Global financial markets plummeted on Friday after China announced retaliatory tariffs of 34% on all U.S. goods, marking a dramatic escalation in the trade war triggered by President Donald Trump.
The aggressive response from Beijing has intensified fears of a looming U.S. and global recession, with economic analysts warning that sustained tariffs could push the world’s largest economy into a downturn.
The shock announcement from Beijing sent U.S. stock markets into a tailspin, with the Dow Jones Industrial Average falling over 800 points in early trading, reflecting investor anxiety. The Nasdaq Composite slid more than 3%, with semiconductor and tech giants, including Apple, Qualcomm, and NVIDIA, taking major hits due to their dependence on Chinese supply chains. The S&P 500 lost 2.5%, erasing weekly gains as traders pulled back from risky assets.
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The U.S. agriculture sector, which has already suffered from previous rounds of tariffs, saw futures for corn, soybeans, and wheat tumble as China imposed an immediate suspension on imports of sorghum, poultry, and bonemeal from American exporters. Asian and European markets also reacted negatively, with the Hang Seng Index in Hong Kong dropping 2.7% and Japan’s Nikkei 225 falling 1.9%.
“This is a severe repricing of risk,” said Kristina Hooper, Chief Global Market Strategist at Invesco. “Markets had been holding out hope for de-escalation, but these latest tariffs make it clear that the trade war is only getting worse.”
The escalating trade war has put the global economy on shaky ground, with economists warning that continued retaliation from affected nations could trigger a full-blown recession. On Friday, Mohamed El-Erian, Chief Economic Advisor at Allianz, cautioned that the extensive raft of tariffs is “putting the U.S. economy at risk” of a downturn. Speaking at the Ambrosetti Forum in Cernobbio, Italy, El-Erian told CNBC that the probability of a U.S. recession has surged to 50% due to the growing impact of trade restrictions.
He added that inflation expectations have risen to 3.5%, compounding the economic risks. While he did not believe a U.S. recession was inevitable, he warned that the risk had become uncomfortably high.
Many analysts have argued that Trump’s aggressive use of tariffs, particularly against China, could backfire on American businesses and consumers by driving up costs and reducing corporate profits. The automotive, consumer electronics and manufacturing sectors are especially vulnerable, as higher import costs will inevitably be passed down to consumers, exacerbating inflation.
Beijing’s countermeasures go beyond tariffs, with China imposing new export controls on rare earth minerals, a critical component in the production of semiconductors, electric vehicles, and military hardware. The Chinese government announced it would restrict exports of medium and heavy rare earths, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium—all essential to U.S. defense and technology industries.
“The purpose of the Chinese government’s implementation of export controls on relevant items in accordance with the law is to better safeguard national security and interests, and to fulfil international obligations such as non-proliferation,” the commerce ministry said in a statement.
The export controls will take effect on April 4, posing a direct threat to American manufacturers and defense contractors that rely on these materials.
In addition, China blacklisted 16 U.S. firms by adding them to its export control list, prohibiting the sale of dual-use (civilian and military) items to these companies. Another 11 American firms, including drone makers Skydio Inc. and BRINC Drones, were added to China’s “unreliable entities” list, restricting their ability to invest or operate in China. China’s Ministry of Commerce justified the moves by accusing the targeted firms of “seriously undermining China’s national sovereignty, security, and development interests.”
American business leaders have raised concerns that the tariff war will have long-term negative consequences for the economy, even if China eventually caves to U.S. demands. The U.S. Chamber of Commerce warned that American manufacturers will suffer the most, as supply chains become more expensive and production costs rise.
Tesla and General Motors, both reliant on Chinese-made batteries and components, have already signaled that further tariffs could force them to raise prices on electric vehicles.
Despite growing concerns from economists and business leaders, Trump remains defiant, insisting that his tariff strategy is necessary to force China into fair trade practices. Speaking at a rally in Scranton, Pennsylvania, Trump dismissed concerns of an economic downturn saying “my policies will never change.” And that “America will not be taken advantage of anymore.”
His administration has signaled that more tariffs could be on the way if China continues to retaliate, raising fears of a prolonged standoff that could further rattle global markets.
With neither side willing to back down, the trade war appears far from over. Analysts warn that if tariffs remain in place for the next six months, businesses will be forced to cut investments, slow hiring, and even lay off workers—increasing the likelihood of a recession.