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 recession with his ham-handed policies.
JP Morgan recently raised its forecast from 40 to 60 per cent of the global economy’s slide into recession as early as 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 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 opt to absorb tariff costs, their profitability can suffer, coercing them to downsize operations and lay off workers. If they are more likely to pass on tariff costs to consumers, consumer demand will collapse, hitting manufacturing and again throwing workers out of jobs.
The US dollar too has been declining 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.
On 9 April, Trump suddenly announced the pausing of reciprocal tariffs for 90 days to give his administration time to work out trade deals with 75 countries, which he said had reached out to the White House to offer concessions. He later acknowledged that the pause was also driven by volatility in the stock and bond markets.
But he singled out China, not only excluding it from the 90-day concession, but upping his absurd 145 per cent tariff on Chinese imports to an astronomical 245 per cent, as retaliation against Beijing’s retaliation in hiking 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’, stressing 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.
However, Chinese President Xi Jinping is a formidable leader who is expected to do all he can to counter Trump’s excesses. Indeed, the 2022 US National Security Strategy cites 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’.
China hits back
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. It has besides 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, paling before $438.9 billion worth of imports from China, an increase of almost the same amount.
The US’s overall trade deficit in goods and services was $918.4 billion in 2024, a 17 per cent increase from 2023, even as China’s overall trade surplus surged to a record $992.2 billion in 2024, its exports climbing 5.4 per cent. This helped tide over the sluggish growth at home as it gradually recovered from a crisis in its property market and the persisting effects of Covid-19.
However, a brutal slugfest was certainly not expected of the world’s largest economy that the US clearly is, with its 2024 GDP of just under $29 trillion far outshining the $18.6 trillion GDP of China, 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.
Banking giant 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. 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.
On 14 April, legal advocacy group, The Liberty Justice Center, urged the US Court of International Trade to block the President’s sweeping tariffs, contending that he exceeded his authority. Arguing that only Congress can set tax rates, including tariffs, Center counsel Jeffrey Schwab said: “No one person should wield such power.” White House spokesman, Harrison Fields, defended the tariffs, calling them essential to US interests.
Xi has embarked on a diplomatic outreach to contain the US’s influence. As he recently hosted Spanish Prime Minister Pedro Sánchez in Beijing, he urged the European Union to embrace a “fair international trade environment and jointly resist unilateral and intimidating practices.” He maintained: “China and Europe should fulfil their international responsibilities... and jointly resist unilateral bullying practices.”
He also reached out to South-East Asian countries, warning that a “trade and tariff war will produce no winner, and protectionism will lead nowhere”. He visited 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”. The three countries have been imposed tariffs of 46, 49 and 24 per cent respectively by the US, though these have been similarly suspended for 90 days.
Xi presented China as a reliable partner, in contrast to the US, and said his country is ready to fight a trade war if Washington continues to act “recklessly”.
In a rare gesture, Beijing also sought to galvanise New Delhi to “stand together”, 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.”
US will call the shots
Her post followed a congratulatory message by the Chinese President himself on 1 April to his Indian counterpart 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,” he 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. Nevertheless, he is aspiring to position India to capitalise on any advantage coming out of the tariff war so as to emerge as a net beneficiary.
Even as Finance Minister Nirmala Sitharaman was pacing through her conciliatory five-day visit to the US to engage with officials on another round of talks on a Bilateral Trade Agreement (BTA), the first phase of which she hopes will be finalised by “autumn” (September-October), Modi was hosting US Vice President JD Vance as he started his four-day visit to India, accompanied by Second Lady Usha Vance and their three children.
It is clear which side will be in command in the negotiations. India enjoyed a trade surplus of US$36.8 billion over the United States in 2023-24, with US$77.5 billion of exports in the two-way trade worth US$118.2 billion. However, New Delhi is now anticipated to bend over backwards in complying with Trump’s call to narrow the US’s trade deficit.
Even as Modi and Vance announced the finalisation of the Terms of Reference for negotiations on the BTA, the Vice President took off from when Trump cornered Modi during their 13 February meeting at the White House. He was quick to affirm that America wanted greater access to Indian markets, and urged India to buy more oil, gas and defence hardware from the US, and lower non-tariff barriers for US businesses. He warned that if the two sides failed to work successfully, this century could see very dark times for all of humanity.
US Trade Representative (USTR) Jamieson Greer didn’t miss the opportunity to chime in with a statement he issued in Washington. Welcoming “India’s constructive engagement”, he declared: “There is a serious lack of reciprocity in the trade relationship with India. These ongoing talks will help achieve balance and reciprocity by opening new markets for American goods and addressing unfair practices that harm American workers.”