The escalating trade conflict has intensified as Beijing imposed its own 34% tariffs on all U.S. imports in response to Donald Trump’s “Liberation Day” tariffs. These new Chinese tariffs, which match the reciprocal tax rate imposed by the U.S., will take effect on April 10, a day after the U.S. tariffs.
The announcement significantly impacted the U.S. financial markets, causing a nearly 6% drop in the S&P 500 on Friday. Boeing faced a decline of more than 9%, while the NASDAQ Golden Dragon China Index, which tracks U.S.-listed Chinese companies, fell by around 9%.
The fallout from Trump’s tariffs already affected Asian markets, where Japan’s Nikkei 225 index decreased by 5.2%, South Korea’s KOSPI by 1.6%, and India’s NIFTY 50 by 1.8% since April 2. The Chinese markets, including Hong Kong, were closed for the Qingming Festival.
China’s counteraction raises concerns that Trump’s tariffs could lead to a prolonged period of protectionism, despite supporters’ claims of prompting concessions. Eswar Prasad of Cornell University criticized Trump’s approach, stating it effectively dismantled the international trade system. The global trading system now lacks a clear leader, leading to varying responses from different countries, including attempts to negotiate with the U.S. or forge new trading links.
Singapore’s Prime Minister Lawrence Wong commented on the situation, characterizing the shift as the end of rules-based globalization and the onset of a more arbitrary and protectionist era. He warned of weakening global institutions and norms.
U.S. tariffs, exceeding the 10% baseline, have significantly affected Asia-Pacific economies. Major impacts include 49% tariffs on Cambodia and 46% on Vietnam, while China’s tariffs reach 34% in addition to an earlier 20%. Other East Asian economies faced tariffs between 24% to 32%. Only a few, like Australia, New Zealand, and Singapore, received the baseline 10%.
Goldman Sachs downgraded GDP forecasts across the Asia-Pacific, noting Vietnam’s decline to a 5.6% growth rate, and Taiwan dropping to 1.6%. HSBC projected that the tariffs could decrease China’s GDP growth by 1.5 percentage points from an earlier 4.8%.
Many analysts believe most Asia-Pacific countries will avoid escalating the situation. James Laurenceson from the University of Technology Sydney noted that countries in the region favor open trade to support prosperity and security. Australia confirmed it would not retaliate against the U.S. tariffs.
Some nations, like South Korea, might offer concessions such as engaging in U.S. gas projects or purchasing more agricultural products, according to Ramon Pacheco Pardo from King’s College London. President Trump mentioned that Vietnamese officials had offered to reduce tariffs to zero on U.S. imports, corroborating previous attempts at duty reductions.
Countries might support domestic industries affected by tariffs, as shown by Taiwan’s announcement of $2.7 billion in aid for local manufacturers. However, Van Jackson at Victoria University of Wellington suggested the U.S. might not regain economic dominance in Asia, citing its alienation from regional economic realities.
Without a clear leader in global trade, the U.S., which previously championed a rules-based trading system, is seen as abandoning its creation. This could pose risks as global economic dynamics shift, according to experts like Van Jackson.
Some countries, such as the Philippines, see an opportunity to capitalize on relatively less severe tariffs by expanding their exports, as stated by trade minister Cristina Roque. Additionally, stronger international trade relationships may form, excluding the United States, as nations seek to diversify markets to counter the trade conflict’s impact.
In response to restricted U.S. market access and weaker demand, parts of the world might explore new trade arrangements and export diversification to withstand the looming global trade war, as suggested by economist Eswar Prasad. China is attempting to strengthen ties with the Global South, encouraging companies to expand overseas, which could boost exports in the short term, according to Dan Wang of Eurasia Group.
Despite concerns about a potential tariff cascade, Wang anticipates no universal backlash against Chinese goods, although key industries like autos or green energy might face resistance. Nonetheless, China’s significant production capabilities may provide some protection.
China could benefit from maintaining stability, as observed by Austin Strange from the University of Hong Kong, suggesting that by not following the U.S.’s disruptive trade practices, China could enhance its global image in the short term.
