US stocks tumbled on Thursday as the White House clarified that the tariff rate on Chinese imports has risen to 145 per cent, up from the 125 per cent figure that was communicated on Wednesday, and US President Donald Trump characterised the volatility as “transition difficulty”.
The higher figure includes the 125 per cent rate that covers the so-called “reciprocal” duties announced by Trump as well as a 20 per cent rate imposed earlier this year over China’s involvement in fentanyl trafficking.
The Dow Jones Industrial Average closed down over 1,000 points, or 2.5 per cent; the S&P 500 slid 3.5 per cent; and Nasdaq fell over 4 per cent.
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The markets were giving back large portions of the gains they had made in the Wednesday’s historic rally, when Trump backed down on his most punishing tariffs on nations he called the “worst offenders” by postponing them for 90 days, though the baseline 10 per cent tariffs on goods from all US trading partners that he announced last week remain in effect.
At the same time, he announced the 125 per cent tariffs on China and said they would go into effect immediately.
Confirmation of the higher rate is likely to escalate the stand-off between Washington and Beijing, which became the main target of the Trump administration’s efforts to reverse America’s overall trade deficit.
Responding to the clarified tariff rate, Chinese embassy in Washington spokesperson Liu Pengyu said: “China does not want to fight these wars but is not scared of them”.
“If the US truly wants to talk, it should let people see that they’re ready to treat others with equality, respect and mutual benefit,” he said, adding that China hoped the two countries “will meet each other halfway”.
Analysts said it was difficult to see an easy off-ramp as Washington and Beijing raise tit-for-tat tariffs and try to avoid looking weak.
At an event Thursday concerning tariff policy at the Council of Foreign Relations think tank, Zongyuan Zoe Liu, a CFR senior fellow, noted that Trump regards himself as an exceptional negotiator.
At the same time, she said, “President Xi Jinping spent his whole career preparing himself and perhaps preparing the Chinese economic system for exactly this moment,” given Xi’s consistent focus on eschewing international coercion and bullying.
China does not want or need a trade war as it battles domestic deflation and unemployment concerns, but the hardline US stance may provide benefits over the medium- and longer-term.
Beijing has long touted its need for greater economic self-sufficiency and domestic consumption, and the pressure from Washington could accelerate the transition, Liu said – even as China accelerates trade liberalisation talks with Vietnam, the Gulf Cooperation Council and others in the face of the narrowing US access.
Trump said on Wednesday he was open to meeting with Xi and that he did not expect to raise levies on Chinese imports above 125 per cent. But it was not clear until Thursday that the figure did not include the two rounds of 10 per cent tariffs he had earlier imposed on China for its role in fentanyl trafficking.
In the same executive order detailing the 125 per cent tariffs released on Thursday – dated a day earlier – Trump announced another increase in tariffs on postal items from China valued at US$800 or less.
Starting on May 2, those goods will face a duty of either 120 per cent of their value or US$100 per item, with the per-item duty rising to US$200 on June 1. Trump had already increased duties on these goods twice this month.
China was America’s second-largest import source last year in terms of value, which was pegged at US$439 billion, according to US government data. That was just behind Mexico, which shipped goods worth US$506 billion.
On Wednesday, before Trump’s escalation, Beijing announced 84 per cent tariffs on US imports. It also imposed restrictions on 18 American companies, mostly in defence-related industries. Six of them were added to China’s “unreliable entity list”, adding to the 60 or so US firms punished over Trump’s second-term tariffs.
On Thursday, after his escalation, Beijing announced it would immediately restrict imports of Hollywood films.
As the rift with Beijing intensified, the Trump administration appeared to move in a more positive direction with some other trading partners.
The European Union’s executive commission said on Thursday that it put on hold for 90 days the retaliatory tariffs on US imports that it had prepared to leave room for a negotiated solution.
US Treasury Secretary Scott Bessent said Vietnam’s Deputy Prime Minister Ho Duc Phoc “agreed to begin formal discussions on reciprocal trade”.
Trump’s 90-day pause also seemed to partly mollify Republican lawmakers, who had in recent days signalled growing opposition to his tariffs – particularly concerning the impact they would have on US allies and strategic sectors.
Speaking at a conference hosted by the Special Competitive Studies Project think tank on Thursday, Senator Todd Young of Indiana said there was “no question” that tariffs “present a risk” to the biotechnology sector, but that the 90-day postponement offered some of the certainty he had sought from the administration.
Still, while acknowledging the “genuine and fair” grievances behind the tariffs, Young said he was requesting more details about the administration’s negotiation objectives.
Commerce Secretary Howard Lutnick gave a negotiations update on Thursday, telling reporters that “we have so many countries to talk to.”
“They have come with offers that they never, ever, ever would’ve come with but for the moves that the president has made demanding that people treat the United States with respect.”
Also on Thursday, Trump said, “there will always be transition difficulty”, adding that he was proud of the markets their “biggest day in history” on Wednesday.
Trump’s postponement of tariffs seemed to put off what would have been the start of an unprecedented trade war against most of the world.
But in addition to maintaining the 10 per cent “baseline” tariffs, the US has also kept in place new levies on aluminium, steel and vehicles, as well as broad swathes of tariffs on Canada and Mexico imposed earlier this year.
The 145 per cent tariffs on Chinese imports are to come on top of tariffs that were in place when Trump’s second term began, including product-specific tariffs from his first term, which then-US President Joe Biden expanded.
Other CFR analysts said that the chaos, uncertainty and market volatility of recent days were hurting supply chains and eroding trust in the US financial system.
Shannon O’Neil, a CFR senior vice-president, noted that while China has nearly halved its dependence on US imports over the past decade, it still dominates US toy, shoes, apparel, iPhones and other electronics imports – all of which could lead to higher US consumer prices within months if high tariff levels hold.
“And we still don’t know what tariffs are actually going to be put in place in 90 days.”
Sharp jitters in the US bond market Wednesday appeared to influence Trump’s decision to back off on most of his tariff threats but could undercut trust in the US financial system.
Beijing has long sought to reduce its financial reliance on the US, and the recent instability will do little to bolster confidence.
But any hint of China selling off its US Treasury holdings – estimated at US$760 billion – would decimate their value.
Nor is there much short-term chance of the yuan supplanting the US dollar as a reserve currency.
“The dollar, despite all the ups and downs the United States has had, is still so dominant,” said Rebecca Patterson, a senior fellow at CFR.
CFR’s Liu said that while the US and Chinese positions both appear entrenched, China could be flexible when called for: “We tend to focus on President Trump, who will snap his finger and change his mind.
“But I’d say that China also has a good track record on quickly walking back some of its policies.”
“And the party controls the media so it can always put a positive spin on it, even if President Xi picks up the phone and calls Trump.”
More from South China Morning Post:
- Trump’s tariffs and China targeting in focus as House lawmakers fret over alliances
- EU frets over flood of Chinese imports as Trump stokes tariff war
- After Trump’s ‘tactical retreat’, analysts warn ‘crazy’ week is just the beginning
- China prepared to ‘strike back’, state media says as new tariffs kick in
- China fires back with fresh 50% tariff in stern rebuke to Trump’s escalation
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