People walk past an Apple Store along a shopping street in Beijing on April 8, the day when China vowed to 'fight to the end' against fresh tariffs of 50 per cent threatened by U.S. President Donald Trump, further aggravating a trade war that has already wiped trillions off global markets.WANG ZHAO/Getty Images
Donald Trump has signalled that he is ready – and eager – for a war of attrition with China and the European Union, one that he believes will ultimately favour the United States.
In the past 24 hours, he rejected European Commission President Ursula von der Leyen’s offer of a “zero-for-zero” transatlantic tariff regime on industrial products ranging from cars to chemicals. At the same time, he hit China with an additional 50-per-cent levy, which went into effect Tuesday afternoon, after Beijing refused to withdraw the threat of retaliatory tariffs on the United States. China’s Commerce Ministry vowed to “fight to the end” – a belligerent though woolly response.
Mr. Trump is at war with two of his country’s top five trading partners. He is gambling that China and the EU need the United States more than the United States needs them, and he is probably right.
On Tuesday, global markets were blessed with some respite after a savage, three-day sell-off that erased some US$10-trillion in equity values from the main stock markets. BlackRock Inc. chief executive officer Larry Fink told the Economic Club of New York on Monday that “most CEOs I talk to would say we are probably in a recession right now.”
Even supposedly safe assets, including gold and U.S. government bonds, could not escape the stampede for the exits. The wholesale sell-off indicated not only that investors think the global economy is barrelling toward recession, but that they are in panic mode and loading up on cash, that fund managers are scrambling to meet redemption demands and that hedge funds are getting hit with margin calls from banks – that is, the banks are demanding cover for falling values.
The rebound in the markets Tuesday does not mean the worst is over, though some investors are obviously buying the dip on the assumption that it is. Generally speaking, investors seem confused and are searching for direction. An all-out trade war with China and the EU, which now seems to be under way, could provide that direction – down. No wonder Wall Street’s Vix Volatility Index, also known as the “fear” gauge, is at its highest level since the 2020 pandemic crisis.
There were rumours Monday that Ms. von der Leyen’s zero-for-zero gambit might do the trick, allowing Mr. Trump to delay unleashing his global wave of reciprocal tariffs. Fake news, as it turned out. Mr. Trump is showing no signs that he will back down, at least not yet, despite pressure from high-ranking Republicans, among them Ted Cruz, who predicted a midterm elections “bloodbath” next year if the tariffs trigger a recession.
You can tell what Mr. Trump and his chief trade adviser, Peter Navarro, are thinking. China is a trading nation and worships at the altar of U.S. demand. In 2023, trade (the export and import of goods and services) was equivalent to more than 37 per cent of China’s GDP, according to the World Bank. For the United States, it was 27 per cent. In 2024, China exported US$438-billion worth of goods to the United States, for a trade surplus of US$295-billion.
For the EU, trade represents 22 per cent of GDP – still high enough to make it crucial to the well-being of the economy. In 2023, the EU had a trade surplus in goods of €157-billion with the United States (though a deficit in services). The Chinese and EU surplus figures fill the White House with rage, and that rage will not be tempered until the trade flows even out.
In a comment piece in Monday’s Financial Times, Mr. Navarro said “the U.S. will now match the substantially higher tariffs and crushing nontariff barriers imposed on us by other nations. … This is not a negotiation. For the U.S., it is a national emergency triggered by trade deficits caused by a rigged system.”
Those comments do not sound like capitulation by the White House, even as investors freak out, growth forecasts are downgraded by economists and Republicans vying for re-election see the polls turn against them. Mr. Trump seems determined to inflict still more damage on the U.S. and global economies in the apparent belief that even mighty China and the EU will buckle before he does. The U.S., the world’s biggest, richest and most lucrative market, is coveted by the world’s top exporters. But victory for Mr. Trump will come with gushers of blood everywhere, raising the possibility of a pyrrhic victory for all.