Cover Story: How Trump’s Tariff Whiplash Shook Global Trade in Seven Days

By Lu Chen, Wang Jing, Hou Wuting, Hu Xuan and Han Wei

A tumultuous week for global trade saw established rules pushed to the brink by President Trump’s tariff actions and abrupt policy reversals, shaking markets and alarming America’s trading partners.

After announcing sweeping tariffs on April 2, the Trump administration implemented its “reciprocal tariff” system on April 9. The policy applied a 10% global baseline, but imposed higher rates — up to 46% — on 64 countries, with China facing a 104% levy.

Yet, only 12 hours after taking effect, Trump made a dramatic reversal, pausing the higher rates for most countries for 90 days and leaving only the 10% baseline. China, however, was singled out. Facing swift retaliation from Beijing, Washington announced its tariff would rise even further to 125%.

This policy whiplash unfolded as the European Union and Canada prepared countermeasures while Trump reportedly mocked world leaders seeking deals, intensifying fears of a full-blown, chaotic trade war.

Despite the suspension, Trump’s tariff policy retains the 10% minimum reciprocal tariff. Combined with industry-specific tariffs already in place or under proposal, the effective U.S. tariff rate may have increased by as much as 15%, according to Jan Hatzius, chief economist at Goldman Sachs.

Trump has layered sector-specific tariffs on top of broad country-based levies, creating a complex trade environment. From March 12, 25% tariffs were imposed on imported steel and aluminum. Autos were hit with a 25% tariff from April 3, with additional tariffs on key components set for May 3. Further proposed tariffs targeting copper, pharmaceuticals, semiconductors, timber, energy, and critical minerals have yet to be implemented.

“The world as we knew it has gone,” British Prime Minister Keir Starmer said. The new world will be governed less by established rules and “more by deals and alliances.”

Global markets reeled under the weight of Trump’s unpredictable tariff policies. Wall Street plunged after the April 2 announcement, with $3.1 trillion in market value evaporating the next day. European markets were also shaken. By April 9, when the tariffs took effect, the European STOXX 50 index had fallen more than 13% in a week. Asian markets faced even greater pressures, with Vietnam’s stock market seeing the steepest decline. By April 9, the Vietnam VN30 index had dropped 15% during the same period.

Larry Summers, a former U.S. Treasury Secretary, warned that a financial crisis, triggered by the Trump’s tariff policies, could be imminent. “Given the government debt and deficits, as well as reliance on foreign buyers, this could trigger various vicious cycles,” he said. “The only way to mitigate these risks is for President Trump to abandon the current course. This is the first round of financial turmoil triggered by the U.S. government.”.

Institutions are revising their forecasts, increasing the likelihood of U.S. stagflation or recession. Standard Chartered predicts that America’s GDP will drop by 1 percentage point over the next two years, while domestic prices will rise 2.3% as a result of the tariffs, slowing global economic growth by 0.5 percentage points.

Goldman Sachs Chief China Economist, Shan Hui, told Caixin on April 3 that the bank has revised its forecast for the U.S. GDP growth in the fourth quarter from 2.5% to just 1%. The likelihood of a U.S. recession within the next 12 months has now increased to 35%.

On the same day, Kristalina Georgieva, managing director of the International Monetary Fund, issued a strong statement about the tariffs. “We are still assessing the macroeconomic implications of the announced tariff measures, but they clearly represent a significant risk to the global outlook at a time of sluggish growth,” she said.

Saber-rattling

The U.S.-China trade conflict, central to President Trump’s tariff strategy, escalated dramatically within a week, outpacing the intensity of the 2018 dispute. Earlier this year, two modest 10% tariffs and China’s measured response left room for negotiation.

That changed on April 2 when the U.S. imposed a 34% tariff and targeted previously exempt low-value imports from the Chinese mainland and Hong Kong. Beijing quickly matched the rate. The confrontation intensified on April 8 with the U.S. adding another 50% tariff and drastically increasing duties on small packages. China retaliated by raising tariffs to 84%. Within hours, Trump pushed the U.S. rate on Chinese goods to 125%.

By April 11, China had mirrored the 125% tariff, but indicated that might be its final response. Beijing stated it would disregard further U.S. hikes, citing a lack of “market acceptance” for American goods at such prohibitive rates. Since Trump took office, cumulative U.S. tariffs on Chinese goods had reached 145%.

Europe has also begun resisting Trump’s trade policies. On April 4, French President Emmanuel Macron denounced Trump’s latest reciprocal tariffs as “brutal and unfounded,” calling for a sector-specific European response and urging a pause on business investment in the United States. On April 9, the European Union approved retaliatory 25% tariffs on certain U.S. goods in response to earlier steel and aluminum duties.

Analysts widely expect the EU to target American digital services. French Finance Minister Éric Lombard has suggested stricter data regulation for U.S. tech giants as a potential countermeasure. Targeting this sector is strategic: while the EU enjoys a 157 billion euros ($178 billion) goods surplus with the U.S., it faces a 109 billion euro deficit in services, where American firms such as Apple, Google and Meta dominate the European market.

There are varied opinions within the EU on how forceful its retaliation should be. While some argue the trade imbalances force a cautious approach, others believe internal unity could allow for a much stronger response. Reflecting this uncertainty, the EU announced a 90-day delay in its countermeasures, in line with Trump’s temporary tariff pause.

Brazil was initially preparing to retaliate, with its Congress passing a bill on April 2 authorizing trade measures. But on April 8, Finance Minister Fernando Haddad said Brazil would hold off, choosing to “closely monitor developments.”

