Just hours after the reciprocal tariffs announced on April 2 took effect, President Trump declared a 90-day suspension for all countries that had refrained from taking retaliatory measures. These countries will still be subject to the 10 percent general tariff introduced on April 2, but this suspension opens a window for negotiating trade agreements to reduce tariffs.
The only country excluded from this relief is China. Trump argues that, unlike other nations willing to negotiate with the United States, President Xi Jinping’s government responded by imposing its own tariffs. In response, the U.S. government enacted retaliatory tariffs, which China then countered. Trump’s stance overlooks the fact that the EU also announced retaliatory tariffs, despite its expressed desire to reach a zero-tariff agreement.
By the end of this week, the tariffs imposed by the U.S. on imports from China stood at 145 percent, while those imposed by China on U.S. products reached 125 percent. This means the tariffs exceed the value of the products themselves for all products traded between the two nations, leading to a virtual breakdown of bilateral trade. There are exceptions, such as tariff-free imports of smartphones and electronics.
A Calculated Move or a Retreat in Disarray?
Trump’s announcement of a 90-day suspension came after a week of increasing financial chaos. The value of financial assets had been declining for more than a month, but it turned into a collapse when Trump confirmed deeper-than-expected protectionist measures on April 2.
The same officials who on Tuesday were still claiming that Trump would not back down on the tariffs — viewing them as a fundamental pillar of his economic policy — came out on Wednesday to explain that it was completely logical to postpone them in order to open negotiations with the countries that refrained from retaliating. This argument reflects an attempt by the president’s subordinates to accommodate their boss’s unpredictable decisions and to mask what is effectively a step backward. Trump repeatedly stated that he would not change his economic decisions in the face of market turmoil, because the goal of these measures was to produce a resurgence of U.S. manufacturing. Yet that is exactly what he did.
Pressure on the U.S. president to review his trade policy came from several quarters. First, U.S. billionaires, many of whom financed Trump’s election campaign, expressed their frustration over the destruction of their wealth amid the financial collapse and the damage inflicted by tariffs on their global businesses.
The warning signal indicated by the price of U.S. Treasury bonds appears to be one of Trump’s main reasons for momentarily reversing his trade restrictions. Typically, during times of financial uncertainty, international investors seek refuge in safe assets like Treasurys, which increases demand and drives up prices. This results in low actual interest rates that the Treasury must pay when borrowing, providing ample room for maneuver to manage fiscal deficits without worrying about financing. This time, however, the opposite took place: a fall in bond prices led to an increase in interest rates, raising concerns for the government.
In addition to the implications for government debt, the devaluation of bonds threatened the entire financial system. As the Economist observed, “The failure of both risky and supposedly safe assets at once threatened to destabilise the financial system itself.”
Trump had already been pressuring the Federal Reserve to address the turbulence by lowering interest rates and injecting liquidity, but its chair, Jerome Powell, showed no indication that such actions were forthcoming, citing concerns about inflationary trends. Thus, the arsonist in the White House was forced to act as a firefighter, putting the brakes on his own measures.
The Art of Disagreement
Trump presents himself as a master negotiator, a claim first made in the 1987 book Trump: The Art of the Deal. The strategies outlined in that book are not significantly different from those he employed during his presidency from 2017 to 2020 and continues to implement today. His approach involves making proposals and threats, leaving the negotiating table only to return with counterproposals in pursuit of further advantages. For instance, announcing tariffs for the entire world and then retracting them for all countries except one for 90 days aligns perfectly with this strategy.
But when the stakes are high and uncertainty increases, his tendency to back down, as he did on Wednesday, undermines the credibility of his assertions and weakens his negotiating position. This further explains why, even if negotiations are initiated during these 90 days, representatives from other countries will approach them with distrust.
As The Economist warns once again,
His apparent goals of extracting concessions from other nations and reshoring manufacturing jobs contradict one another. If tariffs are lowered, reshoring will not happen. Yet if trading partners suspect he is committed to protectionism, why would they offer concessions? And even if all the tariffs are rolled back, the memory of “Liberation Day” will linger in the minds of any company building a supply chain.
It also undermines Trump’s credibility that he condemns trade agreements like the USMCA, which was signed during his previous administration, as harmful to the U.S.
Companies and governments worldwide will weigh Trump’s weak credibility against the attractiveness of the U.S. market to determine the extent of the concessions they can offer to appease an increasingly unreliable partner, whose objectives remain unclear.
The Battle “to the End”
Trade war 2.0 has now entered a new phase, with the only participants being the two main world economies. Many believe that this was the objective from the beginning.
As the trade war intensifies with China, historian Adam Tooze imagines a possible decision sequence for Trump and his team, which could have been as follows:
“Ok. We are going to shake things up. Hit everyone with some nasty tariffs. Some nice big numbers. Beautiful numbers. That will flush them out. Let’s see how they react.”
