Stocks around the world nosedived on Monday as US President Donald Trump launched a global onslaught with “Liberation Day” “reciprocal tariffs” against all countries with a trade deficit in America’s perceived disfavor, regardless of their status as United States allies or adversaries.
On Monday, in Hong Kong, where many Chinese mainland companies trade, the Hang Seng Index plunged over 13 percent. In Taiwan, a hub for global technology, stocks were clobbered nearly 10 percent. Japan’s Nikkei 225 index finished almost 8 percent lower, while the benchmark index in South Korea tumbled more than 5 percent.
Trump’s various tariffs (On Wednesday, “reciprocal” tariffs that are above the universal 10 percent baseline rate were put on hold for most countries, with the exception of China) in aggregate fall into three categories: 10 percent baseline tariffs on all imports, anti-China de-coupling/de-risking tariffs, and “Liberation Day” “reciprocal tariffs’’ calculated as a percentage of respective trade deficits.
The formula for calculating “reciprocal tariffs” boils down to the respective trade deficit as a percentage of the US imported goods, divided in half. However, this entirely ignores the US’ substantial trade surpluses in services. There are variations to take account of existing tariffs on US exports. For example, against the alleged European Union’s 39 percent tariff on US goods, the new duty on the EU is set at 20 percent. China, which was already slapped with a 20 percent tariff over the fentanyl trade issue, is levied an additional 34 percent — half of the alleged 67 percent tariff it imposes on the US — bringing its additional tariff to 54 percent before further increases on Wednesday and Thursday that add up to 125 percent.
READ MORE: China lifts additional tariffs on US goods to 84% following US hikes
By any account, these broad-based tariffs will result in higher prices impacting largely the under-privileged who spend most of their income on consumables. The estimated additional annual household outlay of $3,800 represents a form of “regressive taxation” in the US. Ironically, tariffs will also jack up import costs for American producers and manufacturers, whom these levies are supposed to protect.
These massive tariffs apply even to the Heard and McDonald “penguin islands” in Antarctica with zero human habitation, “just to close any loopholes”. We seem to be transported to Alice in Wonderland, and things are getting “curiouser and curiouser”, as the heroine of that fantasy novel remarked.
Apart from the irrationality of disregarding the US’ substantial surpluses of trade in services, including finance, technological and other professional services, these tariffs throw out Adam’s Smith hallowed principle of “comparative advantage”. International trade enables a country to import goods or services where it has less comparative advantage in production costs or expertise but exports its goods or services to other countries where it enjoys such comparative advantage. No country can or should be entirely self-sufficient.
Comparative advantage facilitates free flow of trade among nations, enabling consumers to access higher-quality, lower-priced goods, fueling economic growth by reducing input costs, promoting competitive efficiency and innovation, and facilitating more cooperative trade relationships. This underpins the foundation of the World Trade Organization, which has 166 members, accounting for 98 percent of world trade.
However, decades of American profit maximization relying on capital markets and financial services has outsourced less competitive manufacturing productions abroad, gradually hollowing out the US’ manufacturing infrastructure, facilities and skills in a host of industries, including consumer goods and shipping. Wages of what remains in many non-competitive, lower-technology industries have stagnated, feeding a groundswell of dissatisfaction and even anger. As a result, the blame is placed on foreign countries — especially China, the world’s largest manufacturer and trader.
This anti-free-trade xenophobic tsunami has been captured by Trump to drive his political ascendancy, trumpeting his mantra of “Make America Great Again” (MAGA) by weaponizing US global hegemony, including the dominance of the dollar.
Trump thinks tariffs are a beautiful weapon. He thinks tariffs will bring in massive revenue and help to reduce or eliminate US trade deficits, perhaps even replacing the need for income tax.
Using the Department of Government Efficiency’s massive wrecking ball, Trump hopes to do the same with the US budget deficit, targeting perceived “government waste”, including many institutions such as USAID and Voice of America. These twin deficits are thought to have been sapping America’s power.
What is more, Trump wants to bring manufacturing, shipping, shipbuilding, and industrial jobs back to the US. For this, the US needs to boost its control of mineral resources vital to re-industrialization, perhaps relying on technology, automation and robotics.
Central to Trump’s MAGA strategy is his pivot to controlling the Western Hemisphere’s resources, including rare earths. These minerals are embedded in many manufactured products and appliances including the military. Hence Trump’s obsession with Greenland and Ukraine’s mineral resources.
Shipping and shipbuilding are also vital to America’s dominance. Following demise of its uncompetitive shipbuilding industry decades ago, now only one of 1,000 ships worldwide is built in the US, with the lion’s share going to China. This comparative weakness is perceived to have huge implications for the US’ trading and naval prowess.
Along with a desire to seize control of CK Hutchison’s global portfolio of ports, gargantuan punitive fees and restrictions targeting China-made ships are being drawn up by the US Trade Representative to curb China’s dominance in the maritime, logistics, and shipbuilding sectors. The idea appears to be designed to starve China’s global shipping of financial oxygen as part of a plan to bring shipping and shipbuilding back to the US.
