China has fired a major salvo in its trade war with the United States, announcing on Friday a hike in tariffs on American imports from 84% to 125%, a move that intensifies the economic standoff between the world’s two largest economies.
The escalation comes in direct response to President Donald Trump’s decision to raise U.S. tariffs on Chinese goods to a staggering 145%, including levies tied to fentanyl, signaling a deepening rift with far-reaching consequences for global trade. As both nations dig in, economists warn that the tariff war’s impact will ripple across industries and borders, threatening economic stability worldwide.
The Chinese finance ministry unveiled the tariff hike in a statement, accusing the U.S. of “unilateral bullying and coercive practice” that violates international trade rules.
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“The U.S.’ imposition of abnormally high tariffs on China seriously undermines basic economic laws and common sense,” the ministry declared, framing the 125% rate as a necessary countermeasure.
Notably, China signaled it may not match further U.S. tariff increases.
“Given that at the current tariff level, there is no market acceptance for U.S. goods exported to China, if the U.S. continues to impose additional tariffs, China will ignore it,” it said.
This suggests Beijing may pivot to alternative retaliatory measures, such as export controls or restrictions on U.S. firms, as tensions mount.
The White House, meanwhile, confirmed this week that U.S. tariffs on Chinese imports have climbed to 145%, a figure that includes a 125% levy announced via Trump’s Truth Social platform and a 20% tariff tied to China’s role in the fentanyl trade. Trump defended the move in a post, arguing that China’s “lack of respect” for global markets justifies the hike.
“At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable,” he wrote.
The administration’s stance reflects a broader strategy to pressure China into trade concessions, though critics argue it risks catastrophic economic fallout.
The High Cost of The Tariffs
The tariff war’s impact on the U.S. and China is expected to be profound. Bilateral trade, valued at over $650 billion in 2024, faces near collapse as triple-digit tariffs render most exchanges unviable. In the U.S., consumers are bracing for higher prices as companies pass on import costs, with estimates suggesting an average household could face an additional $1,900 in expenses this year.
Industries like electronics, clothing, and agriculture, heavily reliant on Chinese supply chains, are scrambling to adapt. American exporters, particularly farmers, face devastation as China’s tariffs choke off access to a market that imported $143.5 billion in U.S. goods last year, including soybeans, meat, and grains.
China, targeting 5% economic growth in 2025, is also under strain. The tariffs threaten to disrupt its export-led recovery, with analysts predicting a 1.5 to 2 percentage point hit to GDP. Beijing has pledged fiscal stimulus and increased domestic demand to cushion the blow, but weak consumer confidence and a slowing economy complicate the outlook.
The global spillover effects are already evident. Financial markets shuddered on Friday, with the S&P 500 down nearly 20% from its peak, signaling a bear market, while Asian indices in Shanghai and Hong Kong also took hits. The U.S. dollar slid to a three-year low against the euro, and gold prices neared record highs as investors sought safe havens.
“Today the U.S. dollar is tanking to a three-year low against the euro and the $DXY is below 100. Here is just one of my many warnings that tariffs would weaken the dollar, in contrast to just about every economist, market strategist, and Trump advisor who forecast the opposite,” said Peter Schiff, Chief Economist at Euro Pacific Capital.
Europe, caught in the crossfire, fears a flood of diverted Chinese goods as Beijing seeks new markets, prompting EU leaders to negotiate tariff exemptions with Washington while exploring closer ties with Asia.
“The global economy will massively suffer,” warned European Commission President Ursula von der Leyen, highlighting risks of spiraling uncertainty and protectionism.
Other U.S. allies are navigating their own balancing acts. Japan and South Korea, facing U.S. tariffs of 24% and 11% respectively, are pursuing negotiations to avoid retaliation, wary of alienating Washington. Canada and Mexico, hit with 25% fentanyl-related duties, have imposed counter-tariffs, raising fears of a fractured North American trade bloc. Meanwhile, China is strengthening regional ties, with President Xi Jinping set to visit Vietnam, Malaysia, and Cambodia next week to bolster trade partnerships.
Economists paint a grim picture of the broader impact. The trade war could shave 0.6% off U.S. GDP growth this year, with long-term losses of 0.3-0.4% annually, while global growth, projected at 3.3% for 2025, faces downward pressure. Supply chain disruptions threaten industries from technology to automotive, with companies like Amazon warning of inevitable price hikes.
As the U.S. and China double down, the path to de-escalation remains unclear. Trump’s team, led by Treasury Secretary Scott Bessent, claims 70 countries have opened trade talks, but China’s defiance suggests little appetite for compromise. Beijing’s foreign ministry, while vowing to “fight to the end,” called for dialogue based on “mutual respect,” a prospect dimmed by the current rhetoric.