China responds strongly to Trump’s tariffs: how the global economy is shaken up

The second trade war initiated by U.S. President Donald Trump has escalated significantly in recent days, especially in relation to China. On April 2, 2025, Trump’s tariffs of 34% on Chinese goods, a move that was responded to by Beijing with similar tariffs on April 5. In reaction, Trump announced an additional 70% increase, raising tariffs to 104% on Chinese products, a measure that was increased to 125%.

Trump’s tariffs policy has also been extended globally: the administration has implemented a 10% global tariff on all of its trading partners, arguing that these measures already generate revenues of $2 billion per day for the US.

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China has reacted with a restriction on the export of rare earths, essential minerals for U.S. technology and defense industries, underscoring U.S. dependence on these strategic inputs. In turn, Trump’s tariffs escalation has generated instability in the financial markets and significantly impacted the value of the dollar.

The “Mar-a-Lago Accord” and the exchange rate strategy

Regarding Trump’s exchange rate strategy, his administration has considered the possibility of devaluing the dollar to improve the competitiveness of U.S. exports and reduce the trade deficit. This proposal, known as the “Mar-a-Lago Accord,” seeks to emulate the 1985 “Plaza Accord,” which succeeded in depreciating the dollar by pressuring major economies.

The strategy consists of pressuring U.S. trading partners through high tariffs in order to force them to appreciate the value of their currencies, thus weakening the dollar and favoring U.S. products. This tactic, based on Trump’s tariffs, attempts to replicate the effects of the Plaza Agreement, albeit in a more confrontational political and economic context.

Doubts about the viability of the agreement

However, the viability of the “Mar-a-Lago Agreement” has been widely debated. Experts such as Naoyuki Shinohara, a former Japanese diplomat, have expressed skepticism about achieving a coordinated depreciation of the dollar, given the low likelihood of cooperation from China and the European Union in the context of current trade tensions.

In addition, an eventual massive sell-off of U.S. Treasury bonds by foreign central banks could further destabilize financial markets. Diplomatic pressure on allies to appreciate their currencies could also strain international relations.

This is just what China, a major creditor of the United States, has done unilaterally and has reduced its holdings of U.S. Treasury bonds. At the end of January 2025, it held approximately USD $761 billion, a significant decrease from more than USD $1.3 trillion in previous years.

This reduction as a response to Trump’s tariffs, has generated the 5-year US Treasury bond to rise by 2%, the 10-year by 3.2%, and the 30-year by 3.6%.

It also reflects a strategy of diversifying international reserves and decreasing dependence on the dollar, which strengthens China’s financial autonomy.

It also adds to the depreciation of the yuan by the Chinese Central Bank, which is expected to continue.

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Inflationary effects and pressure on the consumer

Trump’s tariffs have generated inflationary pressures in the U.S. economy. For example, Bill Dudley, former head of the New York Federal Reserve, projects inflation of 5% over the next six months. Tariffs raise the cost of imported goods, which translates into higher prices for consumers.

The value of the dollar also influences inflation: a strong dollar makes imports cheaper, but reduces the competitiveness of exports; a weak dollar makes imports more expensive and increases domestic inflation.

Consequences of Trump’s tariffs on the oil market

The escalation of the trade war and Trump’s tariffs has significantly affected the energy market. Following the imposition of the 104% tariff on Chinese products and the Chinese retaliation of 84% on U.S. products, the price of Brent crude oil fell below $60 per barrel, its lowest level since 2021. West Texas Intermediate (WTI) also fell to 57.12 dollars per barrel, down 4.13%.

This decline responds to fears of a global economic slowdown, which could reduce energy demand. Added to this is OPEC+’s plan to increase production by 411,000 barrels per day in May, which increases the risk of oversupply.

Impact on the fracking industry

Although low crude oil prices may alleviate inflationary pressure, they also represent a challenge for the U.S. oil industry, particularly for shale oil (tight oil) production, which is done through fracking.

In 2023, the U.S. produced 3.04 billion barrels of tight oil, equivalent to 8.32 million barrels per day, which accounted for 64% of its total production, according to the U.S. Energy Information Agency (EIA). However, many fracking operations need prices above $60-70 per barrel to be profitable. If prices remain low, investment and production could decline, directly affecting this industry.