“Reward those who kiss the ring?”
“Well keep 10 percent. Keep talking. But yeah … reward those who don’t react.”
“Ok. So if we are splitting the world into ‘team defy’ and ‘team comply’ (Baldwin), who do we know is least likely to kiss the ring? Who is going to retaliate?”
“China and maybe the EU. But China for certain.”
“So then we are in a real trade war? … with China? And maybe Europe?”
“You say that like it is a bad thing! No more, ‘small yard, high fence.’ Decoupling for real.”
“Or, they surrender?”
“Or we get some kind of really big deal?”
Although Trump’s recent actions may seem more like a retreat, we cannot entirely rule out that something along these lines, consistent with “the art of the deal,” is guiding his approach. These two reasons do not necessarily contradict each other. As Tooze explains, “The extraordinary denouement of Wednesday was no doubt driven in its timing by market reactions and what Trump referred to as ‘people getting yippy.’ But it did, in fact, have a certain logic: shake the world, flush out and isolate China.”
Trump’s claim that “China misplayed its hand” when it responded with more tariffs supports the idea that the outcome, while not necessarily preplanned, aligns well with the U.S. government’s strategy. Tooze concludes that “in the fevered atmosphere of the West Wing trade policy and anti-China policy have converged. We have been asking for some time what is Trump’s China policy. Here we have our answer.”
Now, after the “wrong” Chinese response, the U.S. can negotiate with the rest of the world to reach agreements that isolate China. This resembles the Trumpist version of the transatlantic and trans-Pacific agreements designed during the Obama administration. But instead of pursuing multilateral negotiations for free trade, this involves bilateral negotiations with all countries.
Where can things go from here? Will the escalation of tariffs continue indefinitely, inevitably leading to a violent decoupling of both economies? Nothing less can be expected if tariffs remain above 100 percent. Or will it be, as it was in 2018, when Trump launched his first trade war against China, the precursor to negotiations aimed at calming tensions? Everything is open for now, but the road to an eventual truce seems long and winding. China has promised to “fight to the end,” and is less willing than in 2018 to make concessions to Trump.
While markets celebrated on Wednesday with frantic rises after Trump’s announcements, uncertainty and instability soon returned. Even if these tensions are now “only with China,” that does not significantly alleviate concerns. For companies like Apple, a decoupling of the two economies would be economically disastrous. For Elon Musk, Trump’s prominent official, the outlook is similarly bleak. His company Tesla deeply relies on manufacturing in China to remain competitive, especially as Chinese car manufacturers capture more global market share. As Olu Sonola, head of U.S. economic research at Fitch Ratings, told Bloomberg, capital and intermediate goods account for about 43 percent of China’s total imports. As a result, “there is the perverse possibility that if those goods do not come into the U.S., it may slow down manufacturing in the U.S., and it may mean a loss of jobs in the short run.”
The disruption of flows between the world’s largest consumer market, the United States, and the world’s largest manufacturing hub, China, will affect all countries and shake up the global economy almost as much as the widespread tariffs that Trump suspended on Wednesday.
As the dynamics of decoupling take hold, other countries will need to assess the priority they assign to their relationships with each of the major powers, since they may be forced to choose between facing Trump’s trade barriers again or the siege of China. A China disconnected from the U.S. also poses a significant threat to competing capital from other countries.
Countries have long suffered at the hands of Chinese manufacturers, who maintain significant cost advantages across nearly all sectors and who are taking market share from international competitors. Conditions could worsen if China must seek new markets for the goods it can no longer sell in the U.S., where most of its exports have historically gone. Will this lead other countries, even if they do not support Trump’s protectionist neomercantilism, to raise tariffs to avoid a Chinese avalanche? The notion, promoted by defenders of the globalized order, that the rest of the world can teach Trump a lesson while remaining integrated — given that they represent 85 percent of world trade even without the U.S. — may fall on deaf ears in light of these dangers. Trump’s approach may create powerful aftershocks that fundamentally alter the global economic order that we have known for decades.
“We’re likely to see a significant drop in container demand to the U.S. in the near term, and possibly in the intra-Asia manufacturing ecosystem too,” said Judah Levine, head of research at Freightos Group, a leading air cargo booking platform.
Know Your Enemy and Know Yourself
Sun Tzu’s strategic maxim is to know your enemy and know yourself. It is unclear how much Trump and his officials have heeded this advice. Everything suggests that they have underestimated the U.S. capacity to disrupt the chessboard and extract concessions globally, something we will discover in the next 90 days. But the Trump administration could also be overrelying on its resources to isolate China. This overestimation of its strength is matched by an underestimation and ignorance of what its adversary has been doing.
