Trump sweeping tariff policy, including a 54% tariff on all Chinese goods entering the U.S. has ignited significant tensions between both the Nations. This is the re-escalation of the U.S.-China trade war under President Donald Trump to the next level, which will have a global ramification from geopolitical and supply chain perspective and will inevitably lead to global recession. This move is part of a broader “reciprocal tariff” strategy unveiled on April 2, announced as “Liberation Day” by Trump. Thid includes a 10% baseline tariff on imports from all countries, with higher rates targeting specific trade partners like China.
China has responded forcefully imposing a 34% tariff on all U.S. goods alongside restrictions on rare earth exports which are critical for high-tech manufacturing. China has added 16 U.S. entities to its export control list. This tit-for-tat escalation has fuelled fears of a full-blown trade war with global stock markets plunging. U.S. indices S&P 500, Nasdaq and others are continuing to bleed since announcement and have eroded trillions of dollars of investors capital.
The economic stakes are high. The U.S. imports over $450 billion annually from China, while China relies on the U.S. market for a significant portion of its exports. Analysts estimate Trump’s tariffs could shrink U.S. GDP by 0.2% in long-term and cost lakhs of jobs while China faces potential manufacturing layoffs and reduced export margins. Consumers are already feeling the pinch.
For US, tariffs are leverage to address trade imbalances, fentanyl flows, and national security, claiming they’ll boost domestic manufacturing. Critics, warn of inflation, recession risks and higher consumer costs. China, meanwhile, is pivoting to diversify markets and bolster domestic consumption, signalling readiness to “fight till the end” if needed. The trade war’s trajectory hinges on whether Trump’s strategy forces concessions or entrenches a prolonged economic standoff.
The U.S. has long viewed China as a strategic rival and under the Trump administration this perspective has sharpened. China has long used it trade profits to fund its military buildup and increase geopolitical influence. U.S. aim to strategically weaken China. It is a multifaceted push to curb Beijing’s global influence, technological dominance, and military reach. Tariffs are a blunt tool to hit China’s export-driven economy, which still relies heavily on the U.S. market despite diversification efforts. U.S. will shrink China’s trade surplus of $279 billion with the U.S. in 2024 and will slow its GDP growth, projected close to 5% by the IMF, but vulnerable to export shocks.
Beyond trade U.S. is also targeting China’s tech edge. Restrictions on semiconductor exports were tightened since 2022 and expanded in March 2025. This aim to choke China’s AI and military advancements. US has blacklisted several Chinese firms hitting companies tied to Huawei and SMIC.
Geopolitically, the U.S. is strengthened alliances like AUKUS and the Quad. It is entering new basing agreements in the Philippines in February for ensuring free maritime movement in International waters. The tariff war complements this by straining China’s resources.
China announced $1.2 trillion stimulus since late 2024 aiming to cushion domestic demand and it’s courting Europe and ASEAN to offset U.S. losses. U.S. strategy is betting on long-term economic erosion i.e. if China’s economic engine sputters or growth dips below 4%, it could face internal pressure. The U.S. calculus is that a weaker China distracted by economic woes has less bandwidth to project power. Whether this gambit sparks a broader conflict or just a slow grind depends on how far Trump pushes and how Xi counters.
Galactik Views