While the CK Hutchison’s overall port deal is now under Chinese authorities’ formal investigation, China has responded to Trump’s “Liberation Day” tariffs by putting 11 American companies on an unreliable entities list, and another 16 on an export control list. It has also announced export controls on medium and heavy rare earths, in addition to slapping US goods with tariffs of 34 percent to match duties imposed on Chinese goods.
As reported in Xinhua News on April 6, China’s exports to the US have declined from 19.2 percent of total exports in 2018 to 14.7 percent in 2024, while the US remains highly reliant on China’s consumer products and intermediate goods or parts, some exceeding 50 percent.
Ever since Trump won the White House, China has been following President Xi Jinping’s prescient directive to batten down the hatches, focusing on self-reliance in innovation and technology, pivoting its economy toward services and consumption, and diversifying trade with the Global South. The challenges of property, local government indebtedness and financing for small- and medium-sized enterprises are now under control, with an improving momentum. This is reflected in international and financial institutions’ revised positive forecasts of China’s economy, now being regarded comparatively as a bulwark against global instabilities.
On Wednesday Trump imposed another round of extra tariff on China’s goods after Beijing refused to withdraw its retaliatory measures, adding up to a total of 125 percent in additional tariffs. Beijing has vowed to remain steadfast against mindless US bullying, while not closing doors for win-win negotiations. The EU is adopting a similar response.
China’s confident response to Trump’s maximum coercion derives from the nation’s self-reliant preparedness for this eventuality since the first Trump administration. Cognisance is taken of the US’ far greater reliance on China’s vast varieties of consumer products, minerals, parts, components, and its global supply and value chain. China remains the largest customer of US agricultural products as well as its Boeing aircraft. As highlighted by Trump’s fentanyl-related tariffs, China remains a key player in helping the US to stem its opioid deluge. With a sizeable proportion of China’s exports diverted to the Global South and other non-US markets, China has plenty of rope to tighten the noose in response to US bullying.
Meanwhile, Chief Executive John Lee Ka-chiu of the Hong Kong Special Administrative Region has unveiled a seven-pronged strategy in response to Trump’s aggression, including technological innovation, enhanced integration into the Guangdong-Hong Kong-Macao Greater Bay Area, closer partnerships with selected emerging markets, and capitalizing on Hong Kong’s unique status as the world’s third-ranking international financial center under the “one country, two systems” principle.
By 2023, the value of Hong Kong’s exports to the US accounted for only 6.5 percent of its total exports, down from the 8.6 percent in 2018. Conversely, its share of the Association of Southeast Asian Nations market has increased from 7.4 percent to 7.9 percent, making it Hong Kong’s second-largest export market after the mainland.
Trump is touting the fact that leaders of some 50 nations are eager to negotiate. Included are many less-developed nations. For example, Madagascar — one of the poorest nations in the world with gross domestic product per head of just over $500 — is facing a 47 percent tariff on its modest $733 million of exports of vanilla, metals and apparel to the US last year. There is no way Madagascans can afford to buy expensive American products, such as a Tesla EV car, to restore mutual trade balance. Trump’s brutal tariffs are therefore plunging many poor countries further into poverty and life-threatening situations of instability.
In any case, the latest massive “Liberation Day” tariffs are likely to result in significant impact on the global economy, China included, shaving at least 1 percent off global output. Further escalation of the trade conflict would raise the risk of a global recession or stagflation, according to a recent forecast by Allianz Global Investors.
The US’ economic structure is far more costly compared with outsourced destinations including China. Its critical manufacturing supply and value chains including relevant human skills have largely been hollowed out after decades of de-industrialization in favor of financial, technological, and other services. Tariffs, however severe, are unlikely to turn the clock back of corralling the majority of manufacturing jobs back to the US, at least not in the short term. What is more likely for the US in the immediate term is price inflation, slower economic growth, and widening economic inequality, if not a prolonged recession.
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As for the so-called US-led global liberal order based on free trade, accepted rules, and human values, Trump has now removed its last fig leaf, substituting it with rules of the jungle. Many affected countries, both in the Global South and Western Europe, are busy hedging their bets and recalibrating relationships with China as a more reliable trading partner with a vast economy. Hence the sizable number of top government and corporate leaders from across the globe who have made a beeline for Beijing recently.
These signals are all canaries in the coalmine of a fracture, if not total collapse, of America’s value and rule-based leadership, including its alliance with Western Europe. As Trump’s “America First” tramples over countries large and small, the rest of the world is beginning to cement alternative trading and other partnerships, either bilaterally or regionally, including a possible mutual pivot between Europe and Asia.
The whole world order is about to be reshuffled. Reminded by President Xi’s repeated reference to the unprecedented challenges and opportunities not seen in a hundred years, China is much more prepared to find its own place in the sun in the turbulent times ahead.
The author is an international independent China strategist, and was previously the director-general of social welfare and Hong Kong’s official chief representative for the United Kingdom, Eastern Europe, Russia, Norway, and Switzerland.
The views do not necessarily reflect those of China Daily.
