How far could U.S.-China trade war escalations go?

Summary

Marketplace Morning Report: How Far Could U.S.-China Trade War Escalations Go?

Release Date: April 10, 2025
Host: Will Bain, Marketplace

In this episode of the Marketplace Morning Report hosted by Will Bain, listeners are provided with an in-depth analysis of the escalating trade tensions between the United States and China. The discussion delves into recent tariff increases, market reactions, potential future escalations, and the tangible impact on small businesses reliant on Chinese manufacturing.

Market Reactions to Tariff Announcements

The episode opens with a snapshot of the global markets reacting positively to President Trump's decision to pause tariffs. Will Bain reports, "[00:01] stock markets in Asia closed up significantly today and shares in Europe also up sharply too." This initial surge reflects investor optimism regarding the temporary relief provided by the tariff pause. However, Bain quickly points out lingering uncertainties about the sustainability and future of this pause.

Escalation of U.S.-China Tariffs

The core focus centers on the recent decision by the White House to increase tariffs on Chinese imports to 125%. In retaliation, Beijing has countered with an 84% tariff on U.S. goods. This tit-for-tat escalation marks a significant intensification in the ongoing trade war, raising concerns across various sectors of the global economy.

China's Firm Stance Against U.S. Actions

China’s Foreign Ministry has taken a strong stance against the U.S. tariffs. At [00:51], spokesman Lin Shan asserts, "Taking necessary countermeasures to oppose the US Bullying moves is not only aimed at protecting our own sovereignty, security and development interests, but also for safeguarding international fairness, justice, safeguarding the multilateral trading system." This statement underscores China’s commitment to defending its economic interests and maintaining international trade norms.

Expert Insights: Han Lin of The Asia Group

Han Lin, the China country head at The Asia Group, provides expert analysis on the situation. At [01:20], Han expresses frustration over the rapid deterioration of the U.S.-China trade relationship: “So far they've been quite frustrated. Frustrated in the sense that they are quite surprised that the US China trade relationship has unraveled as quickly as it has without a clear off ramp towards a solution besides Chinese capitulation, which doesn't seem likely to happen.”

Han outlines the diverse toolkit available to China in responding to U.S. tariffs. At [01:47], he explains, "In addition to tariffs, they've also expanded export control bans on critical minerals. They've also put select US Companies on sanctions lists." However, he notes that China has so far refrained from measures like promoting consumer boycotts or allowing the RMB to depreciate.

Potential for Further Escalation

The conversation shifts to the possibility of China leveraging its significant holdings of U.S. debt. Bain questions, "[02:14] Doesn't China own a large slice of U.S. debt? Why don't they exert pressure on Trump using that lever?" Han responds by outlining the delicate balance of escalation levels: “There's the reduction of the purchases of U.S. treasuries, that's another level of escalation and it's quite a serious one. You're hearing a lot more noise about it right now.”

He warns of the dangers associated with climbing the escalation ladder, emphasizing that further actions could transform the conflict into a broader geopolitical issue: “If you start going up that escalation ladder, what else might the US Do? So for example, one concern from the Chinese government is what if the US Government starts to sanction Chinese banks, then that's no longer a bilateral issue because China's reliant on the US Dollar.”

Global Market Stability Amid Tensions

Despite the heightened tensions, global markets have shown resilience. Bain cites a report from Mariko Oy of the BBC’s correspondent office in Singapore, noting, "[03:19] Japan's Nikkei 225 has finished trading for the day, up about just over 9% now. But also other major Asian markets, including South Korea, Australia, Hong Kong, they have all risen as well or rising at the moment." Even China's mainland stock market has remained relatively stable, indicating a complex interplay between political tensions and market dynamics.

Impact on Small Businesses: A Closer Look

The episode shifts to a more personal perspective with an interview featuring Christina Mullen, owner of Miracle Mile Toys and Gifts in Los Angeles. Christina discusses the direct impact of the tariffs on her business operations. At [04:23], she explains, “Toys in general, even if they're imagined in Europe, where most of my toys come from, they're actually made in China.” The 125% tariff poses a significant threat to her ability to source affordable products, leading to potential price increases and supply chain disruptions.

