Trade war escalates as Beijing slaps 125% tariffs on US goods

Beijing increased its tariffs on U.S. imports to 125% on Friday, hitting back against President Donald Trump’s decision to raise duties on Chinese goods and upping the stakes in a trade war that threatens to upend global supply chains.

The retaliation intensified global economic turmoil unleashed by Trump’s tariffs. U.S. stocks ended a volatile week higher, but the safe haven of gold hit a record high during the session and benchmark U.S. 10-year government bond yields posted their biggest weekly increase since 2001 alongside a slump in the dollar, signaling a lack of confidence in America Inc.

One U.S. survey of consumers showed inflation fears have mounted to their highest since 1981, while financial institutions have been forecasting an ever greater risk of recession.

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Trump downplayed the market turbulence, predicting the dollar would strengthen and saying many tariffs could settle in around 10% once the United States cut trade deals with all the countries that want to negotiate.

“When people understand what we’re doing, I think the dollar will go way up,” he told reporters aboard Air Force One late on Friday. “The bond market’s going good. It had a little moment but I solved that problem very quickly.”

The White House has said more than 75 countries have sought negotiations and that future deals would bring certainty.

India and Japan are among the powers to have advanced toward trade talks, but generally foreign leaders have puzzled over how to respond to the biggest disruption to the world trade order in decades.

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The tit-for-tat tariff increases by the U.S. 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 on Friday.

The dollar slid and a sell-off intensified in U.S. Treasuries, the world’s biggest bond market, as gold climbed.

With the dollar weakening, selling of U.S. assets was perhaps most exemplified by t

The price decline in the U.S. 10-year Treasury note. decline drove its yield - which moves opposite to the price and is critical for determining interest rates on mortgages - to a two-month high. On the week, its yield has climbed nearly half a percentage point.

Treasury Secretary Scott Bessent is closely monitoring the bond market, Leavitt said.

A second day of data on U.S. inflation showed price pressures were not yet building broadly across the U.S. economy, although the Producer Price Index for March did show industrial metals prices rising due to import levies on things like steel and aluminum, 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 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 6.7% this month, the highest since 1981, from 5.0% in March, according to the survey.

Trade war with China

This week, Trump announced a 90-day tariff pause on dozens of countries while ratcheting up tariffs on Chinese imports effectively to 145%.

China retaliated with more tariffs on Friday. China’s finance ministry called Trump’s tariffs “completely unilateral bullying and coercion.”

Beijing indicated this would be the last time it matched U.S. tariff rises but left the door open for other types of retaliation.

“If the U.S. truly wants to have talks, it should stop its capricious and destructive behavior,” Liu Pengyu, spokesperson for the Chinese embassy in the U.S., wrote on social media. “China will never bow to maximum pressure of the U.S.”

UBS analysts in a note called China’s declaration “an acknowledgement that trade between the two countries has essentially been completely severed.”

Leavitt, in turn, delivered a warning to Beijing: “If China continues to retaliate, it’s not good for China.”

On Thursday, Trump told reporters he thought the U.S. could make a deal with China and he respected Chinese President Xi Jinping. On Friday, 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.”