Canada has taken a more confrontational approach. In February, following U.S. plans to impose a 25% tariff on all Canadian and Mexican imports, the Prime Minister Justin Trudeau’s government vowed retaliation. Trump then delayed implementation for 30 days, but the tariffs took effect on March 4. That day, Canada announced retaliatory tariffs on U.S. goods amounting to C$155 billion ($116.3 billion).

On March 12, the U.S. imposed 25% tariffs on all steel and aluminum imports, including those from Canada. Canada immediately responded by announcing 25% tariffs on C$29.8 billion worth of U.S. goods.

Despite being excluded from Trump’s latest reciprocal tariffs, Canada has maintained its firm line. although the country was excluded in Trump’s sweeping reciprocal tariffs. At an Ottawa rally on April 9, Mark Carney, Canada’s new Prime Minister, vowed to hit back at American trade measures with “maximum pain” through a set of targeted counter tariffs. Canada “will not stand idly by while our workers and industries are unfairly targeted,” he said.

Kevin Devereux, an assistant professor in the Department of Economics at the Chinese University of Hong Kong, said the Canadian governments, both the federal level and the provincial level, have embraced a tit-for-tat approach. “The Canadian economy stands to suffer more from bilateral tariffs than the US, but Canadians may be more motivated to endure the pain in order to assert independence,” he said.

Contingency plans

Countries worldwide are grappling to shield their economies from the fallout.

On April 5, British Prime Minister Starmer said he was prepared to use industrial policy to “shelter British business from the storm.” The plan aims to boost wages, public services and the move to clean energy, alongside easing targets for the fossil fuel car ban and signaling new industrial investments.

“Some people may feel uncomfortable about this — the idea the state should intervene directly to shape the market has often been derided,” he said. “But we simply cannot cling on to old sentiments when the world is turning this fast.”

Britain was one of the nations hit with a 10% “baseline” import duty, along with a 25% tariff on UK car exports, as well as steel and aluminum products.

The EU, facing the threat of a 20% U.S. reciprocal tariff, is in a more precarious position. The European Central Bank (ECB) now anticipates a much larger economic impact which could lead to a rate cut as early as April 14 to 20. In response, Brussels is preparing an emergency relief package.

The tariffs implemented are far broader than the scenario underlying earlier ECB forecasts, which had predicted a 0.3-0.5% GDP impact from a mix of 25% tariffs and retaliatory measures. Further stimulus policies may now be required.

In Asia, Japan is planning an emergency economic package, reportedly including 50,000-yen ($349) cash handouts to each citizen to offset cost-of-living increases. Jessica Hinds, an analyst with Fitch Ratings, said that even with a potential U.S. trade deal, Japan will need to adjust. “The U.S. appears to be pursuing an import-substitution agenda, global supply chains are being disrupted, and tariffs will be part of the global trading picture, so Japan’s economy will need to adapt regardless of any deal agreed with the White House,” she said.

Vietnam’s export-led economy could see GDP growth slashed from 8% to between 3% and 4%, with key sectors such as electronics and apparel badly hit, analyst Nguyen Khac Giang from the ISEAS-Yusof Ishak Institute in Singapore said. With exports representing nearly 90% of GDP and America accounting for 30% of that trade, Vietnam faces a 46% tariff.

According to Nguyen, Vietnam may counter with Dong depreciation, rate cuts, public investment and intensified export diversification. He also suggested that Vietnam might strengthen its economic cooperation with China, potentially integrating deeper into its supply chains.

Amid all the tariff activity, Trump has projected a chaotic negotiation stance. While U.S. officials claim a number of countries sought talks with the White House between April 2-9, no breakthroughs occurred, and Trump’s team has offered conflicting messages. Trump himself embraces the contradictions.

“There can be permanent tariffs — and there can also be negotiations because there are things that we need beyond tariffs,” he said last week.

He maintains leverage by warning that if agreements are not reached within the 90-day grace period, the original high tariffs will be reinstated.

At the same time, he has expressed a willingness to engage in trade discussions with China, stating he is “waiting for their call” and is “optimistic” about reaching a deal.

Sources suggest that Trump envisions broader negotiations beyond trade, potentially including Japanese arms deals and South Korean defense costs, which he referred to as “one-stop shopping.” The underlying goal, according to people familiar with the matters, is simply for Trump to extract “more.”

Building coalitions

While the U.S. ramps up tariff threats, other global players are turning toward dialogue and cooperation.

High-level talks were held between Chinese Premier Li Qiang and EU Commission President Ursula von der Leyen on April 8, reaffirming commitments to free trade. This was followed by China’s Commerce Minister Wang Wentao talking to EU and ASEAN counterparts. Wang told EU trade commissioner Maroš Šefčovič, and Tengku Zafrul Aziz, Malaysia’s trade minister and the bloc’s current chair, that China is willing to work together to protect the multilateral trading system. The talks offer more evidence that countries are considering banding together in the face of U.S. trade policy.

China and the EU have agreed to start talks on key issues such as market access, electric vehicle price commitments, auto investment and reviving trade remedy channels.

This push for engagement has been echoed by individual EU members; Spain’s agriculture minister defended ties with China on April 9, and Prime Minister Sánchez visited Beijing April 10-11, the first EU leader to do so after the latest U.S. tariffs were unveiled.

Signs are emerging that the U.S. tariffs are accelerating global trade diversification. France is rethinking its opposition to the EU-Mercosur deal to boost trade with the South American bloc, with its trade minister calling tariffs a “wake-up call” demanding Europe broaden its partnerships beyond the U.S. Meanwhile, long-stalled UK-India trade talks have gained sudden momentum, with a deal now possible within months, according to India officials.

According to Fitch’s BMI research, these shifts signal a broad transition to a multipolar global trade order, potentially eroding U.S. influence as allies build stronger ties with other regions.

Contact reporter Han Wei (weihan@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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