The flames of a global trade war flickered, roared, and receded this week, as Asian markets felt the heat (and relief) of U.S. President Donald Trump’s ever-changing tariff plans, an escalating U.S.-China trade spat, and an uncertain outlook for global growth.
Last week, Trump threatened China with a ‘reciprocal’ tariff of 34 per cent. Beijing resolved to match that tariff. Trump then threatened an additional 50 per cent tariff, hiking the baseline rate on Chinese goods to a staggering 104 per cent. Beijing didn’t flinch, raising its own tariffs on U.S. goods to 84 per cent and declaring that it would “fight ‘til the end.”
Trump, in turn, raised tariffs on China to 125 per cent and paused individualized ‘reciprocal’ tariffs for 90 days. A 10 per cent baseline tariff still applies, for the time being, to most countries.
The White House then clarified today that the rate on Chinese goods is actually 145 per cent.
Now, the two largest economies in the world — boasting a combined GDP of US$46 trillion — are hurtling towards a historic trade war, with precious few off-ramps available.
China appears to be digging in: on Tuesday, Chinese state-owned investment firms, guided by financial authorities, launched a co-ordinated effort to buoy China's slumping market. Beijing also unveiled export controls on a medley of rare-earths and blacklisted 27 U.S. entities, ranging from advocacy groups to drone-makers. Chinese President Xi Jinping also pledged to “fully unleash” domestic consumption.
Asian markets cratered on Monday: Japan’s Nikkei sank 7.9 per cent, while Hong Kong’s benchmark index suffered its biggest drop since 1997. But markets — seesawing for days — ticked back up following the news of potential deals between the U.S. and favoured trading partners.
Blessed are the dealmakers
Key U.S. allies in the Indo-Pacific, hamstrung by their dependence on the American security umbrella, are looking to turn the temperature down on tariffs.
Japanese Prime Minister Ishiba Shigeru, whose country faces a suspended 24 per cent reciprocal tariff, spoke briefly with Trump on Monday, with both sides agreeing to appoint cabinet-level tariff negotiators. U.S. Treasury Secretary Scott Bessent told Fox News that “Japan will get priority,” and said talks with other countries — ruled out as recently as last week by Trump — will continue over the next few months.
Trump also spoke with South Korea’s acting president, suggesting that “a great deal for both countries” is possible. Seoul, which sent its top trade official to Washington on Tuesday, faces a looming 25 per cent reciprocal tariff from the U.S.
Meanwhile, Taiwan said that it wouldn’t retaliate against a 32 per cent reciprocal tariff. Taiwanese President Lai Ching-te proposed a bilateral “zero-tariff” arrangement with Washington.
Canada is one of only a few targets, alongside China and the European Union, to threaten retaliation against the U.S. Yesterday, Ottawa imposed a tariff of 25 per cent on select American vehicles imported into Canada.
ASEAN mulls response
Southeast Asian countries are particularly vulnerable to Trump’s tariffs, as many maintain high trade surpluses with the U.S. and depend on the purchasing power of American consumers.
Laos, for example, exported US$803.3 million worth of goods to the U.S. in 2024, but imported a mere US$40.4 million. Cambodia is dealing with a similarly skewed surplus and now must contend with the possibility of a 49 per cent reciprocal tariff. Vietnam is also at risk: the country’s goods exports to the U.S. were responsible for 30 per cent of its GDP in 2024.
All three countries are members of ASEAN, which is trying to forge a collective response to U.S. tariffs. Singapore’s ambassador-at-large said recently that ASEAN’s members are “looking at ... new trade agreements as diversification. We know it is not a replacement for the U.S., but you want to spread your bets.”
Four ASEAN members — Brunei, Malaysia, Singapore, and Vietnam — are already party to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and more may join soon: Indonesia applied to join the pact in September 2024. ASEAN is also looking to upgrade pre-existing trade agreements with Australia, New Zealand, and China.
