-Iweala said on Wednesday that the US-China tariff war could cut trade in goods between the two countries by 80%. Given the two economic giants account for 43% of world trade this year, the conflict could "severely damage the global economic outlook", Okonjo-Iweala said.
Analysts expect the levies to take a significant chunk out of China's GDP, which Beijing's leadership hope will grow five percent this year.
Likely to be hit hardest are China's top exports to the United States -- everything from electronics and machinery to textiles and clothing, according to the Peterson Institute of International Economics.
And because of the crucial role Chinese goods play in supplying US firms, the tariffs may also hurt American manufacturers and consumers, analysts have warned.
Paul Ashworth, chief North America economist at Capital Economics, said it was "difficult to see either side backing down in the next few days." But, he added, "talks will eventually happen, although a full rollback of all the additional tariffs... appear unlikely."
(With inputs from AFP and AP)
