Trump escalates U.S.-China trade war with 145% tariff, sparking global market turmoil

WASHINGTON/BRUSSELS/BEIJING. Global markets plunged Thursday following U.S. President Donald Trump’s latest escalation in the trade war with China, as the administration raised effective tariffs on Chinese imports to a staggering 145%, prompting fears of retaliatory action from Beijing and a wider global economic fallout.

Stocks and oil prices tumbled, with the S&P 500 closing 3.5% lower, the Nasdaq down 4.3%, and the Dow Jones Industrial Average falling by 2.5%. Oil prices slumped over 3%, while analysts warned of a possible recession if the trade standoff deepens.

Trump had announced a temporary 90-day pause on new tariffs for dozens of countries on Wednesday, bringing brief relief to world markets. But he simultaneously intensified pressure on China, increasing tariffs beyond the previously reported 125% by adding a 20% penalty tied to China’s alleged role in fentanyl production.

“This has gone from a disorderly selloff to hopefully back to more of an orderly selloff because recession risk is much, much higher now than it was a couple weeks ago,” said Adam Hetts, global head of multi-asset at Janus Henderson in Denver.

China’s Retaliation and Warning

Beijing responded swiftly, raising its tariffs on U.S. goods to 84%, effective Thursday. Chinese officials condemned the U.S. actions, describing them as “threats and blackmail.”

“China is willing to resolve differences through consultation and negotiation, but if the U.S. insists on its own way, China will fight to the end,” said Chinese Commerce Minister Wang Wentao in a statement via the state-run Xinhua News Agency.

Foreign Ministry spokesperson He Yongqian also reaffirmed China’s stance, stating that dialogue must be “based on mutual respect.”

In Hong Kong, the Foreign Ministry’s local office was more direct. “We must solemnly tell the U.S.: a tariff-wielding barbarian who attempts to force countries to call and beg for mercy can never expect that call from China,” wrote spokesperson Huang Jingrui in an op-ed published by the South China Morning Post. “If the U.S. is truly sincere about starting a dialogue with China, it should ‘immediately rectify its wrong practices and adopt the right attitude of equality, respect and mutual benefit.’”

Seeking New Allies, Facing Hesitant Partners

While China attempts to rally support, many nations remain wary. Australia, which has had past disputes with Beijing, declined to align with China.

“We speak for ourselves, and Australia’s position is that free and fair trade is a good thing,” said Prime Minister Anthony Albanese. “We engage with all countries, but we stand up for Australia’s national interest and we stand on our own two feet.”

India reportedly rebuffed China’s offer of cooperation, and Russia—often seen as Beijing’s closest partner—was notably excluded from Trump’s new tariffs.

Meanwhile, the U.S. reached an agreement with Vietnam to begin formal trade negotiations. According to U.S. Treasury Secretary Scott Bessent, more than 75 countries have expressed interest in establishing trade frameworks with Washington. “Once we go through the queue and settle with these countries,” Bessent said, “it will present more favorable terms.”

Trump expressed optimism about a potential deal with China, despite the heightened tensions. “I’m sure that we’ll be able to get along very well,” he told reporters. “In a true sense he’s been a friend of mine for a long period of time, and I think that we’ll end up working out something that’s very good for both countries,” he said of Chinese President Xi Jinping.

EU Pauses Retaliatory Tariffs Amid Caution

The European Union decided to pause its planned counter-tariffs on $23 billion worth of U.S. goods, which were set to go into effect next week in response to Trump’s earlier tariffs on steel and aluminum. However, EU Commission President Ursula von der Leyen warned: “If negotiations are not satisfactory, counter-tariffs could be reinstated.”

Von der Leyen posted on X, “We want to give negotiations a chance,” but emphasized that the EU would remain firm if its interests are not protected.

In a separate diplomatic push, Chinese Premier Li Qiang held talks with von der Leyen, pledging to strengthen China-EU trade and industrial cooperation. Commerce Minister Wang also held a video call with EU Trade Commissioner Maroš Šefčović, condemning the U.S. tariffs as “a typical act of unilateralism, protectionism and economic bullying.”

Global Markets React

While U.S. markets suffered, Asian and European stocks initially rallied on Wednesday following Trump’s temporary pause. Japan’s benchmark index jumped over 9%, Germany’s DAX rose by 7.5%, and France’s CAC 40 gained 7.2%. The U.K.’s FTSE 100 climbed 5.4%.

However, by Thursday, U.S. futures turned negative. The S&P 500 futures were down 0.4%, and Dow Jones futures edged 0.2% lower.

Despite the market volatility and a rising chance of recession—estimated at 45% by Goldman Sachs—Bessent downplayed investor anxiety, saying, “I don’t see anything unusual.”

Tariffs Persist, Uncertainty Remains

The average U.S. import duty is now the highest in over a century, according to a report by the Yale Budget Lab. Tariffs on Canada and Mexico remain in place unless those countries comply with U.S.-Mexico-Canada Agreement (USMCA) rules of origin, particularly regarding fentanyl-related goods.

With the U.S. trade policy now shifting to country-by-country negotiations, many nations, particularly those in Southeast Asia like Vietnam and Cambodia, face difficult choices. Having benefited from shifts in manufacturing away from China, they are now caught in the crossfire of U.S. tariffs while having limited alternative buyers.

Trump’s move to increase tariffs on China and pause others may narrow the global trade conflict into a more focused showdown—but it remains to be seen how China will further respond. Foreign Ministry spokesperson Lin Jian warned: “The U.S. cannot win the support of the people and will end in failure.”