By John Manning, International Banker
Liberation Day. That was the name given by US President Donald Trump to Wednesday, April 2, the day on which he announced sweeping hikes in tariffs on goods imported into the country. Those hikes included a sharp increase to 34 percent on imported goods from China, which, one week later, were raised to a massive 145 percent. With China promptly retaliating to these increases blow for blow, however, Beijing has not yet blinked amid the intensifying chaos. With neither side backing down, therefore, the implications for both economies, and the global economy, could be profound for some time yet.
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Nominally the world’s second-largest economy behind the United States but the world’s biggest when accounting for purchasing power parity (PPP), China, along with Mexico and Canada, is a top importer of US goods. The United States also represents China’s biggest export market. And yet China has been locked in intense trade wars with the US during both of Trump’s terms in office, the first from January 2017 to January 2021 and the second commencing on January 20 of this year.
Thus far, Trump 2.0 has brought a resounding resumption of trade hostilities, kicking off on February 1 when he signed an executive order to authorise the implementation of a 10-percent tariff on imported goods from China, along with 25-percent levies on Mexico and Canada, before pausing the tariffs on the latter two countries two days later. By February 4, the 10-percent tariffs on Chinese goods had come into effect, which prompted Beijing to respond on the same day by slapping 15-percent tariffs on US coal and liquefied natural gas (LNG) imports, as well as 10-percent tariffs on crude oil, agricultural machinery, large-displacement-engine cars and pickup trucks, all of which took effect on February 10.
The US then upped the pressure further on March 4 by increasing tariffs on China by an additional 10 percent, bringing the total levy on all imported Chinese goods to 20 percent. Again, China instantly responded, with 10-to-15-percent tariffs on US agricultural products taking effect on March 10. With the US’ additional tariffs on steel and aluminium of 25 percent coming into force on March 12 for all countries, moreover, it meant that on top of the existing 20-percent tariff on all Chinese goods, the tax on the imports of the two metals from China was effectively lifted to 45 percent.
Then came the infamous Liberation Day on April 2, which saw Trump announce sweeping “reciprocal” tariffs on scores of nations, including raising levies on China to 34 percent effective April 10. Two days after Liberation Day, Beijing responded in kind, announcing a corresponding 34-percent tariff on US goods, also effective April 10. By April 7, Trump threatened China with a 50-percent tariff on top of the 34-percent reciprocal rate if China did not withdraw its latest measures before slapping an additional 84-percent levy two days later to bring the total tax faced by Chinese exporters shipping goods to the US to a mighty 104 percent.
Not surprisingly, China once again announced retaliatory tariffs of 84 percent on imports of US goods, also on April 9, before Trump responded on the same day with another hike to 145 percent. Trump then announced on the same day that he would place a 90-day pause on “reciprocal” tariffs for all nations except China, which prompted Beijing to hike its tariffs again—to 125 percent—on April 11. The second Trump Administration has thus increased the average US tariff on imports from China by 103.3 percentage points through a number of different actions, not all of which were China-specific, according to analysis from the Peterson Institute for International Economics (PIIE).
This increase differs from both the “125 percent” and “145 percent” increases mentioned by the president and the White House on April 9 and 10, respectively, because it “accounts for numerous factors, including that the April 5, 9, and 10 tariff increases only applied to a subset of imports from China according to those executive orders and subsequent sectoral carveouts,” the PIIE report published on April 12 confirmed. “China has retaliated in three tranches in early 2025, lifting its average tariff on US exports to 147.6 percent, while increasing the scope of covered US exports initially from 58.3 percent to 63.0 percent, and then to 100 percent on April 10, when its retaliatory tariff of 84 percent affecting all imports from the United States went into effect.”
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Clearly, such provocative escalations are having profound impacts on both the Chinese and US economies, as consumers and businesses in both nations pay through their noses for various imported goods. Indeed, by May 6, the first shipments of Chinese goods with 145-percent tariffs had arrived on US shores, with analysts noting that import volumes had dropped substantially. “This week, we’re down about 35 percent compared to the same time last year, and these cargo ships coming in are the first ones to be attached to the tariffs that were levied against China and other locations last month,” Gene Seroka, executive director of the Port of Los Angeles, told CNN. “That’s why the cargo volume is so light.”
Trump’s tariffs were described by Ken Huo, supervisor at the Foshan Foreign Trade Association, as being akin to an “earthquake” that producers had been expecting, but just not on this scale. “Maybe I only expected it to be four, maybe five, on the Richter scale. But now it has come in at eight,” Huo acknowledged to the Financial Times. “The shockwaves are huge, so I would expect there could be some negative impact on the overall manufacturing sector here.”
In the US, meanwhile, concerns over the tariffs sent consumer confidence slumping to a near five-year low in April. The Conference Board, a leading indicator of US consumer confidence, confirmed in late April that its Consumer Confidence Index had dropped 7.9 points to 86.0, the lowest reading since May 2020 and representing the fifth consecutive monthly decline.