When asked about alternatives, Christina expresses skepticism about the feasibility of relocating manufacturing: “[05:06] No. And, the idea of this will make America this new land of factories and things like that, making toys that would take five to 10 years, I would believe, to even get one factory up and running where there's thousands of them, probably in China right now with robots making most of these toys, it's just not plausible at all that we would be able to order the amount.”

She also highlights the challenges small businesses face in adapting to such abrupt policy changes: “[05:36] I'm just going to try to invest more in my the products that I know that can still be sent to me as they are. I have a Denmark based company that said they're not going to be raising prices. It just depends. I think I have to just check with each one of my brands and see what they're willing to do.”

Christina concludes with a poignant reflection on the broader implications for small businesses: “[05:57] Small businesses are supposed to be such a backbone of the American economy and we're not being treated as such. I'm hopeful, but I'm scared.”

Conclusion and Future Outlook

The episode wraps up by emphasizing the precarious nature of the current U.S.-China trade relationship. While immediate market reactions have been positive, the underlying tensions and retaliatory measures suggest a volatile future for global trade dynamics. Experts like Han Lin caution against further escalations, which could lead to more severe economic repercussions.

For small businesses like Christina Mullen’s, the trade war translates into real challenges that threaten their viability and growth. The episode serves as a sobering reminder of how high-level economic policies trickle down to impact everyday entrepreneurs and the broader economy.

Listeners are left with a sense of cautious optimism tempered by the uncertainties that lie ahead in the U.S.-China trade saga.

Transcript

[Will Bain]

Global markets surge on President Trump's tariff pause, but plenty of questions remain for the global economy. Live from the BBC World Service, this is the Marketplace Morning Report. Will Bain in for Liana again today? Great as always to have your company. Yes, stock markets in Asia closed up significantly today and shares in Europe also up sharply too. Right now, however, questions still remain about the nature of the 90 day tariff pause and what could be agreed within that window. And of course, one country didn't escape further sanction. With the White House ramping up tariffs on Chinese imports to 125%, Beijing responded overnight by raising its tariffs on U.S. goods to 84%. This morning, China's Foreign Ministry spokesman Lin Shan was in no mood to back down. His words are voiced by a translator at the press conference.

[Lin Shan]

Taking necessary countermeasures to oppose the US Bullying moves is not only aimed at protecting our own sovereignty, security and development interests, but also for safeguarding international fairness, justice, safeguarding the multilateral trading system.

[Will Bain]

Lin Chan there. Well, Han Lin is China country head at the consultancy the Asia Group. Thanks for having me on the Chinese response to all of this. So far then?

[Han Lin]

So far they've been quite frustrated. Frustrated in the sense that they are quite surprised that the US China trade relationship has unraveled as quickly as it has without a clear off ramp towards a solution besides Chinese capitulation, which doesn't seem likely to happen.

[Will Bain]

And in terms of further responses, Han, we know that Beijing has now imposed this 84% levy on all US imports. What other tools do the Chinese government have in terms of responses?

[Han Lin]

So China has quite a diverse and deep toolkit of how to respond. In addition to tariffs, they've also expanded export control bans on critical minerals. They've also put select US Companies on sanctions lists. But they've pretty much kept their retaliation within a small group of retaliatory tools. What they have not done is, for example, promote consumer boycotts of American goods or let the Zhenimbi depreciate.

[Will Bain]

Doesn't China own a large slice of U.S. debt? Why don't they exert pressure on Trump using that lever?

