A trade agreement with US President Donald Trump now seems unlikely, prompting Chinese President Xi Jinping to shift from caution to aggression. In response to Trump’s latest tariffs, Beijing has imposed its own broad 34% tariffs, signaling readiness for a lengthy and bitter trade war.
“If the US insists on having its way, China will fight to the end,” Beijing’s commerce ministry declared Tuesday, slamming Trump’s 50% tariff threat as “blackmail.”
China’s message: If Trump wants a showdown, they’re ready.
Why it matters
The current escalation goes beyond the 2018-2020 US-China trade war. Both sides have hardened their positions and sharpened their tools. Trump is invoking “America First” and wielding tariffs like a political cudgel. Xi is done waiting for dialogue and preparing China to absorb the shock.
The economic fallout is already visible:
- Wall Street’s $5 trillion shock: In just 48 hours after Donald Trump’s April 2 tariff announcement, US markets were rocked by their steepest two-day slide since the early pandemic days of March 2020. The S&P 500 plunged 10.5%, erasing over $5 trillion in shareholder value.
- $9 trillion—and counting: Since peaking on February 19, the S&P 500 has lost more than $9 trillion in value as investor anxiety deepens over a prolonged US-China trade war. Analysts warn that if the tariff spiral continues, the hit to global equities could exceed the damage seen during Covid’s first wave. For now, markets are still searching for a floor—and a signal that either side is ready to blink.
- ₹24 lakh crore vanishes from Indian markets: The global market rout didn’t stop at US borders. Indian equities shed ₹24 lakh crore in investor wealth in just five trading sessions this April. According to a report in the Economic Times, the Tata Group alone lost ₹2.08 lakh crore in market cap this month, pushing its year-to-date erosion to ₹5.58 lakh crore. Reliance Group wasn’t spared either, giving up ₹1.29 lakh crore since April 1. While most groups bled, Bajaj emerged as a rare winner—adding ₹87,000 crore in value and surpassing Adani to become India’s third-largest business house.
- Hong Kong’s Hang Seng Index posted its worst single-day loss since 1997.
- A Bloomberg Economics model suggests the tariffs will virtually wipe out US-China bilateral trade if fully implemented.
The big picture
Trump’s calculus is both political and economic. On April 2, he triggered a sweeping tariff hike — starting with a 10% blanket rate on most imports and building up to a 54% effective rate on Chinese goods, effective April 9. His goal? Erase the $295 billion trade deficit with China and force what he calls a “fair” deal.
“If China does not withdraw its 34% increase above their already long term trading abuses by tomorrow, April 8th, 2025, the United States will impose ADDITIONAL Tariffs on China of 50%, effective April 9th,” Trump wrote on Truth Social. “Additionally, all talks with China concerning their requested meetings with us will be terminated!”
“Unless we solve the trade deficit with China, I’m not making a deal,” Trump told reporters. “They’ve been ripping us off for years, and it’s got to stop.”
He’s betting that hardball tactics and economic nationalism will resonate with American voters heading into 2026 midterms.
But the pressure is mounting at home:
- US retailers warn of higher prices — as much as $1,000 more annually per household.
- Swing-state farmers and manufacturers, many of whom were hit hard in the 2018 trade war, are bracing for renewed retaliation from Beijing.
What they are saying
- “Trump and Xi are locked in a paradox of pressure and pride,” Craig Singleton, senior fellow at the Foundation for Defense of Democracies, told Bloomberg. “If Xi refuses to engage, the pressure escalates. If he engages too soon, he risks looking weak.”
- “You just slapped my face and I’m not just going to call you and beg your pardon,” said Wu Xinbo, director of the Center for American Studies at Fudan University, reflecting China’s hardening posture.
- “China wants to convey to the US that it is not intimidated,” said Henry Gao, law professor at Singapore Management University, told Bloomberg. “Rather than aiming to inflict significant damage, the goal seems to be to exert pressure and encourage dialogue.”
The US threat to escalate tariffs on China is a mistake on top of a mistake.
China commerce ministry
Zoom in: The long game, Beijing-style
China is playing a different game. Rather than a quick fix, Xi is positioning for endurance. Beijing has learned from the first trade war. Since 2018, China has cut its reliance on US imports, diversified its trade partners, and made political peace with enduring higher costs.
US goods now make up just 15% of Chinese imports, down from 25% in 2017. The US, meanwhile, still imports hundreds of billions worth of Chinese goods annually.
China has deepened trade ties with Southeast Asia, the EU, and Africa — spreading out its risk.
Domestically, Xi is pivoting to boost consumer demand, calling for efforts to “fully unleash” spending power and offset the decline in exports.
At the same time, Beijing’s countermeasures are becoming more strategic:
- Export controls on rare earths threaten key US sectors like defense and tech.
- The yuan could be devalued to soften the tariff blow.
- Xi is expected to visit Southeast Asia later this month, where China may reinforce ties — and try to prevent Washington from poaching trade deals in the region.
- According to Bloomberg, Wang Yiwei, a professor of international relations at Renmin University and former Chinese diplomat, suggested that Beijing is betting on Washington’s energy to taper off. “Soldiers would be most willing to fight when the first battle drum sounds, but that begins to fade by the second round,” he said, citing an old Chinese saying.
Between the lines
Sometimes you have to take medicine to fix something. We’re bringing jobs back, factories back. You watch, it’s going to be amazing.
Donald Trump
Trump’s strategy — rooted in volatility and media dominance — carries high political risk. A deep market selloff or spike in consumer prices could dent public support. Yet Trump remains defiant:
“Don’t be Weak! Don’t be Stupid! Don’t be a PANICAN,” he posted on Truth Social, brushing off Wall Street’s panic and declaring “GREATNESS will be the result.”
His leverage is real: the US buys more from China than it sells, giving Trump tools to disrupt Beijing’s industrial base. But the cost is immediate for American consumers and businesses, with midterms not far off.
Xi, in contrast, doesn’t face electoral pressure. His authority is consolidated, and his state-controlled economy allows more centralized responses. His nationalist messaging — and refusal to be seen as capitulating — plays well at home, especially as the Chinese public remains wary of US intentions.
What’s next
Expect more escalation before any de-escalation. China has threatened further retaliatory tariffs and could extend export bans across critical materials. Xi’s team is weighing how far they can push without triggering global backlash — or deeper internal economic stress.
Trump, facing economic and political constraints, may eventually seek a face-saving off-ramp. A symbolic win — like a TikTok sale, increased fentanyl enforcement by China, or vague pledges of future purchases — could offer the “mission accomplished” moment he needs.
“They’re offering things to us that we would have never even thought of asking them for,” Trump claimed of other countries seeking deals — a possible signal that a negotiated climb-down is in the cards.
Bottom line
- Trump craves headline-friendly wins. Xi doesn’t need them. Trump faces elections, Wall Street, and restless consumers. Xi faces none of that.
- If pain levels out, Trump may declare victory over a face-saving gesture and call it a day.
- Xi, emboldened by control at home and diversification abroad, can outlast Trump’s tariff tantrums. But this won’t end with a handshake. The best-case outcome may be a slow walk-back into another tense truce, like 2020’s “Phase One” deal — thin on substance but thick on spin.
(With inputs from agencies)
