Context:
The global trade war intensified, as China and the European Union imposed new tariffs on US goods in retaliation to President Donald Trump’s sweeping 104% tariffs on Chinese imports, further destabilizing global markets and increasing the risk of a global recession.
Key Developments:
China Retaliates with Massive Tariff Hike
- China raised tariffs on US imports from 34% to 84%, affecting a wide range of goods.
- Beijing also imposed restrictions on 18 additional US companies, mostly in defense-related industries, bringing the total to over 60 punished US firms.
- Chinese President Xi Jinping vowed to deepen ties with neighboring countries and improve regional supply chains to counter US pressure.
- China’s currency (yuan) is under heavy downward pressure, but the central bank is acting to stabilize it.
European Union Responds
- The EU voted to impose a 25% tariff on selected US imports as part of its first round of countermeasures.
- The bloc faces US tariffs of 20% on most products, and higher duties on autos and steel.
- EU’s actions aim to defend multilateral trade norms and protect European industries.
Market Reaction & Economic Fallout
- Global stock markets plunged, wiping out trillions in market value.
- Oil prices dropped to four-year lows.
- Investors dumped US Treasuries and the dollar, signaling fading confidence in traditional safe havens.
- S&P 500 suffered its deepest loss since the 1950s.
- Global pharmaceutical stocks declined after Trump hinted at major new tariffs on drug imports.
Economic Risks & Consumer Impact
- JPMorgan Chase CEO Jamie Dimon warned the tariffs could lead to a recession and loan defaults.
- Economists project the tariffs will raise household costs in the US by thousands of dollars annually.
- A Reuters/Ipsos poll showed 75% of Americans expect prices to rise due to tariffs.
US Trade Strategy and Diplomacy
- US Treasury Secretary Scott Bessent stated that the administration could reach tariff agreements with allies such as Japan, South Korea, and Vietnam before confronting China as a bloc.
- Bessent will lead negotiations with over 70 countries to reduce tariffs.
- He emphasized that while markets are volatile, CEOs say the underlying US economy remains strong.
- US Trade Representative Jamieson Greer clarified that Trump’s tariff policy does not aim to revive trade with Russia.
Trade Balance Trends (Goods Only, in $ billion):
With China:
| Year | Exports | Imports | Trade Balance | Deficit Share (%) |
|---|---|---|---|---|
| 2018 | 120.3 | 538.5 | -418.2 | 48.1 |
| 2023 | 147.8 | 426.9 | -279.1 | 26.3 |
| 2025* | 20.4 | 73.3 | -52.9 | 17.5 |
With EU:
| Year | Exports | Imports | Trade Balance | Deficit Share (%) |
|---|---|---|---|---|
| 2018 | 318.5 | 486.9 | -168.4 | 19.3 |
| 2023 | 367.6 | 576.3 | -208.7 | 19.6 |
| 2025* | 60.0 | 108.7 | -48.7 | 16.1 |
*Jan–Feb data
Source: US Census Bureau, compiled by BS Research Bureau
Political Outlook
- Despite economic turbulence, Trump remains defiant, tweeting: “BE COOL! Everything is going to work out well. The USA will be bigger and better than ever before!”
- Trump argues that tariffs are rebuilding the US industrial base, with flexibility for bilateral negotiations.
The global trade landscape is undergoing a dramatic shift, with retaliatory tariffs disrupting decades-old trade norms. While the US signals readiness to negotiate with allies, it remains locked in an escalating standoff with China and the EU, triggering widespread market uncertainty, recession fears, and inflation concerns.