[Han Lin]

That's true. So there are different levels of escalation. Now when we look at the reduction of the purchases of U.S. treasuries, that's another level of escalation and it's quite a serious one. You're hearing a lot more noise about it right now. But the concern is this, if you start going up that escalation ladder, what else might the US Do? So for example, one Concern from the Chinese government is what if the US Government starts to sanction Chinese banks, then that's no longer a bilateral issue because China's reliant on the US Dollar. Essentially, the US Would be trying to block China's ability to trade with the world. So you're trying to watch the different levels of escalation. And so far, as bad as things look right now, believe it or not, it could actually be worse.

[Will Bain]

And thanks as always for your insight handling that China country head at the consultancy the Asia Group. Well, for more on the market reaction today in Asia, the BBC's correspondent Mariko Oy brought us the latest from Singapore a short time ago.

[Lin Shan]

It was definitely a much better day. Japan's Nikkei 2 to 5 has finished trading for the day, up about just over 9% now. But also other major Asian markets, including South Korea, Australia, Hong Kong, they have all risen as well or rising at the moment. Also, Taiwan's stock market, which was one of the biggest losers up until yesterday, they have actually shot up by about 10%. It is interesting to note that the mainland Chinese stock market, it's actually not doing too badly either, despite the fact that tensions between Beijing and Washington has escalated.

[Will Bain]

Mariko Oy there. Well, let's look at some more numbers now. Yeah, that rally in Asia continued in Europe, too. Shares on Frankfurt's DAX up more than 5% right now. Paris is CAC 48, also up 5%. In London, the Footsie 100 fallen back a little bit. It's up just over 4% now. Where do the terrorists of 125% on Chinese imports to the US leave businesses that rely on manufacturing in China? Christina Mullen is owner of Miracle Mile Toys and Gifts, a store in L. A. Morning, Cristina.

[Christina Mullen]

Thanks for having me.

[Will Bain]

What would you normally be importing? Just explain to people what you're bringing in from China.

[Christina Mullen]

Toys in general, even if they're imagined in Europe, where most of my toys come from, they're actually made in China. Even a lot of the toys I get from German companies or any type of European company and American companies, they're all produced in China. So I'm just confused as to how I'm supposed to find money, how this is supposed to help a small business where we're already struggling so much.

[Will Bain]

Option two, I guess for some businesses is looking elsewhere. How realistic is that in the sector you're in, Is there anywhere else produce? It doesn't sound like it from what you're saying. No.

[Christina Mullen]

And, and the idea of this will make America this new land of factories and things like that, making toys that would take five to 10 years, I would believe, to even get one factory up and running where there's thousands of them, probably in China right now with robots making most of these toys, it's just not plausible at all that we would be able to order the amount.

[Will Bain]

Of toys that are needed in the immediate future then.

[Christina Mullen]

Yeah.

[Will Bain]

What are you doing? What can you do?

[Christina Mullen]

I'm just going to try to invest more in my the products that I know that can still be sent to me as they are. I have a Denmark based company that said they're not going to be raising prices. It just depends. I think I have to just check with each one of my brands and see what they're willing to do.

[Will Bain]

That sounds like a stressful few months ahead.

[Christina Mullen]

It's very stressful and it's been a stressful time for years now from the pandemic on. So it's not fun. Small businesses are supposed to be such a backbone of the American economy and we're not being treated as such. I'm hopeful, but I'm scared.

[Will Bain]

Well, good luck. Thank you so much for coming on the program. Talking to us, Christina Mullen there, owner of Miracle Mile Toys and Gifts, speaking to us from la. And I'm Will Bay. And that just about brings us to the close of this edition of the Marketplace Morning report from the BBC World Service. Thanks so much for listening.

[Janelie Espinal]

If there's one thing we know about social media, it's that misinformation is everywhere, especially when it comes to personal finance. Financially Inclined from Marketplace is a podcast you can trust to help you get serious about your money so you can build a life you've always dreamed of. I'm the host, Janelie Espinal, and each week I ask experts important money questions like how to negotiate job offers, how to choose a college that you can afford, and how to talk about money with friends and family. Listen to Financially Inclined wherever you get your podcast.