The ongoing trade conflict between the United States and China escalated sharply on Friday after Beijing announced a significant increase in tariffs on American goods, hiking duties to 125%.
The move came in direct response to President Donald Trump’s recent decision to increase tariffs on Chinese imports, which now face a cumulative rate of approximately 145%. This tit-for-tat escalation is deepening global economic uncertainty and prompting a flight from U.S. assets, raising fresh concerns among investors and economists.
According to China’s Ministry of Finance, the latest tariff hike is in line with its domestic trade laws, characterizing Washington’s actions as “unilateral coercion” that violate established international norms. The announcement triggered volatile reactions across financial markets, reinforcing fears that the world’s two largest economies are moving further away from reconciliation and toward a prolonged standoff that could disrupt global trade for months or even years.
Economic Fallout Mounts
Friday’s announcement capped a turbulent week for global markets. While U.S. equities closed the week higher despite the turmoil, safe-haven assets surged. Gold prices soared to a new all-time high, reflecting growing investor anxiety, while the U.S. dollar weakened and Treasury yields spiked—signaling a major sell-off in the world’s largest bond market.
The yield on the benchmark 10-year U.S. Treasury note climbed to its highest level in two months, ending the week with the biggest jump since 2001. This spike suggests rising expectations of inflation and interest rate hikes, as well as concerns over the growing instability in trade policy.
Treasury Secretary Scott Bessent is reportedly monitoring the bond market closely, as the latest inflation data from the U.S. continues to paint a mixed picture. While core inflation indicators remain moderate, rising industrial metal prices—driven by tariffs on key imports such as aluminum and steel—suggest that inflationary pressures could soon intensify.
Tariffs Stoke Inflation Fears
Economists warn that the effects of tariffs, or what some now call “tarifflation,” are likely to have a more pronounced impact on the inflation outlook than traditional indicators. Bill Adams, Chief Economist at Comerica Bank, emphasized that the continuation of tariffs will significantly elevate consumer prices over the coming months.
The University of Michigan’s latest Consumer Sentiment Index dropped to 50.8 in April, down from 57.0 in March, marking a notable decline in consumer confidence. The survey also found that inflation expectations among U.S. consumers had surged to 6.7%—the highest level since 1981. Interestingly, even Republican voters, traditionally more supportive of Trump, expressed weakening economic confidence in the latest poll.
Trade War Reaches Breaking Point
President Trump this week announced a 90-day pause in new tariffs for dozens of U.S. trading partners, but notably excluded China from that relief. Instead, tariffs on Chinese imports have effectively reached 145% when factoring in earlier levies on sectors like industrial chemicals and fentanyl-related products. This move signaled the administration’s determination to maintain pressure on Beijing while pursuing separate negotiations with countries such as India and Japan.
In response, China’s Finance Ministry labeled the latest U.S. tariff hike as “economic intimidation,” while hinting that this could be the last direct tariff-based response. However, Beijing left the door open for non-tariff forms of retaliation and emphasized that genuine negotiations would only be possible if the U.S. abandons its unpredictable and aggressive trade tactics.
Liu Pengyu, a spokesperson for the Chinese Embassy in Washington, echoed this sentiment on social media, writing that China “will never yield to maximum pressure.” Analysts at UBS suggested that this latest development amounts to an unofficial end to trade between the two economic giants, which in 2024 was valued at over $650 billion.
Global Implications
The broader implications of the U.S.-China trade war are becoming harder to ignore. Analysts caution that ongoing disruptions to global supply chains could inflate production costs, drive up consumer prices, and stifle international investment. The agriculture, energy, and technology sectors are among those most at risk, with companies already reporting increased volatility in sourcing and sales.
During a Friday meeting with Spanish Prime Minister Pedro Sánchez in Beijing, Chinese President Xi Jinping made his first public comments on the latest developments, calling for the European Union and China to stand united against “unilateral acts of economic bullying.” This is a clear signal that Beijing may seek to build alternative trade alliances in the face of rising U.S. pressure.
Meanwhile, President Trump struck a more optimistic tone, telling reporters that the U.S. could still strike a deal with China and that he maintains respect for President Xi. However, with both sides showing no signs of compromise, hopes for a quick resolution are dimming.
