Hello everyone! Recently, the tariff war between China and the U.S. has escalated again, with the Trump administration imposing heavy measures, including tariffs as high as 104% on Chinese goods, attempting to reshape the global economic landscape through trade barriers. China has quickly retaliated, imposing a 34% tariff on U.S. goods and implementing rare earth export restrictions. This tariff war is intensifying, putting pressure on both Chinese and American economies and creating significant uncertainty in the global economy. Today, we will discuss the possible responses from China, the losses for both China and the U.S., and the far-reaching impacts on the global economy.
How does China respond to America's 'tariff stick'?
In response to Trump's hardline tariff policies, China has shown a resolute attitude and adopted a multi-layered response strategy:
Reciprocal counter-tariffs
China quickly announced a 34% tariff on all imported American goods, covering key areas such as agricultural products (like soybeans, corn, pork) and energy products. This 'eye for an eye' strategy indicates that China is unwilling to show weakness and attempts to apply pressure on Trump's voter base by targeting U.S. agricultural states.Increased non-tariff measures
In addition to tariffs, China has also implemented export restrictions on rare earths, a key raw material for high-tech industries. The U.S. is highly dependent on China's supply, and this move could impact U.S. tech companies' supply chains. Furthermore, China has placed some American companies on an export control list, further restricting their business in China.Economic internal circulation and diversification strategy
In recent years, China has been promoting a 'dual circulation' strategy, emphasizing domestic demand while strengthening trade cooperation with economies such as the EU and ASEAN. In response to high U.S. tariffs, China may accelerate its de-dollarization process, promote the internationalization of the renminbi, and use currency depreciation (e.g., the renminbi to U.S. dollar exchange rate is expected to reach 7.25-7.35 by the end of 2026) to offset the export cost pressures caused by tariffs.Diplomatic and public opinion offensive
China is working through diplomatic channels to unite other countries affected by U.S. tariffs (such as the EU and Canada) to build an 'anti-U.S. tariff alliance'. In terms of public opinion, China presents itself as a defender of global free trade, criticizing the U.S. for 'unilateral bullying' to garner support from the international community.
Summary: China's response strategy includes both direct confrontation and long-term strategic adjustments, attempting to minimize short-term losses while paving the way for long-term economic independence.
The losses for both China and the U.S.: Killing a thousand enemies while self-inflicting eight hundred losses.
This tariff war seems to be Trump's attempt to 'make America great again', but in reality, it has caused significant economic shocks to both China and the U.S. Below is a comparison of import and export data before and after the tariffs to see the specific losses for both sides.
America's losses
Consumer cost increases
The U.S. imposed a 10% tariff on all imported goods, with tariffs on Chinese goods reaching as high as 104%, directly raising the prices of imported goods. Analysis suggests that the average American household may spend an additional $1,900 each year as a result. Prices for high-end products like the iPhone could soar to $2,300, placing the burden squarely on ordinary consumers.Export industries hit hard
China's retaliatory tariffs have directly impacted U.S. agricultural and energy exports. In 2024, U.S. exports to China are expected to total about $144 billion, with agricultural products (like soybeans and pork) accounting for a significant portion, valued at about $13.4 billion. In the first quarter of 2025, due to China's 34% retaliatory tariffs, U.S. exports to China are expected to decline by about 20% year-on-year, with total exports for the year projected to fall to $115 billion and agricultural exports potentially shrinking to $10 billion, resulting in losses exceeding $3 billion. American farmers and exporters will face even greater difficulties.Risk of economic recession
The tariff war has caused chaos in global supply chains, with U.S. companies facing higher production costs and uncertainty. The stock market has reacted accordingly, with the S&P 500 and Nasdaq indices experiencing significant declines after the tariffs were announced, marking their worst single-day performance since March 2020. JPMorgan estimates that the probability of a global economic recession by the end of the year has risen from 40% to 60%.
China's losses
Export decline and economic slowdown
The United States is an important export market for China, and a 104% tariff could lead to a significant decline in China's exports to the U.S. In 2024, China's total exports to the U.S. are expected to be about $536 billion. In the first quarter of 2025, affected by U.S. tariffs, China's exports to the U.S. are expected to decline by about 15% year-on-year, with total exports for the year projected to fall to $455 billion, resulting in a loss of about $81 billion. This will drag down China's GDP growth, with GDP growth rates expected to drop from 4.8% in 2025 to 4%, and further slow to 3.5% in 2026.Corporate pressure and deflation risks
High tariffs will exacerbate China's overcapacity issue, potentially leading to increased deflationary pressure. From January to February 2025, China's imports fell by 8.4% year-on-year, marking the largest decline since July 2023, reflecting the dual pressures of weak domestic demand and high tariffs. Some export-oriented companies may face bankruptcy risks, and local government debt issues may worsen due to economic slowdown.Growing pains of supply chain relocation
Although China is trying to avoid tariffs by relocating production to countries like Vietnam and Cambodia, Trump has also imposed high tariffs on these countries (46% for Vietnam, 49% for Cambodia), significantly reducing the effectiveness of this strategy.
Summary: Both sides find it hard to emerge unscathed from this tariff war. American consumers and exporters are the first to suffer, while China faces dual pressures of falling exports and economic slowdown.
Global economic consequences: No one can gain benefits
This tariff war between China and the U.S. not only affects the two countries but also has far-reaching negative impacts on the global economy.
Global supply chain chaos
As the two largest economies in the world, the trade war between China and the U.S. has increased the risk of supply chain disruptions. The production costs in industries such as automobiles and electronics have risen, forcing global companies to readjust their supply chain layouts, which may lead to production halts and price increases in the short term.Trade war spillover effects
China may find it impossible to redirect excess capacity meant for the U.S. to other markets (like the EU), potentially leading to 'dumping' phenomena that could impact local industries. The EU has stated it will not accept 'global excess capacity' and plans to impose a 25% retaliatory tariff on U.S. goods, which may escalate the global trade war further.Economic recession and market turmoil
The tariff war has triggered severe reactions in global markets, with major indices like the S&P 500, Nasdaq, and Nikkei experiencing significant declines. In April 2025, following the escalation of the China-U.S. tariff war, the S&P 500 index fell by 4.8% in one day, and the Nasdaq dropped by 5.4%, marking the largest single-day decline since June 2020. Global investment confidence has been undermined, economic growth has slowed, and some economies may fall into recession. The German economy minister warned that the tariff war could 'drag countries into recession, causing massive global damage.'Geopolitical landscape reshaping
The U.S. has also imposed tariffs on allies (such as 24% on Japan and 25% on South Korea), straining allied relationships and weakening America's global leadership position. In contrast, China may seize the opportunity to court other countries and expand its influence in global trade.
Summary: There are no winners in this tariff war; the global economy may fall into a deeper quagmire, with supply chain chaos, market turbulence, and geopolitical tensions becoming the new normal.
Conclusion: Rational dialogue is the way out
Trump's tariff policy appears tough but is, in fact, a game of 'killing a thousand enemies while self-inflicting eight hundred losses'. Both sides have paid a heavy price in this trade war, resulting in greater uncertainty in the global economy. Whether it is the high price pressure on American consumers, the survival dilemmas of Chinese exporting companies, or the chaos in global supply chains, all remind us that unilateralism and protectionism cannot solve problems.
The only way out is through rational dialogue and cooperation. China and the United States should return to the negotiating table as soon as possible to resolve differences through equal consultation and jointly maintain the stability of the global trade order. Otherwise, this tariff war will only lead to mutual destruction, and the global economy will pay a heavy price. What do you think the outcome of this tariff war will be? Feel free to share your thoughts in the comments!
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