China is to raise additional tariffs on US imports to 125 per cent, the latest salvo in an increasingly bitter trade war between the world’s two largest economies that is threatening to push the US into recession and lower global growth.
The higher Chinese tariffs, which come into effect tomorrow, follow Donald Trump’s decision yesterday to increase duties on imports from China to 145 per cent. China’s finance ministry said Trump’s latest tariffs violate “international economic and trade rules, basic economic laws and common sense.”
What does the latest move by China mean for markets? Beijing’s announcement of higher tariffs on US imports sent investors scurrying for safety, pushing up the prices of traditional haven assets such as gold, the Swiss franc and the yen and pushing down the value of riskier holdings such as equities, the dollar and also, once again, US government bonds.
The dollar slumped to a three-year low against the euro, used by one of the US’s biggest trading partners, and a decade low versus the Swiss franc. An index of the dollar’s value against currencies of big US trading partners fell below 100 as questions about the dollar’s status as the global reserve currency grew louder. “The question of a potential dollar confidence crisis has now been definitively answered — we are experiencing one in full force,” said Francesco Pesole, an FX strategist at ING.
Global stock markets fell and the sell-off in the Treasury market accelerated as investors dumped US assets. Thirty-year US bond yields rose to 4.90 per cent and are on course for their biggest weekly jump since at least 1982, according to LSEG data. Futures trading suggests US equities are set for further falls when markets open later in New York.
Gold, one of the biggest winners from the current market volatility, hit another record high this morning of $3,219.84 an ounce, putting it on course for a gain of 5 per cent this week alone and more than 20 per cent since the start of the year.
What does Trump’s impulsive and erratic trade policy mean for Main Street? Economists have lowered their US growth estimates in recent days and warned that the uncertainty surrounding Trump’s trade policy threatens investment, inflation expectations and employment prospects. An analysis from the Yale Budget Lab said American consumers now face a tariff rate of 27 per cent, the highest level since 1903. Goldman Sachs lowered its 2025 US growth forecast to just 0.5 per cent, down from 2.8 per cent last year. The bank said its new forecast reflected a “sharp tightening in financial conditions” as well as US government policy uncertainty. Zooming out, the OECD last month reduced its 2025 global growth estimate to 3.1 per cent from an earlier forecast of 3.3 per cent but that was before the latest round of US-China tariffs were launched. For the latest coverage of the global market fallout, follow our live blog.
Consumer impact: US retailers are warning of higher prices, as analysts estimate Trump’s levies could cost the average household $4,700 a year.
Dollar’s status: The US would be better off without the dollar’s role as the dominant “safe” currency, writes Michael Pettis of the Carnegie Endowment.
Opinion: Trump’s tariffs are testing American attitudes towards pain and shared adversity, writes Gillian Tett.