China, EU strike back against US tariffs as trade rift worsens

Escalating a global trade war, China and the European Union (EU) have struck back against import tariffs announced by the US, sending equity and bond markets into a spin and signalling a deepening rift between the world’s biggest economic powers.

In a statement Wednesday, China’s finance ministry said it will impose 84% tariff on all imports from the US starting 10 April, revising the 34% retaliatory tariff it had announced earlier. China’s move came hours after America’s steepest tariff in a century went into force, taking Trump’s duties on Beijing this year to 104%.

In a parallel development on Wednesday, the 27 member states of the European Union (EU) approved retaliatory tariffs on $23 billion in goods in response to US President Donald Trump’s 25% tariffs on imported steel and aluminium, even while repeating their preference for a negotiated deal to settle trade issues. To be sure, the targeted goods are a tiny fraction of the overall €1.6 trillion ($1.8 trillion) in US-EU annual trade.

US equity futures fell more than 2% after China announced the new tariffs. Stocks in Europe slumped 4%. Global bond markets, too, were in turmoil, with Morningstar reporting that government bonds sold off on Wednesday as investors built up cash allocations.

Yields on US 10-year treasuries, which move in the opposite direction when bond prices decline, spiked to nearly 4.5% on Wednesday from 3.9% on Monday.

Also read: Global markets crash! Dow futures tank 2% as China slaps fresh tariffs on US; UK’s FTSE tumbles 4%

“China sent a clear signal today that the government will keep its stance on trade policies, despite the higher tariffs of the US,” said Zhang Zhiwei, president and chief economist for Pinpoint Asset Management Ltd. “I don’t expect a quick and easy way out from the current trade conflict. Meanwhile, the tariffs have become effective and the damage to the two economies will become visible soon.”

“It won’t end well for either economy,” said Chang Shu, chief Asia economist for Bloomberg Economics. “For China, it will slam exports to the US, putting as much as 3% of GDP at risk... We expect Beijing to step up policy support for financial markets, fast-track stimulus and let the yuan depreciate in an orderly manner to support exporters.

US treasury secretary Scott Bessent branded Beijing’s retaliation “unfortunate” in an interview with Fox Business, and urged China not to devalue the yuan, calling such a move a tax on the world. “The Chinese actually don’t want to come and negotiate, because they are the worst offenders in the international trading system,” he added.

Asked whether removing Chinese stocks from US exchanges was a retaliatory option for the administration, Bessent said that everything was on the table. He pointed to a pending review of capital export controls, and said Trump will decide.

While Trump’s tariffs have piled pressure on the Chinese export machine that last year contributed to about a third of growth, the US economy is also at risk. Goldman Sachs economists including Andrew Tilton wrote in a note that for 36% of US imports from China,

American buyers have a “limited ability” to find alternative suppliers, even with substantial tariffs.

Staged Tariffs

Meanwhile, the EU tariffs will go into effect in stages, starting 15 April, then 15 May and 1 December. The EU executive commission didn’t immediately provide a list of the targeted goods Wednesday.

“The EU considers US tariffs unjustified and damaging, causing economic harm to both sides, as well as the global economy,” the EU’s executive commission said in a statement. “The EU has stated its clear preference to find negotiated outcomes with the US, which would be balanced and mutually beneficial.”

The EU has targeted smaller lists of goods in hopes of exerting political pressure and avoiding economic damage from a wider escalation of tit-for-tat tariffs.

The EU is also working on a response to Trump’s blanket 20% tariff on all European goods, imposed as part of his sweeping “reciprocal” tariffs foisted on global trading partners. That could include measures aimed at US tech companies and the services sector as well as trade in goods.

France’s economic minister Eric Lombard said the second package “will take account not only of European imports, but also of other ways in which we can respond”.

Lombard added: “The idea is that, with these extremely strong, extremely powerful measures, we can get to the negotiating table on an equal footing, so that both sides of these duties can be lowered and all our economic sectors protected.”