“Amid all the noise today, markets barely reacted to perhaps the biggest news of the trade war thus far: President Trump threatening ADDITIONAL 50% tariffs on China is huge news. […] The United States imports a total of $439 BILLION from China per year. China has until April 8th to drop their 34% tariff on China or President Trump says these tariffs will go live. Minutes ago, China said they “will fight until the end” against Trump’s tariffs. Amid all the noise, trade war tensions hit a new high today.”
US-China Trade War: The Economic Fallout
Global markets stumbled on April 7 as fears of a full-scale trade war surged. Notable losses included:
- Hang Seng Index plummeted 13.22%, rivaling the 10.4% fall on October 24, 1997, during the Asian Financial crisis.
- Nasdaq Composite Index slid 5.97%, leaving the Index down 19.2% year-to-date.
Recession risks have escalated due to increased economic uncertainty.
Goldman Sachs raised its recession probability, stating:
“We are lowering our 2025 Q4/Q4 GDP growth forecast to 0.5% and raising our 12-month recession probability from 35% to 45% following a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed.”
These forecasts assume that the April 9 tariffs do not take effect. If implemented, Goldman anticipates a recession.
Is China Replaying its Trump 1.0 Playbook?
Beijing could be reviving strategies from Trump’s first term to counter US tariffs.
We recently discussed China’s potential countermeasures to US tariffs, which included
- Reciprocal tariffs targeting US agricultural products.
- Currency weakening to offset tariffs.
- Strategic negotiations akin to the 2020 Phase One trade deal.
With reciprocal tariffs now imminent, the focus could shift to currency actions. On April 8, the People’s Bank of China cut the Central Parity Rate by 58 pips to $7.2038, the weakest level since September 2023.
Robin Brooks, Senior Fellow at the Brookings Institute, commented:
“China tonight continues to weaken the Yuan in small steps. This marks a shift in policy and is a clear signal to Washington. Up until “Liberation Day,” the official fix (white) was basically stable. No longer. This is Beijing saying – still politely – this is getting too much…”
Following Trump’s renewed accusations of currency manipulation, the USD/CNY rose 0.31% to $7.3305 on April 8, its highest level since September 2023. While the weaker Yuan could offset the effect of US tariffs, it risks prompting further retaliation
