Markets crash as China hits US goods with 34% tariffs in response to Trump’s ‘Liberation Day’ trade war

Global financial markets witnessed a dramatic sell-off after China announced a sweeping 34% tariff on all United States goods, set to take effect from April 10, 2025. The move is a direct counter to U.S. President Donald Trump’s recently introduced protectionist policy measures, including his “Liberation Day” speech that outlined a new multi-tiered tariff regime aimed at resetting America’s global trade relationships. Markets reacted sharply, with major indices across the United States, Europe, and Asia recording their steepest declines since the pandemic-driven turmoil of 2020.

The announcement from Beijing came within days of Trump’s declaration of a 10% blanket tariff on all foreign goods entering the U.S., combined with so-called “reciprocal tariffs” targeting countries deemed to have unfair trade practices. China, facing a cumulative U.S. tariff burden of 54%, responded with a decisive and sweeping retaliation that caught financial markets off guard and revived fears of a full-blown global trade war.

What was President Trump’s ‘Liberation Day’ tariff policy, and how did it provoke China?

During an April 2 speech that quickly reverberated across international markets, President Trump unveiled a two-tier tariff structure. The first level imposed a flat 10% tariff on nearly all foreign imports, excluding goods from Canada and Mexico under existing regional agreements. The second tier introduced “reciprocal tariffs” on a country-by-country basis, targeting 60 countries based on the tariff rates those countries impose on American goods. China, already a focal point of past trade disputes during Trump’s first term, emerged as the most affected, with tariffs stacked to an effective rate of 54%.

Trump positioned this strategy as an attempt to reassert American manufacturing dominance and end what he described as “systemic trade abuse.” By invoking the language of economic sovereignty and industrial renewal, the president tapped into long-standing protectionist sentiments. But the immediate consequence was a hardening of China’s stance and a rapid breakdown in what little remained of diplomatic trade negotiations between the two superpowers.

How are stock markets responding to the escalating U.S.-China trade war?

Market reactions have been swift and severe, as investors struggle to price in the implications of a prolonged U.S.-China tariff conflict. On April 3, the Dow Jones Industrial Average fell nearly 1,700 points, its worst one-day performance since June 2020. The S&P 500 dropped 4.84%, while the Nasdaq Composite lost almost 6%, led by steep declines in technology stocks exposed to Chinese supply chains and consumer markets.

Tech giants such as Apple and Nvidia were particularly hard-hit, with Apple’s stock plunging over 9% amid fears of weakened sales in China and increased component costs. Nvidia, a bellwether for the AI and semiconductor sectors, fell 7.8% on Thursday and continued trending downward in premarket trading. The sell-off was not limited to U.S. equities. In Europe, the Stoxx Europe 600 Index declined over 2%, and in Asia, Japan’s Nikkei 225 and Hong Kong’s Hang Seng fell by 2.8% and 1.5%, respectively.

This broad market rout underscores how tightly intertwined global capital markets have become with geopolitical risk and trade policy. Investors, who had been cautiously optimistic about post-pandemic recovery and slowing inflation, are now bracing for renewed uncertainty.

What industries are most vulnerable to these new tariffs?

The new tariff environment has intensified existing vulnerabilities in key global industries. The technology sector, already under strain from export controls and chip sanctions, now faces higher operating costs, disrupted supply chains, and restricted market access. Companies that rely on cross-border manufacturing, such as Apple, Dell, and Tesla, could face longer-term margin pressures unless production is reshored or diversified.

Beyond tech, the auto industry is also at risk. Many automakers have built complex production ecosystems that span the U.S., China, and other low-cost manufacturing hubs. Tariffs on component parts and finished vehicles could drive up prices for consumers while squeezing profit margins. Meanwhile, agriculture—historically a target of Chinese retaliation—may also face further restrictions, especially in commodities such as soybeans and pork, which are heavily exported to China from the American Midwest.

In addition, China announced new export controls on critical rare earth elements, including samarium and gadolinium, both of which are essential to defense electronics, electric vehicle motors, and high-performance magnets. These restrictions could create strategic bottlenecks in the clean energy transition and national defense manufacturing pipelines.

What does this mean for global economic growth?

The rising trade barriers between the U.S. and China threaten to undermine the fragile recovery of the global economy. According to analysts at Bank of America, if the tariff standoff persists, it could shave up to 0.5 percentage points off global GDP in 2025. The U.S. and China, despite being economic adversaries in this instance, are also each other’s largest trading partners, and a breakdown in trade flows between them reverberates through global supply chains.

Investor sentiment has shifted decisively toward risk aversion. Safe-haven assets such as gold and U.S. Treasuries have rallied, with the 10-year yield falling below 4% for the first time in months. The U.S. dollar, meanwhile, has seen a mixed response, benefiting from safe-haven flows but facing headwinds from concerns over future inflation if import prices surge. The International Monetary Fund, represented by Managing Director Kristalina Georgieva, has voiced strong concern, warning that the clash poses “a significant risk to the global outlook at a time of sluggish growth.”

How are financial and political leaders reacting to the escalation?

Reactions from economists and market strategists have reflected growing alarm. Stephane Ekolo, a strategist at brokerage Tradition, said that China’s sudden escalation “confirmed the worst fears of investors” and warned that both sides could now be locked in a tit-for-tat cycle. Meanwhile, Peter Andersen of Andersen Capital Management noted that the size and immediacy of China’s retaliation reflected how seriously Beijing views the threat to its export-led growth model.

In Washington, the administration has remained defiant, arguing that tough measures are necessary to secure long-term economic independence. However, some Republican lawmakers have expressed unease over the impact on farming communities and small businesses. In Beijing, the Ministry of Commerce issued a brief but forceful statement condemning U.S. actions as “unjustified economic coercion,” signaling that further retaliatory measures remain on the table.

What could happen next in the U.S.-China trade confrontation?

With both sides escalating their rhetoric and economic penalties, prospects for near-term reconciliation appear dim. The trade war that began under Trump in 2018 had simmered down in the early years of the Biden administration, but Trump’s return to power in 2025 has reignited hostilities with a vengeance. This latest exchange marks a significant turning point, potentially ushering in a new era of decoupled trade, technological bifurcation, and global economic fragmentation.

Nevertheless, analysts caution against ruling out negotiations entirely. Historically, tariff threats have often served as bargaining tools. Some suggest that if markets continue to crash or if inflation resurges due to import cost spikes, domestic pressure could force both governments back to the negotiating table. For now, however, global markets are bracing for impact, and businesses are reassessing their supply chains in anticipation of prolonged turbulence.

As the world watches this economic showdown unfold, the implications extend far beyond just two countries. The future of globalization, supply chain resilience, and trade cooperation could hinge on the next moves made by Washington and Beijing.