With his tariff showdown with most of the world, and especially China, US President Donald Trump is very knowingly letting the genie out of the bottle, inciting the Chinese dragon into a new Cold War and veering the world into a recession with his ham-handed policies.
Last week, J.P. Morgan raised its forecast from 40 to 60 per cent on the global economy entering a recession by the end of the year. Trump’s unfettered trade hooliganism will also shatter the ‘American dream’, hurting Americans more than any other country.
His punitive taxes on all imports will indubitably escalate costs for domestic businesses that will inflate prices for US consumers, and consequently edge his country into a sustained economic decline and eventual recession. If American importers decide upon absorbing the costs of the tariffs, their profitability could dwindle, leading them to downsize operations and lay off workers. And if they more likely pass on the tariff costs to consumers, consumer demand will capsize, hitting manufacturing and thereby throwing workers out of jobs.
The Tax Foundation, the world’s leading nonpartisan tax policy non-profit, estimates that even before accounting for any foreign retaliation, Trump’s tariffs will reduce longrun US GDP by 0.8 per cent. ‘Combined, the US-imposed tariffs and the threatened and imposed retaliatory tariffs reduce US GDP by 1 per cent,’ it notes.
The US dollar too has been sliding against other major currencies in a clear signal that investors may be starting to shun what has long been the safest haven in global financial markets. The President’s commercial war against Beijing, moreover, buries all prospects for a G-2 partnership that had been envisioned during the early days of the first Obama administration. He had broadly hinted at his push against the Asian superpower with his anti-China rhetoric during his electoral campaign.
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Chinese President Xi Jinping is a powerful leader who will do all he can to stand up to Trump’s excesses. Indeed, the 2022 US National Security Strategy cites the People’s Republic of China as the “only competitor with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military, and technological power to do it.”
In a mutually devastative tit-for-tat between the world’s two largest economies, Trump’s absurd 245 per cent tariff on imports from China has roused retaliation by Beijing, which hiked tariffs on all US goods from 34 per cent to 84 per cent to 125 per cent, starting 12 April. China termed the Trump administration’s actions a “joke”, and said it no longer considered them worth matching. Trump has tried to soften the impact by exempting $100 billion worth of tech imports, but tensions prevail as Washington contemplates a national security probe on electronics.
China has also halted exports of six rare earths, cutting off the US and other countries from these minerals that are vital for tech, auto, aerospace, defence and manufacturing. Besides, it has ordered Chinese airlines not to take further deliveries of the Seattle-based Boeing Company’s aircraft. China is Boeing’s largest customer and in line to receive deliveries of 9,000 airplanes—20 per cent of Boeing’s production—over the next two decades.
It is a fact though that the US suffers a massive trade deficit with China that exceeded $295.4 billion last year; its exports worth $143.5 billion to China (down 3 per cent from 2023) pale before $438.9 billion worth of imports from that country. The US’s overall trade deficit in goods and services was $918.4 billion in 2024, a 17 per cent increase from 2023, and its current-account deficit, which includes trade in goods and services, widened to $1.13 trillion, representing 3.9 per cent of current-dollar GDP.
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In contrast, China’s overall trade surplus surged to a record $992.2 billion in 2024, its exports climbing 5.4 per cent, which helped tide over the sluggish growth at home as it gradually recovers from a crisis in its property market and the persisting effects of the Covid-19 pandemic. Even last month in the thick of Trump’s tariff war cries, China recorded a trade surplus of $102.64 billion. Its balance of trade has averaged $16.81 billion from 1981 until 2025, soaring to an all-time high of $170.52 billion in February, and a record low of $61.99 billion in February of 2020, at the onset of Covid.
However, a brutal slugfest was certainly not expected of the world’s largest economy that the US clearly is, with its GDP of just under $29 trillion in 2024 still overshadowing China’s 2024 GDP of $18.6 trillion even as the world’s second largest economy. A calibrated approach to trade rectification would have been more acceptable, even welcomed, by the international community. It would have expected Trump to seek mutually compatible trade agreements with countries and blocs, rather than wield a sledgehammer to structure an economic order pandering to his whims.
