Trump’s Tariff Pause Is a Carrot for Allies, Stick for China

In President Trump's eyes, global tariffs and a global trade war will all be worth it to revitalize US manufacturing, but what happens if workers don't want the job?

THE GIST 

The Trump administration pulled another market head-fake, following chaos with a sudden pivot. After rattling global markets with sweeping tariffs, Trump hit pause for 90 days on countries that didn’t retaliate. China wasn’t so lucky, and instead got slammed with a 125% tariff.

WHAT HAPPENED

On Wednesday, President Trump announced a 90-day pause on new tariffs for countries that "did not retaliate," giving temporary relief to dozens of U.S. trade partners. China, however, was left out and hit with a 125% tariff hike, turning the simmering trade tension into a full-scale escalation between the world’s two largest economies.

Even without the tariff drama, China’s economy was already under pressure. Prices are falling, inventories are rising, and wages remain stagnant. The ongoing spat with the U.S. is only making matters worse.

Consumer prices declined for a second straight month in March. According to data released Thursday, China’s Consumer Price Index (CPI) dropped 0.1% year over year, a slight improvement from February’s 0.7% decline, but still weaker than expected. On a monthly basis, CPI fell 0.4%, compared to a 0.2% drop the previous month.

The Producer Price Index (PPI) declined 2.5% from a year earlier, the sharpest drop in four months. Exporters are resisting pressure to cut prices for U.S. buyers, which has already led to the collapse of long-standing business relationships.

Still, markets treated the 90-day pause as a temporary win. The Shanghai Composite Index rose 0.59% to 3,010.66, and the Hang Seng Index gained 2.06% to close at 20,681.78.

WHY IT MATTERS

China’s retaliation may sound defiant, but economically it looks risky. The country accounts for 14% of all U.S. imports, an estimated $439 billion per year, and has not yet shifted enough toward domestic demand to walk away from export reliance. Without a major internal consumption surge, it cannot afford to ease off exports, and it definitely cannot count on hitting its 5% GDP growth target.

Goldman Sachs is already dialing down its expectations. In a report published Thursday, the firm revised its GDP forecast for China to 4% in 2025 and 3.5% in 2026, pointing to the drag created by tariffs and soft global demand. At the same time, the Chinese yuan has depreciated to its lowest level since 2007. While a weaker currency can make exports more competitive, it also raises the risk of capital outflows and market instability. Beijing is facing a narrowing set of options, and each move now comes with higher stakes.

In response, China is ramping up its diplomatic campaign. Beijing has been calling countries one by one, trying to build a coalition against U.S. tariffs. Premier Li Qiang has spoken with EU Commission President Ursula von der Leyen, while Commerce Minister Wang Wentao has met with counterparts across Europe and Southeast Asia to frame the tariffs as a threat to the global economic order. The messaging is clear: this is not just China’s fight, it is a global one. But so far, results are mixed. Europe is listening, but not rallying. Australia and India have declined to align with Beijing, and even Russia has been left out of the Trump tariff drama altogether.

China’s challenge is that while many countries are unhappy with the U.S. approach, few are willing to be seen as siding with its main rival. Even Taiwan, despite being hit with a 32% tariff, is preparing for negotiations rather than open resistance. Southeast Asian nations like Vietnam and Cambodia, hit by U.S. tariffs after years of benefiting from the shift away from China, find themselves stuck in the middle. China may have regional influence, but not enough to shift the balance of power. The U.S. has succeeded, at least for now, in isolating China as the singular focus of this tariff escalation.

WHAT'S NEXT

Premier Li Qiang is under increasing pressure to deploy stimulus. That likely means a combination of fiscal injections, looser monetary policy, and programs aimed at boosting consumption and investment. Each lever has trade-offs, and China no longer has time on its side.

In a recent call with European Commission President Ursula von der Leyen, Li expressed confidence in China’s ability to maintain growth despite global headwinds. The move was clearly meant to signal a pivot toward strengthening ties with Europe. But even with new partners, the uncomfortable truth remains: no market can replace the scale and depth of the United States.

The tariff war is only on pause. The next round is coming, and Beijing has to decide whether to absorb the pressure or raise the stakes.

© MOBY TECHNOLOGIES

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