 "A full-scale trade war with China and the US is in prospect as President Donald Trump's 104 per cent tariffs on Chinese products come into effect. File image/AFP")
It’s happening. A China-US trade war is about to take place after US President Donald Trump’s second round of punishing tariffs on some of America’s largest trading partners takes effect today (April 9), including stiff new levies on Chinese goods by at least 104 per cent.
The whopping 104 per cent tariff comes after Trump had given China 24 hours to roll back its retaliatory 34 per cent tariff it imposed on US goods, failing which Chinese goods would be punished with 104 per cent tariffs. Beijing dared Washington to do so and within hours Donald Trump approved it.
But what does this escalating trade conflict mean for the world economy?
Tariff, tariff and more tariffs
It all began on April 2 when US President Donald Trump unveiled his ‘Liberation Day’ tariffs . He announced that a 34 per cent ‘reciprocal tariff’ would be imposed on China. Clubbed with the previous 20 per cent tariff over fentanyl, this took the total up to a whopping 54 per cent.
However, this didn’t go down well with Beijing. On April 4, the Asian giant, which is also the world’s second-largest economy, hit back with 34 per cent retaliatory tariffs . Following China’s retaliation, Trump warned Beijing of the measure, demanding that it withdraw the tariff or else face an additional 50 per cent tariff, effective April 9.
At the time, he posted, “If China does not withdraw its 34 per cent increase… the United States will impose additional tariffs on China of 50 per cent, effective April 9.”
But China seemed to be in no mood to relent, saying it would “fight to the end” and called the US actions “blackmail”.
“The US threat to escalate tariffs against China is a mistake on top of a mistake, which once again exposes the US’ blackmailing nature,” China’s commerce ministry said in a statement, adding, “If the US insists on having its way, China will fight to the end.”
Later, China’s Global Times even wrote in an editorial, “Tariff blackmail will not intimidate China, nor will it undermine justice. Pressuring and threatening are not the right way in dealing with China.”
Seeing that China wasn’t about to blink, the White House on Tuesday announced that it would be going ahead with its additional 50 per cent tariff on all Chinese goods, which means that the total levies imposed stood at a whopping 104 per cent.
White House Press Secretary Karoline Leavitt, announcing the same, said: “Countries like China, who have chosen to retaliate and try to double down on their mistreatment of American workers, are making a mistake. President Trump has a spine of steel, and he will not break.”
“The Chinese want to make a deal, they just don’t know how to do it,” she added. She declined to share what, if any, terms Trump would consider to lower tariffs on China.
US-China trade in numbers
To understand how a trade war between the US and China may impact the world, it’s important to grasp the countries’ trade numbers.
According to data, the two economic giants traded goods worth up to around $585 billion last year. The US imported goods worth $440 billion from China whereas the Asian giant imported products worth $145 billion.
Of this, China’s biggest import is soybeans to feed its approximately 440 million pigs. Then comes pharmaceuticals and petroleum. On the other hand, the US imports large volumes of electronics, computers and toys from China. Batteries required for electric vehicles also make up a significant part of US imports from China.
According to a BBC report, the biggest category of US imports from China is smartphones, accounting for nine per cent of the total. A large proportion of these smartphones are made in China for Apple, a US-based multinational.
Effects of the US-China trade war on the world
A trade war has been initiated as both countries levy heavy tariffs on one another and refuse to back down. The effects of the tariffs being imposed on China can already be seen as markets are seeing a dip.
On Wednesday, China’s blue-chip CSI300 Index opened down 1.2 per cent, while the Shanghai Composite Index lost 1.1 per cent. China’s SmallCap 1000 Index was down more than four per cent, Reuters reported. Moreover, the yuan dipped further against the US dollar to a fresh 19-month low. The yuan weakened to a low of 7.3505 per dollar in the morning trading session, the lowest since September 2023.
According to experts, the trade war will hurt China’s GDP. As per Goldman Sachs and BNP Paribas, the 54 per cent tariff regime would shave off as much 2.4 percentage points from China’s GDP growth in 2025. This could be significant, especially as China is just beginning to regain economic momentum after years of pandemic-related slowdown and structural imbalances.
However, China won’t be hit alone. The US will also be hit by the trade war — experts have stated that the heavy tariffs will lead to an increase in prices of goods which the end customers in the US will have to shoulder. According to JP Morgan, these new tariffs could add 1-1.5 per cent to inflation this year.
Moreover, it will hurt America’s employment. Industry groups like IPC and the National Association of Wholesaler-Distributors, companies are already pausing hiring and investment decisions. Tariffs divert capital away from wage hikes and innovation and channel it into unproductive tax payments. If sustained, this could erode competitiveness, particularly in manufacturing, the very sector Trump claims to champion.
However, the concern for many is that a US-China trade war will result in hurting the world. That’s because the US and China together account for almost 43 per cent of the global economy, as per the International Monetary Fund.
As BBC noted, if they were to engage in an all-out trade war that slowed their growth down, or even pushed them into recession, that would likely harm other countries’ economies in the form of slower global growth.
Moreover, there’s a worry that if Chinese goods couldn’t make their way to the US markets, it would result in a dumping in other foreign markets. What this means is that Vietnam, South Korea and others would see their markets being flooded with Chinese products, pushing the prices down and increasing the competition. This would squeeze local industries already battling global inflation and supply chain stress. It would also threaten jobs and wages in those markets.
And we all know that such uncertainty is not good for any economy.
It’s for these very reasons that the two economic giants need to talk and not just retaliate. If they don’t, it could destroy global trade, slow down innovation and make basic goods across the world more expensive.
The question then is: Will the US or China relent? Or will it be the clash of the titans?
With inputs from agencies