The escalation of trade tensions between the U.S. and China reached a new peak on April 2, 2025, when President Trump imposed a sweeping 34% tariff on all Chinese imports as part of broader global trade measures12. In swift retaliation, China announced reciprocal 34% tariffs on all U.S. goods, set to take effect on April 1034. Beijing also implemented export controls on rare earth materials, critical components in global supply chains3. This tit-for-tat exchange marks a significant intensification of the ongoing trade dispute between the world's two largest economies, with potential far-reaching consequences for global trade and economic growth.

The ripple effects of the U.S.-China tariff war were felt across global financial markets, with major indices experiencing significant losses. European markets were particularly hard-hit, with Germany's DAX and France's CAC 40 both falling by approximately 5%1. In the United States, the S&P 500 dropped nearly 5% as investors grappled with the implications of escalating trade tensions2. The selloff wasn't limited to equities, as concerns about global economic growth and trade disruptions led to volatility in currency and commodity markets. Notably, the yuan weakened against major currencies, reflecting worries about China's export competitiveness in the face of rising tariffs3. This widespread market turbulence underscores the interconnectedness of global economies and the far-reaching impact of trade disputes between major economic powers.

Analysts predict a volatile start for mainland Chinese and Hong Kong markets as they reopen on Monday, April 7, following an extended holiday. The Hang Seng China Enterprises Index, this year's top major global performer, could potentially enter a technical correction or even approach bear market territory if local shares experience a decline similar to the 8.9% drop seen in U.S.-listed Chinese stocks12. This tumultuous reopening threatens to derail the nascent recovery in Chinese assets, unless mainland-based investors and bargain hunters step in to mitigate the slide1.

• The yuan has weakened significantly against major currencies, reflecting concerns over China's export competitiveness amid rising tariffs3.

• Attention will focus on whether fears of further escalation dominate sentiment or if opportunistic investors capitalize on lower valuations to limit losses4.

The implementation of reciprocal 34% tariffs is expected to have significant economic repercussions for China, potentially slowing its GDP growth by up to 2.5 percentage points in 20251. This impact on the export-driven economy may prompt Beijing to consider economic stimulus measures to stabilize growth, such as boosting domestic demand or easing credit conditions. The tariffs could also disrupt global supply chains, particularly in sectors reliant on rare earth materials, which China has placed under export controls as part of its retaliatory measures23.

• Chinese officials have framed their response as a defense of national sovereignty and economic interests4.

• The prolonged trade uncertainty could undermine investor confidence and exacerbate inflationary pressures globally5.

• Attention will focus on whether Beijing implements additional policy measures to mitigate the economic impact and support key industries affected by the tariffs.