The 2 April 2025 announcement triggered a geopolitical firestorm, significantly straining US relations with both allies and rivals.
Fulfilling a key campaign promise to impose “reciprocal” tariffs, President Donald Trump on “Liberation Day” (2 April 2025) announced sweeping tariff measures against nearly all major trading partners. These included a 34% tariff on imports from China, 20% on the European Union, and 26% on India. The announcement triggered a bloodbath in global markets, sparking fears of an impending economic apocalypse. Over $10 trillion was wiped off major stock markets worldwide, with the United States bearing the heaviest losses. America’s tech giants—collectively known as the “Magnificent Seven” (Apple, Google, Nvidia, Meta, Amazon, Microsoft, and Tesla)—were hit hardest by the shockwaves.
The 2 April 2025 announcement triggered a geopolitical firestorm, significantly straining US relations with both allies and rivals—what many now call “Global Trade War 2.0.” European Commission President Ursula von der Leyen, in a call with Chinese Premier Li Qiang, emphasized the shared responsibility of Europe and China to uphold a reformed, fair, and rules-based trading system. India and Japan avoided immediate escalation, preferring quiet diplomacy, while the UK expressed disappointment. Across the Global South, the move was seen as further evidence of growing American unilateralism and protectionism.
China was the only nation to respond defiantly. Already facing tariffs exceeding 20%, the new measures raised the total US tariff rate on Chinese goods to 54%. In response, China vowed “countermeasures” (进行反制) to defend its “legitimate rights and interests” (正当权益), according to a CGTN analysis. The US also revoked the de minimis exemption for Chinese packages under $800, citing fentanyl concerns. On 3 April, Beijing retaliated with a 34% tariff on US goods, WTO legal action, and sanctions against several American entities.
The move infuriated President Trump, who responded with an additional 50% tariff on Chinese imports, effective 8 April 2025. A day later, he announced a 90-day tariff pause for most countries—excluding China, whose total tariffs soared to an unprecedented 145%. Treasury Secretary Scott Bessent claimed the move “goaded China into a bad position,” revealing that nearly 70 countries had reached out to negotiate.
China remained defiant. MoFA spokesperson Mao Ning posted a Korean War-era video of Mao Zedong on X, declaring, “No matter how long this war is going to last, we will never yield.” As expected, China retaliated on 11 April with 125% tariff on US imports. While Trump may be fixated on tariffs, Bridgewater Associates founder Ray Dalio, who met President Xi Jinping on 28 March in Beijing, argued the real issue is a broader breakdown of global monetary, political, and geopolitical systems.
CRUMBLING U.S. GLOBAL ORDER
The US’ magnanimity towards its allies and treaty partners during its heyday was understandable. For example, China’s GDP was only 20% of the US GDP in the year 2000; however, at present, it is 64.73%. According to graphics by economist Ehsan Soltani, in 2000, US trade totalled $2 trillion—more than four times China’s $474 billion. However, from China’s entry into the WTO in 2001 to 2024, US trade grew by 167%, while China’s trade surged by 1,200%, dislodging the US as the world’s largest trading partner in 2012. By 2024, total trade reached $5.3 trillion for the US and $6.2 trillion for China. The US believes that free-riding under such circumstances is not sustainable.
The West had expected China to liberalize its state-controlled economy and transition into a transparent, market-driven system. However, that transformation didn’t happen. Instead, China leveraged its state-driven economic model and government-backed enterprises to thrive. China’s WTO membership proved to be a gateway for attracting foreign direct investment, gaining access to global technology, and expanding into foreign markets. However, growing concerns have emerged over China’s use of state subsidies, low-cost labour, and forced technology transfers—practices that give it an unfair advantage over foreign competitors, as argued by Indian Union Commerce Minister Piyush Goyal during the India Global Forum in Mumbai on 8 April.
As pointed out by Ray Dalio, the global economic system is breaking down because there’s too much debt, it’s growing too fast, and markets rely on it to stay afloat. This debt is unsustainable. On one side, big borrowers like the US rely on debt to fund their overspending. On the other, lenders like China hold too much of that debt and depend on selling goods to those same borrowers to keep their own economies going. Both sides are stuck in an unhealthy, unstable cycle. The old system—where China makes cheap goods, sells them to Americans, and buys US debt, while Americans borrow from China to keep spending—is not sustainable. This cycle of selling, borrowing, and debt is no longer sustainable and will have to change.
