Beijing increased its tariffs on US imports to 125 per cent yesterday, hitting back against President Donald Trump’s decision to hike duties on Chinese goods and raising the stakes in a trade war that threatens to upend global supply chains.
US markets churned as China’s retaliation intensified global economic turmoil unleashed by Trump’s tariffs. One US survey of consumers showed inflation fears have mounted to their highest since 1981.
“Recession risk is much, much higher now than it was a couple weeks ago,” said Adam Hetts, global head of multi-asset at Janus Henderson.
Foreign leaders have puzzled over how to respond to the biggest disruption to the world trade order in decades. Trump’s administration has stuck to its guns, touting discussions on a number of trade deals it says will justify its dramatic upheaval in policy.
The tit-for-tat tariff increases by the US and China stand to make goods trade between the world’s two largest economies impossible, analysts say. That commerce was worth more than $650 billion in 2024.
“The president made it very clear: When the United States is punched, he will punch back harder,” White House Press Secretary Karoline Leavitt told reporters yesterday.
The dollar slid and a sell-off intensified in US government bonds, the world’s biggest bond market. Gold, a safe haven for investors in times of crisis, scaled a record high.
With the dollar weakening, selling of US assets was perhaps most exemplified by the drop in prices of the US 10-year Treasury note, long considered among the world’s safest investments.
The decline drove its yield – which moves opposite to the price and is critical for determining things like interest rates on mortgages – up to a two-month high. On the week, its yield has climbed more than half a percentage point, the largest weekly increase in more than four decades.
US Treasury Secretary Scott Bessent is closely monitoring the bond market, Leavitt said.
A second day of data on US inflation showed price pressures were not yet building broadly across the US economy, although the Producer Price Index for March did show industrial metals prices rising due to import levies on things like steel and aluminium, in place for a month now.
“Tarifflation will be much more important for the outlook than backward-looking data,” said Bill Adams, chief economist at Comerica Bank. “If tariffs stay in place they will push inflation considerably higher in coming months.”
The University of Michigan said its Consumer Sentiment Index dropped to 50.8 this month from a final reading of 57.0 in March. Economists polled by Reuters had forecast the index falling to 54.5.
In a reversal of previous surveys, the latest one also showed weakening confidence among Trump’s fellow Republicans.
Consumers’ 12-month inflation expectations soared to 6.7pc this month, the highest reading since 1981, from 5.0pc in March, according to the survey.
This week, Trump announced a 90-day tariff pause on dozens of countries while ratcheting up tariffs on Chinese imports effectively to 145pc.
China’s finance ministry called Trump’s tariffs ‘completely unilateral bullying and coercion.’
Beijing indicated this would be the last time it matched US tariff rises but left the door open for other types of retaliation.
“If the US truly wants to have talks, it should stop its capricious and destructive behaviour,” Liu Pengyu, spokesperson for the Chinese Embassy in the US, wrote on social media. “China will never bow to maximum pressure of the US”
UBS analysts in a note called China’s declaration ‘an acknowledgement that trade between the two countries has essentially been completely severed.’
Leavitt, in turned, delivered a warning to Beijing.
“If China continues to retaliate, it’s not good for China,” she said at the White House briefing.
On Thursday, Trump told reporters he thought the US could make a deal with China and he respected Chinese President Xi Jinping. Yesterday, Xi made his first public remarks on Trump’s tariffs, telling Spanish Prime Minister Pedro Sanchez in Beijing that China and the European Union should ‘jointly oppose unilateral acts of bullying.’
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