With both economies suffering from the tariff onslaught, then, why engage in such a “lose-lose” situation? Several reasons could explain the US’ decision to embark on such a contentious trade war. “In response to China’s intellectual property theft, forced technology transfer, and other unreasonable behavior, President Trump acted with conviction to impose tariffs on imports from China, using that leverage to reach a historic bilateral economic agreement,” was the official explanation provided by the White House to explain Trump’s first punitive measures on imports from China on February 1. The US president was also “taking bold action” to hold China accountable to its “promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country”.
A more likely explanation, however, is that the US’ desire to prevent its economy from being comprehensively overtaken by China has triggered Washington to hit Beijing where it hurts most: its ability to trade. After all, China is the biggest trading counterparty for an estimated 120 countries, making it easily the world’s biggest trading partner.
“China is the largest trading partner to Japan, South Korea, Vietnam, and Taiwan. Given their proximity, those countries are hardly a surprise. But it is also the top trader with Russia—and Ukraine. In Africa, China is the top partner for countries like South Africa and Kenya. In South America, for places like Brazil; in the Middle East, places like Saudi Arabia. And China is the largest external trading partner of the European Union,” Mark A. Green, a former US ambassador to Tanzania and administrator of the United States Agency for International Development (USAID) from 2018 to 2020, explained in a piece for the Wilson Center, a US-based foreign-policy think tank, in January 2023.
“While recent trade data do not capture all of the fallout from COVID-19 or the war in Ukraine, and the final details of the Biden administration’s semiconductor-related export controls have not been released, it’s clear that the days of America’s trade dominance have passed,” the article also acknowledged.
China’s dominant trading status across the world also helps it to command a sizeable trade surplus—that is, the amount the country earns from selling exports over and above what it pays out by buying imports—which rose to almost $1 trillion in 2024. “The sheer scale of China’s dominance is unprecedented; no other country in recent decades has matched this level across such a broad range of products,” Vincent Vicard, head of the International Trade Analysis programme at economic think-tank CEPII, explained to the Financial Times on April 9.
Some believe that the US is seeking to erode this substantial annual injection into the Chinese economy by levelling harsh trade measures—easily the steepest of all countries’—against its economic adversary. The US hopes that such levies will also allow domestic American companies to compete on the international playing field once again by spurring American consumers to switch to domestically manufactured products.
It should also be observed, however, that the trade war is just the latest in a long line of flagrant provocations that the US has initiated against China across various spheres of diplomacy. Whether by substantially increasing its sales of military equipment to Taiwan despite officially recognising the island’s status as being part of China; expanding its military footprint in neighbouring countries such as the Philippines in a bid to surround the country; or imposing export controls on advanced semiconductors to curb China’s progress in artificial intelligence and other technologies, the US has been undeniably ratcheting up tensions as China continues its economic rise.
But few of these incitements, if any, have elicited such a forceful response from Beijing, underscoring the exceptionally—and existentially—high value that China places on free and open trading relationships. “The countermeasures China has taken are aimed at safeguarding its sovereignty, security, and development interests, and maintaining the normal international trade order. They are completely legitimate,” the Ministry of Commerce announced on April 7. “The US threat to escalate tariffs on China is a mistake on top of a mistake and once again exposes the blackmailing nature of the US. China will never accept this. If the US insists on its own way, China will fight to the end.”
At least partly with the impact of tariffs in mind, Chinese authorities have also moved quickly to boost confidence and liquidity across domestic markets, with the People’s Bank of China (PBoC) announcing a comprehensive 10-point monetary-policy package on May 7. Included in the package is lowering the reserve requirement ratio—that is, the minimum amount that a commercial bank must hold in liquid assets—by 0.5 percentage points, which will boost long-term market liquidity by an estimated one trillion yuan. The PBoC also confirmed that it would lower its benchmark 7-day open market reverse repurchase operation policy rate by 0.1 percentage point to 1.4 percent to promote economic development.
An April 25 meeting of China’s politburo also saw the leadership unveil a plan to push back against the economic impacts of the trade war. “We must strengthen bottom-line thinking, fully prepare emergency plans and do a solid job in economic work,” a readout of the meeting stated. Regarding Trump’s global tariffs, moreover, the readout stated Beijing would “work with the international community to actively uphold multilateralism and oppose unilateral bullying practices”.
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Ultimately, China has stood resolute in the face of the tariff hikes, matching the US at every stage of the escalation. It is perhaps this resilient tone that has induced Washington to back off somewhat from its initial aggression, with Trump exempting imports of smartphones, computers and other electronics from China from the 125-percent “reciprocal” tariffs. Those goods are still subject to the initial 20-percent tariff, however.
Even many in the US have acknowledged that Trump’s trade escalations may just be one provocation too far. “China is sending strong signals … that the games that we are playing, which are tariff games and supply chain games, for them, it’s about survival,” Dewardric McNeal, a managing director at Longview Global, acknowledged to CNBC on May 2. Speaking to UK news publication The Guardian, meanwhile, Wen-Ti Sung, a non-resident fellow at the Atlantic Council’s Global China Hub, said the politburo’s decisions showed Beijing “will be digging into the trenches and is preparing for a long trade fight with Trump”.