CHINA’S COUNTER ARGUMENT
China has debunked US tariffs and upholds that the US narrative of “suffering losses in trade” does not stand up to scrutiny. Citing data from the US Department of Commerce, a White Paper China published on 9 April, maintains that America’s trade deficit in 2024 reached $1.21 trillion—a 50% increase compared to the 2017 level, before the US launched its tariff wars. Between 2018 and 2024, China’s trade surplus with the US rose from $323.3 billion to $361 billion, indicating that tariff barriers have failed to resolve American concerns. China argues that America’s trade deficit is the result of market forces, influenced by industrial competitiveness, economic structure, global division of labour, trade policies, and the dominance of the US dollar etc., factors.
Moreover, the US has conveniently ignored its overwhelming advantage in trade in services.
Citing data from the US Department of Commerce, the White Paper argues from 2001 to 2023, US service exports to China expanded from US$5.63 billion to US$46.71 billion, an 8.3-fold increase. The US annual service trade surplus with China expanded 11.5 times to US$26.57 billion. Added to this, in 2022, the sales revenue of US-owned enterprises in China reached $490.52 billion, significantly exceeding the $78.64 billion in sales revenue generated by Chinese-owned enterprises in the US. This $411.88 billion gap, China said, underscores the “more pronounced advantage of American enterprises” in multinational operations.
According to a CGTN analysis, China has faced short-term pressure on its economy; however, its trade friction with the United States has significantly enhanced its economic resilience and stress tolerance. Moreover, China’s expanding network of trade partners across both the Global North and South has helped cushion the impact of US tariffs. During the “Central Conference on Work Related to Neighbouring Countries,” held from 8 to 9 April 2025, and attended by members of the Standing Committee of the Political Bureau of the CPC Central Committee, Xi Jinping emphasised the need to focus on building a community with a shared future with neighbouring countries.
ORIGINS OF CHINA’S CONFIDENCE
China has developed an advanced, high-quality industrial system capable of withstanding external risks. Manufacturing registered rapid growth reaching RMB 32.09 trillion (US$4.49 trillion) in 2024, marking a 10.6% increase compared to the same period in 2023. The sector accounted for approximately 39.0% of the total GDP and 31.6% of the total global manufacturing output. This is almost double the US global industrial output. As an exporting nation, it has a trade surplus exceeding $992 billion. In 2024, China’s global innovation index ranked 11th, making it one of the fastest-growing economies in terms of innovation over the past decade.
Two, China has bridged its technological and military asymmetries with US. One may refer to, China revealing two cutting-edge sixth generation stealth aircraft on 26 December 2024, drawing global attention for their potential to revolutionize next-generation air combat. Chinese AI start-up DeepSeek delivered a significant blow to the US tech sector with its “low-cost + open-source” (低成本+开源) model on 27 January early this year, making the US tech companies lose nearly $1 trillion in market value, with NVIDIA alone accounting for nearly $600 billion of the decline. Ship building and robotics are some other areas where China has taken a lead. In March 2025, the US imposed stacking fees on China–built vessels that could top $3 million per US port call.
Three, it is the clean technologies, where China has assumed global leadership, and remains part of President Xi Jinping’s “Hi-Quality Development” narrative. China is the largest producer of solar panels, wind turbines and lithium ion batteries, accounting respectively for around 80%, 60% and 60% of the global production capacity. According to Guangdong Hydro and New Energy Enterprise, “the clean energy sector contributed approximately 11.4 trillion yuan (USD 1.6 trillion) to China’s economy in 2023, a 30% year-on-year increase. This means that clean energy accounted for 9% of China’s GDP in 2023, up from 7.2% in 2022.”
Finally, the breakdown of the major monetary/economic, political, and geopolitical order offers an opportunity for China. Immediately after announcing countermeasures, China dropped tariffs for vulnerable countries, mostly in the Global South. Mao Ning, the MOFA spokesperson called it the clash of two visions. Chinese scholars like Wang Huiyao, president of the Chinese think-tank Centre for China and Globalization believe that the likely outcome of President Trump’s tariffs would be that “China will become the largest trading nation and its economy will be trading more with other nations and the US may … become more isolated.” Though China calls for “building a community of shared future” globally and now that of neighbouring countries, but will it accommodate countries like India and Japan in a multipolar Asia?
* B.R. Deepak is Professor, Center of Chinese and Southeast Asian Studies, Jawaharlal Nehru University, New Delhi.