China has fired its latest volley in the intensifying trade war with the United States, announcing a sweeping increase in tariffs on all U.S. imports. Effective Saturday, levies on American goods will rise from 84% to 125%, according to China’s Ministry of Finance. The move follows President Donald Trump’s executive order earlier this week raising U.S. tariffs on Chinese goods to a cumulative 145%, once additional fentanyl-related duties are included.
Beijing’s response was immediate and sharply worded. “Even if the U.S. continues to impose higher tariffs, it will no longer make economic sense and will become a joke in the history of world economy,” the finance ministry said in a statement, adding that U.S. products are now effectively unmarketable in China.
The new tariffs underscore how far both countries are willing to go in a tit-for-tat trade confrontation that shows no sign of cooling. China’s latest statement also makes clear that it will “ignore” any further tariff increases from Washington.
While this marks the highest tariff rates either country has ever imposed on the other, it may also signal a new phase of stalemate. “This is the end of the escalation in terms of bilateral tariff rates,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “There is no point in raising tariffs further.” What happens next, he noted, is an economic reckoning—assessing the damage to supply chains, exporters, and consumers on both sides.
Symbolism and strategy
This latest round of tariffs has taken on an increasingly symbolic quality. Both governments have now reached levels where much of their bilateral trade is taxed out of viability. Roughly US$700bn in goods move between the U.S. and China each year, but analysts say that number will shrink substantially in 2025 unless tensions ease.
Despite the escalation, Beijing has stopped short of unleashing other forms of retaliation. It has not expanded its “unreliable entities” list to penalise additional U.S. companies, nor has it unveiled new export controls. That restraint appears calculated, aimed at maintaining options while sending a clear message that China will no longer chase every tariff increase with one of its own.
Nevertheless, Beijing’s stance is hardening. Over the past two days, China’s Foreign Ministry has posted nationalistic messages invoking Chairman Mao, including wartime quotes promising that “we will never yield.” The symbolism was not lost on observers: when Mao imagery appears in official communications, it often signals China’s refusal to concede under pressure.
No winners, no talks—for now
Speaking in Beijing alongside Spanish Prime Minister Pedro Sánchez, Chinese President Xi Jinping said there are “no winners” in a tariff war, and urged the European Union to join China in resisting “unilateral bullying.” Xi made no direct mention of negotiations with Washington but indicated China is open to dialogue—on the condition that it be “on an equal footing.”
Trump, for his part, struck a more optimistic tone, calling Xi “a friend of mine for a long period of time” and expressing hope that “we’ll end up working out something that’s very good for both countries.” But behind that sentiment is a stark reality: there are no negotiations currently scheduled, and neither side appears ready to blink.
U.S. Treasury Secretary Scott Bessent this week called China “the worst offender in the international trading system” and accused Beijing of running “the most imbalanced economy in the history of the modern world.” He added that the escalation is “a loser for them.”
Chinese officials disagree. While exports to the U.S. were once a key growth engine, they now account for only about 2% of China’s GDP. Analysts at Goldman Sachs this week cut China’s growth forecast to 4%, citing the drag from U.S. trade tensions. But the blow, they said, is unlikely to force Beijing to change course. Goldman estimates that 10 to 20 million Chinese workers are still employed in export industries serving the U.S. market, but many of these jobs have already been under pressure from automation and reshoring.
Ripples through global trade
The knock-on effects are being felt far beyond China and the United States. The International Trade Centre warned that prolonged tariff escalation could shrink global trade by as much as 7%, with developing nations most at risk. The UN’s trade agency described the potential impact as “catastrophic.”
One area of particular concern is Europe. While the EU has its own tensions with Beijing—particularly over state subsidies and industrial overcapacity—it remains a major trading partner for China. European leaders have been reluctant to pick sides, but Xi’s recent diplomacy suggests Beijing is working to deepen ties across the continent. Reports this week indicate that China and the EU may replace auto tariffs with a minimum price mechanism, sidestepping future anti-dumping disputes.
China has also moved to shore up regional alliances. Xi will travel next week to Malaysia, Vietnam, and Cambodia—three countries heavily impacted by U.S. tariffs. His ministers have already met with counterparts from India, South Africa, and Saudi Arabia to discuss expanded trade cooperation. The aim is clear: offset U.S. decoupling by building alternative markets and partnerships.
