The US and China are heading towards an all-out trade war, after Donald Trump unleashed a fresh wave of tariffs against dozens of partners that triggered a fresh day of stock market turmoil on Wednesday.
Despite the market chaos, China’s government was unbowed, reiterating threats of further countermeasures and saying it was unwilling to fight a trade war but “will never sit idly by and watch the legitimate rights and interests of the Chinese people be damaged and deprived”.
The global economy has been rocked since sweeping 10% US tariffs took effect over the weekend, prompting dramatic market sell-offs worldwide and sparking recession fears.
Rates on imports to the US from dozens of economies rose further from 00.01 EST (05.01 BST) on Wednesday, with tariffs imposed on Chinese products since Trump returned to the White House reaching a staggering 104%. The new tariffs imposed on 57 target countries, territories and blocs include rates of 20% on the EU, 26% on India and 49% on Cambodia.
European markets slumped again in early trading on Wednesday morning, as the major indices fell in the UK, Germany, France and Spain. London’s FTSE 100 dropped by 2.2% after opening, reversing most of Tuesday’s gains. In addition, Germany’s Dax index fell by about 2.3%, France’s Cac 40 slumped by 2.4% and Spain’s Ibex was 2% down.
The falls followed another tumultuous day on some Asian markets. Japan’s Nikkei benchmark index closed down almost 4%, while Taiwan’s benchmark stock index was 5.8% lower. Hong Kong’s Hang Seng index recouped some earlier falls to close 0.4% down, and South Korea’s Kospi 200 index dropped by 1.8%.
However, China’s stock markets rose, appearing to weather the storm after government interventions. The SSE composite index in Shanghai ended the day 1.1% higher, while the Shenzhen SE composite rose 2.2%.
Top officials from China’s government and banking sector were expected to hold a high-level meeting as early as Wednesday to discuss further measures to boost the domestic economy, stabilise markets and increase consumption, Reuters reported.
Beijing also released a lengthy white paper setting out its grievances and warnings over the US-China trade relationship.
Oil prices fell for a fifth day in a row on Wednesday, to the lowest level in four years, since February 2021, over concerns that a global trade war would dampen demand and dent economic growth.
The new tariffs are tailored to specific countries based on a formula that has been criticised by economists that divides trade in goods deficit by twice the total value of imports.
“President Trump has a spine of steel and he will not break,” the press secretary, Karoline Leavitt, said on Tuesday. “And America will not break under his leadership.”
US stocks dropped on Tuesday for a fourth straight trading day since Trump’s tariffs announcement last week, with the S&P 500 closing below 5,000 for the first time in almost a year.
Several governments announced interventionist measures, including Taiwan, which pre-authorised emergency stabilisation funds for the stock exchange. Seoul announced a $2bn (£1.6bn) emergency support package for its auto sector, including financial support, tax cuts and subsidies. Trump’s 25% tariffs on imported cars and light trucks is expected to have a significant impact on Korea’s industry.
New Zealand’s central bank cut interest rates citing US tariffs, saying “uncertainty about global trade policy (has) weakened the outlook”.
The harshest tariffs have been reserved for China, with successive waves bringing the total to 104% on all Chinese imports. Beijing showed no sign of stepping back, releasing a white paper on Wednesday that says Trump’s actions “will ultimately backfire and make the US a victim of its own misdeeds”.
The white paper says it is “normal” for China and the US to have “differences and frictions” in trade and that mutual success was an opportunity not a threat. The lengthy document then launches into pages and pages of criticisms, however.
It accuses the US of abusing trade levers to suppress China, and of failing to meet obligations under numerous agreements including the phase one trade deal signed during Trump’s first term, and of “systematically escalated economic and other forms of pressure against China”.
It says: “Trade wars produce no winners, and protectionism leads up a blind alley.”
Trump believes his policy will revive the lost manufacturing base by forcing companies to relocate to the US. But many business experts and economists question how quickly – if ever – this can take place, warning of higher inflation as the tariffs raise prices.
Scott Bessent, the US Treasury secretary, said the new tariffs were at “maximum” levels, and expressed confidence that negotiations would bring them down.
“I think you are going to see some very large countries with large trade deficits [with the US] come forward very quickly,” he told CNBC, the financial news network, on Tuesday. “If they come to the table with solid proposals, I think we can end up with some good deals.”
Trump was asked on Monday whether the tariffs set the stage for negotiations with countries or were permanent. “Well, it can both be true,” he told reporters. “There can be permanent tariffs, and there can also be negotiations.”
Trump claimed on Tuesday that the US was “taking in almost $2bn a day” from tariffs. At an evening speech to Republican lawmakers, Trump said he would soon announce “major” tariffs on pharmaceutical imports, arguing that the duties would push drug companies to move manufacturing operations to the US.
The administration has scheduled talks with South Korea and Japan, two close allies and major trading partners, and the Italian prime minister, Giorgia Meloni, is due to visit next week.
“These are tailored, highly tailored deals,” Trump said at a White House event. “We’ve had talks with many, many countries, over 70, they all want to come in. Our problem is, can’t see that many that fast.”
Trump’s top trade official, Jamieson Greer, told the Senate that Argentina, Vietnam and Israel were among those who had offered to reduce their tariffs.
Trump originally announced a 34% additional tariff on Chinese goods. However, after China announced its own 34% counter tariff on American products, he vowed to pile on another 50% duty. Counting existing levies imposed in February and March, that would take the cumulative tariff increase for Chinese goods during Trump’s second presidency to 104%.
On China’s social media, the tariffs made up half of Weibo’s daily trending topics on Wednesday. Users mocked the US and its egg shortage, with some accounts sharing pictures of empty shelves in US supermarkets. “If you can’t even handle an egg, why are you fighting a trade war?” one user wrote.
Weibo users also discussed the prospect of Apple iPhones rocketing in price because of the tariffs, with several people saying they would switch to using phones made by the Chinese companies Huawei or Xiaomi.
Influential Chinese bloggers have also suggested that China could restrict the import of American poultry and eggs as a countermeasure in the trade war, which would be a further blow to US farmers.
On Tuesday, Rachel Reeves, the UK chancellor, sought to ease concerns about market volatility, telling parliament she had spoken to Andrew Bailey, the governor of the Bank of England, who confirmed “markets are functioning effectively and that our banking system is resilient”.
A trade war “is in nobody’s interest”, Reeves said, confirming that the UK was seeking to negotiate a new deal with the US. Trump has imposed a 10% tariff on UK exports, in line with the minimum benchmark introduced at the weekend.
The EU has sought to cool tensions, with the European Commission president, Ursula von der Leyen, warning against worsening the trade conflict in a call with the Chinese Premier, Li Qiang.
Von der Leyen stressed stability for the world’s economy, alongside “the need to avoid further escalation”, an EU readout said.
The French president, Emmanuel Macron, called on Trump to reconsider, adding if the EU was forced to respond “so be it”.
Agence France-Presse contributed to this report
