China announced on Friday it was increasing its tariffs on American goods to 125%, hitting back against U.S. President Donald Trump's decision to hike duties on Chinese imports to 145% and raising the stakes in a trade war that threatens to upend global supply chains.
China's retaliation intensified the economic turmoil unleashed by Trump's tariffs, with markets tumbling further and foreign leaders puzzling how to respond to the biggest disruption to the world trade order in decades.
"Recession risk is much, much higher now than it was a couple weeks ago," said Adam Hetts, global head of multi-asset at Janus Henderson.
The brief reprieve for battered stocks seen after Trump decided to pause duties for dozens of countries for 90 days quickly dissipated, as attention returned to the escalating trade conflict between the U.S. and China.
The tit-for-tat increases stand to make goods trade between the world's two largest economies impossible, analysts say. That commerce was worth more than $650 billion in 2024.
Global stocks fell, the dollar slid and a sell-off in U.S. government bonds picked up pace on Friday, reigniting fears of fragility in the world's biggest bond market. Gold, a safe haven for investors in times of crisis, scaled a record high.
Asian indices mostly followed Wall Street lower on Friday.
In Europe, China's latest tariff hike sent stocks lower.
Financial markets are experiencing some of the most volatile trading since the early days of the COVID-19 pandemic.
While announcing a 90-day tariff pause on dozens of countries earlier this week, Trump ratcheted up tariffs on Chinese imports, raising them effectively to 145%. When Trump announced Wednesday that China faced 125% tariffs, he did not include a 20% tariff on China tied to its role in fentanyl production.
China hit back with its own new tariffs on Friday, with the finance ministry saying Trump's new tariffs were "completely unilateral bullying and coercion." The new Chinese duties will take effect as of Saturday.
Beijing indicated that this would be the last time it matched the U.S., should Trump take his duties any higher. But it left the door open for Beijing to turn to other types of retaliation.
"Even if the U.S. continues to impose even higher tariffs, it would no longer have any economic significance and would go down as a joke in the history of world economics," the finance ministry statement added.
"If the U.S. continues to play a numbers game with tariffs, China will not respond," it added, however, reiterating that Beijing would fight the U.S. to the end.
China's Commerce Ministry said it was filing another lawsuit with the World Trade Organization (WTO) against the U.S. tariffs.
UBS analysts in a note called China's declaration that it would not retaliate to any further tariff increases "an acknowledgement that trade between the two countries has essentially been completely severed."
Trump had told reporters at the White House on Thursday that he thought the United States could make a deal with China and said he respected Chinese President Xi Jinping.
"In a true sense he's been a friend of mine for a long period of time, and I think that we'll end up working out something that's very good for both countries," he said.
Xi, in his first public remarks on tariffs, told Spanish Prime Minister Pedro Sanchez during a meeting in Beijing on Friday that China and the European Union should "jointly oppose unilateral acts of bullying," in a clear swipe at Trump's policies.
"There are no winners in a trade war," the Chinese leader told his guest, adding that by acting together, the world's second-largest economy and the 27-strong European trade bloc could defend their interests and help uphold "the global rules-based order," China's state news agency Xinhua News Agency reported.
U.S. Treasury Secretary Scott Bessent shrugged off the renewed market turmoil on Thursday and said striking deals with other countries would bring certainty.
The U.S. and Vietnam have agreed to begin formal trade talks, the White House said. The Southeast Asian manufacturing hub is prepared to crack down on Chinese goods being shipped to the United States via its territory in the hope of avoiding tariffs, Reuters reported.
Japanese Prime Minister Shigeru Ishiba, meanwhile, has set up a trade task force that hopes to visit Washington next week.
But all this has done little to soothe business leaders' worries about the fallout from Trump's trade war and its chaotic implementation: soaring costs, falling orders and snarled supply chains.
For European businesses in particular, a stronger euro automatically makes them less competitive in the global market.
The euro extended its rise on Friday, reaching its highest in over three years versus the dollar. It also rose to an 11-year high against the Chinese yuan in the offshore market.
Trump's decision for a 90-day suspension on tariffs gave room for only a "fragile pause," French President Emmanuel Macron said on social media platform X, partly because "this 90-day pause means 90 days of uncertainty for all our businesses, on both sides of the Atlantic and beyond."
EU finance ministers brainstormed on Friday how to use the pause to get a trade deal with Washington. To help achieve that, the EU said on Thursday it would pause its first counter-tariffs.
But "the U.S. side has to be aware that if negotiations do not work, then we will have another discussion around response mechanisms," German Finance Minister Joerg Kukies said.
Looking ahead, how tariff chaos will change policymakers' thinking on rate cuts will be the focus when the European Central Bank (ECB) meets next week.
Corporate earnings reports also pick up steam in the coming days, with markets expecting profit warnings.
Given the size of the two economies, experts fear global economic turmoil.
The head of the WTO, Ngozi Okonjo-Iweala, said earlier this week that the trade war between the U.S. and China could "could severely damage the global economic outlook."
