China announced on Friday it was increasing its tariffs on American goods to 125%, hitting back against U.S. President Donald Trump’s decision to hike duties on Chinese imports to 145% and raising the stakes in a trade war that threatens to up-end global supply chains.
China’s retaliation intensified the economic turmoil unleashed by Trump’s tariffs, with markets tumbling further and foreign leaders puzzling how to respond to the biggest disruption to the world trade order in decades.
The brief reprieve for battered stocks seen after Trump decided to pause duties for dozens of countries for 90 days quickly dissipated, as attention returned to the escalating trade conflict between the U.S. and China that has fuelled global recession fears.
Global stocks fell, the dollar slid and a sell-off in U.S. government bonds picked up pace on Friday, reigniting fears of fragility in the world’s biggest bond market. Gold, a safe haven for investors in times of crisis, scaled a record high.
“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.
Asian indices mostly followed Wall Street lower on Friday.
In Europe, China’s latest tariff hike sent stocks lower, leaving the STOXX 600 down more than 1% on the day and set for another drop this week. Financial markets are experiencing some of the most volatile trading since the early days of the COVID-19 pandemic.
“There’s clearly an exodus from U.S. assets. A falling currency and bond market is never a good sign,” said Kyle Rodda, senior financial markets analyst at Capital.com. “This goes beyond pricing in a growth slowdown and trade uncertainty.”
U.S. Treasury Secretary Scott Bessent shrugged off the renewed market turmoil on Thursday and said striking deals with other countries would bring certainty.
The U.S. and Vietnam have agreed to begin formal trade talks, the White House said. The Southeast Asian manufacturing hub is prepared to crack down on Chinese goods being shipped to the United States via its territory in the hope of avoiding tariffs, Reuters exclusively reported.
Japanese Prime Minister Shigeru Ishiba, meanwhile, has set up a trade task force that hopes to visit Washington next week.
‘Joke’ in world economics history
As Trump suddenly paused his self-desribed “reciprocal” tariffs on other countries hours after they came into effect earlier this week, he ratcheted up duties on Chinese imports as punishment for Beijing’s initial move to retaliate.
He has now imposed new tariffs on Chinese goods of 145% since taking office. When Trump announced Wednesday that China faced 125% tariffs, he did not include a 20% tariff on China tied to its role in fentanyl production.
China hit back with new tariffs on Friday, although Beijing indicated that this would be the last time it matched the U.S., should Trump take his duties any higher. The new Chinese duties will take effect as of Saturday.
“Even if the U.S. continues to impose even higher tariffs, it would no longer have any economic significance and would go down as a joke in the history of world economics,” the finance ministry statement added.
“If the U.S. continues to play a numbers game with tariffs, China will not respond,” it added, however, leaving the door open for Beijing to turn to other types of retaliation, and reiterating that China would fight the U.S. to the end.
China’s Commerce Ministry said it was filing another lawsuit with the World Trade Organization (WTO) against the U.S. tariffs.
Trump had told reporters at the White House on Thursday that he thought the United States could make a deal with China and said he respected Chinese President Xi Jinping.
“In a true sense he’s been a friend of mine for a long period of time, and I think that we’ll end up working out something that’s very good for both countries,” he said.
Xi, in his first public remarks on tariffs, told Spanish Prime Minister Pedro Sanchez during a meeting in Beijing on Friday that China and the European Union should “jointly oppose unilateral acts of bullying,” in a clear swipe at Trump’s policies.
“There are no winners in a trade war,” the Chinese leader told his guest, adding that by acting together, the world’s second-largest economy and the 27-strong European trade bloc could defend their interests and help uphold “the global rules-based order,” China’s state news agency Xinhua reported.
Fragile pause
The pause in some of the U.S. tariffs has done little to soothe business leaders’ worries about the fallout from Trump’s trade war and its chaotic implementation: soaring costs, falling orders and snarled supply chains.
For European businesses in particular, a stronger euro automatically makes them less competitive in the global market.
The euro extended its rise on Friday, reaching its highest in over three years versus the dollar. It also rose to an 11-year high against the Chinese yuan in the offshore market.
Trump’s decision for a 90-day suspension on tariffs gave room for only a “fragile pause,” French President Emmanuel Macron said, partly because tariffs on steel, aluminium and cars remained, as well as across-the-board 10% duties.
Fragile, also, “because this 90-day pause means 90 days of uncertainty for all our businesses, on both sides of the Atlantic and beyond,” Macron said on social media platform X.
EU finance ministers brainstormed on Friday how to use the pause to get a trade deal with Washington. To help achieve that, the EU said on Thursday it would pause its first counter-tariffs.
But “the U.S. side has to be aware that if negotiations do not work, then we will have another discussion around response mechanisms,” German Finance Minister Joerg Kukies said.
Given the size of the two economies, experts fear global economic turmoil.
The head of the WTO, Ngozi Okonjo-Iweala, said earlier this week that the trade war between the U.S. and China could “could severely damage the global economic outlook.”
