Tensions between the US and China have escalated dramatically following Beijing’s unexpectedly strong response to President Trump’s latest tariffs. Analysts are warning of a rapidly increasing risk of a major trade war, a development that could have significant global repercussions.
China’s Ministry of Foreign Affairs released a statement condemning the US levies and abandoning its previous calls for negotiations. This firm stance signals a shift towards a more aggressive approach, raising concerns about the potential for a prolonged period of escalating tariffs and trade restrictions.
Beijing’s actions included imposing a 34% tariff on all US goods, mirroring the Trump administration’s recent move. This broad-based retaliation followed earlier tariffs targeting specific US agricultural and energy products. Beyond tariffs, China also implemented export curbs on rare earth elements and banned the export of dual-use items to several US entities, further escalating the conflict.
Independent economist Andy Xie noted that China’s decision to match the tariffs across the board demonstrates a clear determination to escalate the conflict. Eurasia Group analysts echoed this sentiment, stating that Beijing’s aggressive posture suggests even stronger retaliation in the future, potentially leading to a rapid and uncontrolled decoupling of the two economies by 2025.
The analysts at Eurasia Group also predict that China’s response will likely spur further US tariffs, potentially aimed at discouraging similar actions from other trading partners. Some within the Trump administration appear to view this situation as an opportunity to hasten a decline in US-China commercial ties.
Morgan Stanley’s chief China economist, Robin Xing, estimates that the increased tariffs could significantly impact China’s economy, potentially reducing growth by 1.5 to 2 percentage points this year. This could be driven by slower export growth and persistent domestic deflation.
The hardening of stances on both sides has effectively stalled negotiations. Economists at Capital Economics believe a near-term resolution to the trade dispute is highly improbable given the current aggressive posture adopted by both countries. This escalation contrasts sharply with previous, more restrained responses from Beijing and President Trump’s earlier positive comments regarding President Xi Jinping and potential bilateral meetings.
Gabriel Wildau of Teneo suggests that the apparent lack of restraint in China’s latest actions reflects diminished hopes for a trade deal in the near future. President Trump, however, has dismissed China’s response as panic-driven, while hinting at the possibility of reducing tariffs if China approves the sale of TikTok to US investors. Yet, national pride may prevent China from readily agreeing to such a deal, according to Wildau.
While some analysts believe China still desires a resolution and is willing to negotiate, they suggest that such negotiations are only likely to occur after a significant show of strength through reciprocal tariffs. State-backed publications, such as People’s Daily, have emphasized China’s preparedness to withstand economic shocks, outlining plans to boost domestic consumption and implement further fiscal and monetary easing measures.
The escalating trade war has already had a significant impact on global markets. The Hang Seng China Enterprises Index experienced a sharp drop, while yields on China’s 10-year government bonds fell and the offshore yuan weakened. The uncertainty surrounding the future of US-China trade relations continues to fuel market volatility and raises concerns about the potential for a wider economic downturn.
