Tensions between the U.S. and China are rapidly escalating into a full-blown trade confrontation after Beijing responded with sweeping and unexpectedly forceful countermeasures to Washington’s latest round of tariffs.
Analysts now warn that the prospect of a prolonged and severe trade war is growing more likely, especially after China broke from its previously measured stance by withdrawing calls for trade negotiations and issuing a sharp rebuke to U.S. tariff policy.
In a strongly worded statement over the weekend, China’s Ministry of Foreign Affairs declared it would “resolutely defend national sovereignty and development interests,” following President Donald Trump’s announcement of a new 34% tariff on Chinese imports — pushing the total average U.S. tariff on China to an estimated 65%.
Beijing immediately matched the U.S. move with its own 34% tariffs on all American goods, while also introducing a host of non-tariff actions. These included export restrictions on critical rare earth elements, a ban on dual-use technology exports to select U.S. defense and aerospace firms, and the addition of 11 American companies to its “unreliable entities list.”
“This signals a clear strategic shift from China — a willingness to match U.S. actions blow for blow and potentially enter an open-ended cycle of retaliation,” said Andy Xie, a Shanghai-based economist.
The Eurasia Group echoed that sentiment in a research note, stating that the current trajectory could lead to “unmanaged decoupling” between the world’s two largest economies by 2025. The firm also noted that key figures in the Trump administration may be using the moment to push for an accelerated economic split from China, viewing it as an opportunity to force a long-term restructuring of global supply chains.
The market impact has been swift and severe. China’s Hang Seng China Enterprises Index plunged more than 13% on Monday, suffering its worst single-day drop since the 2008 financial crisis. Bond markets also reflected mounting stress, with the yield on China’s 10-year government bonds falling 9 basis points to 1.634%. Meanwhile, the offshore yuan weakened to 7.3212 per U.S. dollar.
Beijing’s recent stance has upended hopes for near-term dialogue. Until last week, both sides had maintained diplomatic channels, and Trump had even expressed interest in a direct meeting with President Xi Jinping. But China’s latest retaliation appears to reflect a loss of faith in the negotiation process.
“The abandonment of diplomatic restraint suggests Chinese leaders are no longer confident a deal can be reached in the short term,” said Gabriel Wildau, Managing Director at Teneo. He added that Beijing’s decision to escalate may be rooted in a broader desire to avoid appearing weak under external pressure.
President Trump dismissed China’s response as “panicked” and reiterated that he might reconsider the tariffs if Beijing approves the sale of TikTok to U.S. investors. However, analysts believe Beijing is unlikely to agree to such a deal under pressure, viewing it as a matter of national pride and sovereignty.
Despite the harsh rhetoric, some signs suggest China may still be open to talks. Analysts at Eurasia Group noted that strong retaliation may be a strategic move to reset the negotiation dynamic. Meanwhile, state media emphasized Beijing’s readiness to absorb shocks, pointing to planned domestic stimulus measures, interest rate cuts, and aggressive consumption-driven growth strategies to soften the blow.
As the tit-for-tat intensifies and global markets reel, all eyes are on Washington and Beijing to see if either side will blink — or whether the world’s top two economies are heading into a lasting trade standoff with ripple effects across the globe.