The Chinese leadership was taken by surprise in 2018, but this time, given Trump’s campaign statements indicating he was willing to go further than in his previous term, they had time “to devise countermeasures that would inflict maximum economic pain on the United States.”
In a study released last week, Evan S. Medeiros and Andrew Polk warn that China has sharpened its economic weapons in preparation for confrontation. They note that
China’s economic statecraft — specifically its tools of coercion — has been expanding. Whereas in the past China mainly used basic trade or investment incentives and sanctions, today China is developing, testing, and deploying an entirely new collection of legal and regulatory tools for the explicit purpose of imposing targeted costs on companies and countries it sees as acting against its interests. In effect, these are precision-guided economic munitions, designed to inflict targeted and often substantial pain for political and geopolitical purposes.
These tools include the Unreliable Entity List and the Export Control List, both of which have been used to prevent or severely restrict targeted firms from operating in China. In the past week, six U.S. companies have been added to the UEL and 12 to the Export Control List.
Another mechanism implemented since 2021 is the Blocking Statute, inspired by the one in effect in the European Union. This protects Chinese companies from the extraterritorial application of third-country laws. Under this rule, the State Council can order Chinese entities to “not recognize, enforce, or observe” extraterritorial foreign sanctions and to sue for losses suffered as a result of such sanctions in Chinese courts.
Medeiros and Polk also highlight the Anti–Foreign Sanctions Law (AFSL), which “has become one of Beijing’s top economic weapons of choice.” Essentially, the AFSL serves three functions. First, it provides a fundamental legal basis for previously published anti-sanctions measures and statutes, particularly the UEL and the Blocking Statute. Second, it fills a gap in the two previous anti-sanctions regulations, granting the government broad discretion to include individuals and organizations on sanctions lists, along with their families and senior managers. Sanctions may include visa restrictions, property and asset seizures, and blocked transactions. Third, it provides a legal basis for Chinese companies and entities affected by foreign sanctions to sue foreign companies and individuals for compliance.
Mechanisms for applying cybersecurity and merger and acquisition reviews to specifically target companies in countries that take action against China have also been refined. Unlike the tariff war, these tools allow China to inflict specific suffering on particular actors in the U.S. without incurring any corresponding cost or suffering to itself. The authors of this study caution that these tools were designed for retaliation and have primarily been used in that capacity, but their purpose may also be evolving, as evidenced by their use in late 2024 and early 2025.
Returning to another example of U.S. officials’ ignorance of their own capabilities, it is notable how the structure of bilateral trade contradicts the idea, put forth by Treasury Secretary Scott Bessent and adviser Stephen Miran, that the United States’ strength lies in being able to source what it needs from anywhere. But given the concentration of production scales and the interdependence created by global supply chains, much of what China sells to the U.S. today has no equivalent substitutes.
The United States still has the second-largest manufacturing sector in the world, with 13 percent of global production, while China has 35 percent. But even with the greatest imagination, it is implausible to think that, as a result of severing trade with China, everything now dependent on that country will be produced again within U.S. borders. Nor are there many other countries capable of replacing China’s supply. Even if some production were to return to North America, it would likely occur under conditions of high automation, which would not benefit employment. As the Wall Street Journal laconically observes, even if U.S. manufacturing output were to increase enough to close the trade gap — something the newspaper doubts — “and if employment grew proportionately, our manufacturing workforce share would climb only from 8 percent to 9 percent. Not exactly transformational.”
Putting on a Good Show
If there is one thing that cannot be denied about Trump, it is his ability to keep the public in suspense. Whether on The Apprentice or in the White House, surprises and unexpected twists are the norm. Therefore, we can expect more retaliatory tariffs, or a détente and negotiation in the coming weeks, or both in quick succession. But nothing will return the world to a previous “normality” — we have been moving away from that for a long time, and recent weeks have seen a qualitative leap that will not be entirely reversed, even if suspensions of reciprocal measures are announced.
What is clear is that the death throes of the preexisting order are deepening, in the wake of an American leader determined to dismantle an order forged by that same imperialist power. This is driven by the simple fact that, under the conditions of that very order, a decline has been taking place that successive presidents have failed to reverse. Neither multilateralists like Obama and Biden — appealing to broad alliances — nor unilateralists like Trump have been able to halt the deterioration of U.S. power or block China’s advances.
Trump may amplify the chaos of the system, which is the preexisting condition that explains his return to the U.S. presidency, but it is not within his power to reverse this decline. This suggests that, although there may be some temporary armistice, the clashes over the reconfiguration of the world order will continue to escalate into violence.
First published in Spanish on April 13 in Ideas de Izquierda.
Translation by Jimena Vergara