The trade war between the United States and the People’s Republic of China (PRC) continues to escalate to dizzying new heights, amid the tariff chaos unleashed by US President Donald Trump.
After Trump raised tariffs on Chinese imports to the US to 125 percent, and then on Thursday opted to push the tariff up to 145 percent, Beijing immediately hit back and raised its tariffs on US goods from 84 percent to 125 percent.
China’s finance ministry was widely reported as saying that if the US insists on continuing to infringe upon China’s interest in a substantive way, China will resolutely take countermeasures and fight to the end.
Trump’s tariff chaos
Market turmoil began last week when Trump had announced America’s so called “Liberation Day” with sweeping “reciprocal” tariffs.
Trump’s tariffs announced last week were set at 10 percent for a few selected nations (including the UK, Australia, New Zealand and Singapore).
However Trump’s tariffs were much higher for 60 so called “worst offenders” which included China, Vietnam, Cambodia, South Africa, and even US allies such as the European Union, Japan and Taiwan.
Trump’s latest round of tariffs went into effect on Wednesday 9 April 2025, and markets around the world plummeted even further, with the Bank of England warning that the risk of “further sharp corrections” in the market was high, and that Donald Trump’s tariff war could UK financial stability at risk.
Facing plummeting stock and bond markets, Trump late on Wednesday backed down and posted on Truth Social a 90-day pause for countries hit by higher US tariffs, but at the same time escalated the trade war with China.
Trump said he was authorising a universal “lowered reciprocal tariff of 10 percent” worldwide as negotiations continued.
But at the same time Trump increased tariffs on goods from China to 125 percent “effectively immediately”, after Beijing had retaliated by imposing tariffs of 84 percent on US imports after Trump had ramped up import duty on Chinese goods to 104 percent.
After China’s retaliation, Trump raised China’s tariffs to 125 percent and then again to 145 percent.
Chinese response
In response Beijing has now raised its tariffs on US goods from 84 percent to 125 percent, but indicated it would not raise tariff levels any further as there was “no longer any possibility of market acceptance for US goods exported to China”.
The tit-for-tat moves saw the value of the US dollar plunge against other currencies reflecting falling investor confidence in the United States.
The dollar declined as much as 2.1 percent to hit a three year low against the euro.
The British pound meanwhile surged as much as 1.2 percent to more than $1.31.
Stock markets also experienced declines on Friday after the Chinese retaliation.
Impact for Americans
The United States of course is the largest consumer market in the world, and China was the third-largest trade partner with the US, after Mexico and Canada.
While Trump on Wednesday had paused for 90 days his “Liberation Day” or “reciprocal” tariffs on many countries (now at 10 percent), the US tariffs on Canada and Mexico remain unchanged and are not affected by the 90 day pause.
Trump’s 25 percent tariff on goods it imports from Mexico and Canada continue, although energy and potash from the two countries will also continue be tariffed at 10 percent.
With most of the world’s electronic devices including computers and smartphones being manufactured or assembled in China, prices of these devices are now almost certain to rise substantially for American consumers and business.
Meanwhile the European Union has paused its own tariffs on certain US goods after Trump hit the pause button.
However Reuters noted that EU President Ursula von der Leyen told the Financial Times on Thursday the EU is prepared to deploy its most powerful trade measures and may impose levies on US tech firms if negotiations with Trump fail.
The EU’s von der Leyen also warned the bloc was ready to dramatically expand the transatlantic trade war to services if those talks failed, potentially including a tax on digital advertising revenues that would hit tech groups such as Meta and Alphabet’s Google.
