Markets plunge as China retaliates with tariffs, deepening US trade war and fueling recession fears

BEIJING / WASHINGTON. Global markets suffered another blow on Friday as China hit back at U.S. President Donald Trump by slapping 34% tariffs on American goods, a dramatic escalation in the ongoing trade war between the world’s two largest economies.

The retaliation sent shockwaves through financial markets, triggering the steepest losses since the COVID-19 pandemic. The Nasdaq Composite confirmed a bear market, tumbling from its record close of 20,173.89 on December 16. Meanwhile, the Dow Jones Industrial Average entered correction territory from its peak of 45,014.04 recorded on December 4.

Further intensifying the geopolitical standoff, China imposed export controls on certain rare earth elements and added 11 U.S. entities to its “unreliable entity” list. These include firms allegedly linked to arms sales to Taiwan, which Beijing considers a renegade province.

President Trump, however, refused to back down. “To the many investors coming into the United States and investing massive amounts of money, my policies will never change. This is a great time to get rich, richer than ever before!!!” he posted in all caps on social media.

In another defiant post, Trump added: “China played it wrong, they panicked – the one thing they cannot afford to do!”

As Beijing announced its countermeasures, Trump remained largely out of sight at his Mar-a-Lago resort golf course, where he issued a string of defiant messages but made no public appearances.

The trade conflict has already led to ripple effects globally. In Canada, where officials are preparing retaliatory measures, job numbers fell for the first time since 2022, with businesses citing tariff-related uncertainty for paused hiring and layoffs.

In Japan, Prime Minister Shigeru Ishiba described the U.S. tariffs as a “national crisis,” after a rout in banking shares pushed Tokyo’s stock market toward its worst weekly performance in years.

Weekly losses across markets were severe:

• S&P 500: ▼ 9.08%
  
• Nasdaq: ▼ 10.02%
  
• Dow Jones: ▼ 7.86%
  
• Russell 2000: ▼ 9.70%
  

U.S. investment bank J.P. Morgan raised its estimate for a global recession this year to 60%, up from 40%.

“This is significant and is unlikely to be over, hence the negative market reactions,” said Stephane Ekolo, Market & Equity Strategist at Tradition in London. “Investors are afraid of a ‘tit for tat’ trade war situation.”

Even within Trump’s own party, concerns are growing. Republican Senator Ted Cruz, a vocal supporter of Trump, warned on his podcast:

“The effect of this is trillions of dollars of increased taxes on American consumers.”

While Cruz expressed hope the tariffs could be used as leverage to lower global trade barriers, he cautioned that “a prolonged trade war would be a terrible outcome for Americans.” Despite his concerns, Cruz voted against a recent Senate measure to block new tariffs on Canada, siding with Trump.

Speaking at a conference of business journalists, Federal Reserve Chair Jerome Powell acknowledged that the tariffs were “larger than expected” and warned they could lead to higher inflation and slower growth.

“People are just, they just are kind of waiting for clarity,” Powell said. “I can’t tell you when that will pass, but you know, ultimately it will pass.”

Trump, however, publicly pressured the Fed to act, writing on Truth Social:

“CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”

Amid the turmoil, U.S. Treasury Secretary Scott Bessent sought to shift blame for the market collapse to China’s surprising rollout of its DeepSeek artificial intelligence tool, rather than Trump’s policies.

The administration did point to positive jobs data, with the U.S. economy outperforming expectations in March. Still, analysts warn that Trump’s sweeping tariffs could soon test the labor market’s resilience.

Meanwhile, U.S. Customs and Border Protection confirmed that the 10% baseline tariffs will take effect Saturday, though shipments already en route have until May 27 to arrive tariff-free.

In another development, Trump extended by 75 days the deadline for ByteDance, the Chinese owner of TikTok, to divest its U.S. operations or face a ban—further underscoring the widening scope of economic tensions between the two powers.

As the global financial outlook dims, economists and investors alike brace for what many now fear is a prolonged and costly standoff.