BREAKINGVIEWS-Trade war brinkmanship multiplies economic damage

By Gabriel Rubin

WASHINGTON, April 4 (Reuters Breakingviews) - The old geostrategic aphorism - “never get involved in a land war in Asia” - could be amended to include trade conflicts. U.S. President Donald Trump has ignored that advice, diving headlong into a contest with China, India and Vietnam, not to mention every other nation and sparsely inhabited island on earth, by imposing a range of tariffs on U.S. imports. While the United Kingdom and European Union hope to forestall or weaken the levies before they take effect next week, China on Friday responded with matching trade measures. The brinkmanship will multiply the economic damage.

The People’s Republic, no stranger to erecting walls to keep out barbarians, said it will impose an additional 34% tariff on U.S. goods imports, matching the rate announced by Trump on Wednesday. It has other levers to pull, too. Beijing will control exports on some rare earths, while China’s State Administration for Market Regulation said it had initiated an investigation into the local division of U.S. chemical giant Dupont de Nemours DD.N for suspected monopolistic practices.

China’s trade levies do not take effect until April 10, the day after Trump’s “reciprocal” tariffs, leaving a window for both sides to climb down. Signs of capitulation are scarce, though. The president’s top lieutenants, including Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Secretary of State Marco Rubio have dismissed the stock market selloff of recent days, calling it a “shock” that will wear off and produce long-term gains of new investments and manufacturing jobs stateside. Trump noted with glee that “the patient” had survived the “operation”, said China had “panicked” by retaliating, and that his policies would “never change”. However, the president also trumpeted a “very productive call” with his Vietnamese counterpart To Lam, suggesting scope for compromise with the Southeast Asian nation, which is facing a hefty 46% tariff from the U.S.

Financial markets took another tumble on Friday, with the tech-heavy Nasdaq Composite Index .IXIC falling 20% below its February high in morning trading. The yield on 10-year U.S. Treasury bonds US10YT=RR dipped below 3.9%, its lowest level in six months. Economists at JPMorgan now project a 60% chance of the U.S. economy entering a recession this year, up from 30% at the start of 2025. Federal Reserve Chair Jerome Powell warned that tariffs risked higher inflation and lower growth, even as Trump begged him to lower interest rates. Even so, investors are not yet pricing in the full effects of rolling back globalization. The actual imposition of tariffs next week could signal that the trade war has passed a point of no return.

The U.S. is entering the conflict with real economic strength, making it even more destructive and wasteful. U.S. employers added 228,000 jobs in March, more than estimated, and despite a weakening of consumer sentiment, spending has mostly held up, so far. The danger remains that petulance and delusions of grandeur kill this remarkable period of economic expansion.

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CONTEXT NEWS

China announced it would impose additional tariffs of 34% on U.S. goods on April 4, matching the rate set to be imposed by U.S. President Donald Trump.

China said its tariffs would take effect on April 10, the day after global tariffs announced by Trump on April 2. Beijing also announced controls on exports of some rare earths and added 11 entities to the “unreliable entity list”, including firms linked to arms sales to democratically governed Taiwan.

Stocks and currencies tumbled on the news. The S&P 500 Index was down 2.8% in early trading in New York. The VIX index of stock market volatility rose as high as 45, its highest level since the global pandemic in 2020.

Trump on April 4 said that “my policies will never change” and that foreign investment would flow into the U.S. as a result of the new trade barriers.