BEIJING/WASHINGTON/LONDON (Reuters) -Beijing increased its tariffs on U.S. imports to 125% on Friday, hitting back against President Donald Trump’s decision to raise duties on Chinese goods and upping the stakes in a trade war that threatens to upend global supply chains.
U.S. stocks ended higher, capping a volatile week, as China’s retaliation intensified global economic turmoil unleashed by Trump’s tariffs. But the safe haven of gold hit a record high during the session, and benchmark U.S. 10-year bond yields posted their biggest weekly increase since 2001 alongside a slump in the dollar, signaling a lack of confidence in America Inc.
One U.S. survey of consumers showed inflation fears have mounted to their highest since 1981.
“Recession risk is much, much higher now than it was a couple weeks ago,” said Adam Hetts, global head of multi-asset at Janus Henderson.
Foreign leaders have puzzled over how to respond to the biggest disruption to the world trade order in decades. Trump’s administration has held firm, touting discussions on a number of trade deals it says will justify its dramatic upheaval in policy.
The tit-for-tat tariff increases by the U.S. and China stand to make goods trade between the world’s two largest economies impossible, analysts say. That commerce was worth more than $650 billion in 2024.
“The president made it very clear: When the United States is punched, he will punch back harder,” White House Press Secretary Karoline Leavitt told reporters on Friday.
The dollar slid and a sell-off intensified in U.S. government bonds, the world’s biggest bond market. Gold, a safe haven for investors in times of crisis, scaled a record high.
With the dollar weakening, selling of U.S. assets was perhaps most exemplified by the drop in prices of the U.S. 10-year Treasury note.
The decline drove its yield – which moves opposite to the price and is critical for determining interest rates on mortgages – up to a two-month high. On the week, its yield has climbed nearly half a percentage point.
U.S. Treasury Secretary Scott Bessent is closely monitoring the bond market, Leavitt said.
A second day of data on U.S. inflation showed price pressures were not yet building broadly across the U.S. economy, although the Producer Price Index for March did show industrial metals prices rising due to import levies on things like steel and aluminum, in place for a month now.
“Tarifflation will be much more important for the outlook than backward-looking data,” said Bill Adams, chief economist at Comerica Bank. “If tariffs stay in place they will push inflation considerably higher in coming months.”
The University of Michigan said its Consumer Sentiment Index dropped to 50.8 this month from 57.0 in March. Economists polled by Reuters had forecast the index falling to 54.5.
In a reversal of previous surveys, the latest one also showed weakening confidence among Trump’s fellow Republicans.
Consumers’ 12-month inflation expectations soared to 6.7% this month, the highest reading since 1981, from 5.0% in March, according to the survey.
TRADE WAR WITH CHINA
This week, Trump announced a 90-day tariff pause on dozens of countries while ratcheting up tariffs on Chinese imports effectively to 145%.
China retaliated with new tariffs on Friday. China’s finance ministry called Trump’s tariffs “completely unilateral bullying and coercion.”
Beijing indicated this would be the last time it matched U.S. tariff rises but left the door open for other types of retaliation.
“If the U.S. truly wants to have talks, it should stop its capricious and destructive behavior,” Liu Pengyu, spokesperson for the Chinese Embassy in the U.S., wrote on social media. “China will never bow to maximum pressure of the U.S.”
UBS analysts in a note called China’s declaration “an acknowledgement that trade between the two countries has essentially been completely severed.”
Leavitt, in turn, delivered a warning to Beijing.Â
“If China continues to retaliate, it’s not good for China,” she said at the White House briefing.
CHINA COURTS SPAIN AND EUÂ
On Thursday, Trump told reporters he thought the U.S. could make a deal with China and he respected Chinese President Xi Jinping. On Friday, Xi made his first public remarks on Trump’s tariffs, telling Spanish Prime Minister Pedro Sanchez in Beijing that China and the European Union should “jointly oppose unilateral acts of bullying.”
China has signed two agricultural trade protocols with Spain covering pork and cherries as it looks to mend its strained relationship with the EU, the last open major market for its products.
The Trump administration has shrugged off market turmoil, saying striking deals with other countries would bring certainty. Levitt said more than 75 countries had reached out to the White House to seek negotiations.
India and the U.S. have finalized terms of reference for talks over the first segment of a bilateral trade deal, an Indian trade official said.Â
Japanese Prime Minister Shigeru Ishiba has set up a trade task force that hopes to visit Washington next week.
Vietnam, hoping to avoid tariffs, is prepared to crack down on Chinese goods being shipped to the U.S. via its territory, Reuters exclusively reported.Â
All this has done little to soothe business leaders’ worries about soaring costs, falling orders and snarled supply chains.Â
For European businesses in particular, a stronger euro automatically makes them less competitive in the global market.
The euro extended its rise on Friday, reaching its highest in over three years versus the dollar.
(Additional reporting by Doina Chiacu and Nandita Bose; Writing by John Geddie, Ingrid Melander and James Oliphant; Editing by Lincoln Feast, Toby Chopra, Franklin Paul, David Gregorio and Chizu Nomiyama)
By Joe Cash, Karin Strohecker and James Oliphant