In a post on Truth Social, Trump said that no country, especially China, is getting a free pass when it comes to trade. ‘NOBODY is getting ‘off the hook’ for the unfair trade balances, and non-monetary tariff barriers, that other countries have used against us, especially not China which, by far, treats us the worst!’ he wrote.
UBS expects China’s exports to the US to drop by two-thirds in the coming quarters, with overall Chinese exports declining 10 per cent in US dollar terms in 2025, factoring in weaker American and global economic growth.
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In a report on 15 April, the bank also downgraded China’s GDP growth forecast to 3.4 per cent in 2025, assuming current tariff hikes will remain and that China rolls out additional stimulus. “We anticipate some of China’s other trading partners may also impose tariffs on Chinese goods in the months ahead, though likely limited to specific products and at smaller scales than the US tariffs,” UBS said. While acknowledging difficulty in predicting how the US-China tariff tensions will unfold, the bank finds potential for both sides to reopen talks and possibly ease some recent tariff hikes within the next month or two.
On 14 April, legal advocacy group, The Liberty Justice Center, urged the US Court of International Trade to block President Trump’s sweeping tariffs, contending that he exceeded his authority. Arguing that only Congress can set tax rates, including tariffs, the lawsuit was filed on behalf of five small US businesses that import products from tariff-targeted countries, and challenges Trump’s ‘Liberation Day’ tariffs and earlier duties on China. “No one person should wield such power,” said the center’s counsel Jeffrey Schwab, while the White House spokesman, Harrison Fields, defended the tariffs, calling them essential to US interests.
Meanwhile, President Xi has embarked on a diplomatic outreach, warning that a “trade war and tariff war will produce no winner, and protectionism will lead nowhere” as he began a trip to Vietnam, Cambodia and Malaysia in a bid to “resolutely safeguard the multilateral trading system, stable global industrial and supply chains, and open and cooperative international environment.”
Xi presented China as a reliable partner, in contrast to Washington, which imposed— then suspended—tariffs of more than 40 per cent on some countries in Southeast Asia, which is an export-reliant region. The US has announced reciprocal tariff rates of 46, 49 and 24 per cent against Vietnam, Cambodia and Malaysia respectively.
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In a rare gesture, Beijing also sought to galvanise New Delhi to ‘stand together’ with Chinese embassy spokesperson Yu Jing saying in a post on X: ‘China-India economic and trade relationship is based on complementarity and mutual benefit. Facing the US abuse of tariffs, which deprives countries, especially Global South countries, of their right to development, the two largest developing countries should stand together to overcome the difficulties.’
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Her post followed a congratulatory message by the Chinese President himself on 1 April to President Droupadi Murmu, on the 75th anniversary of the establishment of China–India diplomatic relations, that India and China should work together, as two neighbouring major countries that are home to one-third of the world’s population.
‘A stable, predictable and friendly bilateral relationship will benefit both countries and the world,’ she added. India did not respond to this statement, though External Affairs Minister S. Jaishankar said the bilateral relationship was moving in a “positive direction”. Prime Minister Narendra Modi walks a tightrope between the authoritarian Trump and Xi, but India will be more disposed to capitalise on any Chinese debacles in the tariff war, considering it is already seeking conciliation with the Trump administration in pursuit of a credible free trade agreement.
Xi extended his outreach to the European Union (EU) as well. As he hosted Spanish Prime Minister Pedro Sánchez in Beijing last week, he urged the EU to embrace a “fair international trade environment and jointly resist unilateral and intimidating practices”. He added, “China and Europe should fulfil their international responsibilities... and jointly resist unilateral bullying practices.” The 20 per cent tariffs the EU was saddled with were suspended by the US for 90 days after the bloc’s prompt retaliation. China also said it is ready to fight a trade war if the US continues to act “recklessly.”
Possibly feeling he was buttonholing himself into a quandary with China, Trump hailed Xi as “a very smart man”, adding, “I think he is going to want to make a deal...”
Sarosh Bana is executive editor of Business India and regional editor, India/Asia-Pacific, of Germany’s Naval Forces publication
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