The trade war between two world powers – China and the US – isn’t just about money; it’s about power and who calls the major shots in the global economy. What started as a dispute over unfair trade practices soon turned into a full-blown tariff war. So, what is really going on here?

In the grand stage of global trade, the US and China have been busy trading more tantrums than toys – each hike met with an equally dramatic retaliation. And then the trade war took a sharp turn with a tit-for-tat tariff escalation. In simple terms, both countries are slapping billion-dollar taxes on each other's goods. This not only affects trade but also has ripple effects on global markets, making everything from electronics to everyday essentials more expensive.

Things started on April 2, 2025, when US President Donald Trump announced a series of “presidential tariffs”. He declared tariffs on things imported from more than 90 countries – a move he justified as protecting America from what he called “years of unfair trading practices”.

Tit-for-tat

Trump initially slapped a 34% tariff on Chinese goods. Two days later, China responded with the same 34% tariff on American items. Donald Trump apparently did not like this. He told China to remove their tariffs or he would add another 50%. He warned, “If the tariff isn’t removed by tomorrow at 12 o’clock, we’ll add 50% more.” China refused to back down.

On 9 April, the US added an extra 50% tariff on China. In return, China retaliated and imposed an additional 50% tariff on American goods. Trump also showed a big board listing tariffs on many countries. Every foreign good coming to the US had at least a 10% tariff — even from countries that did not have a trade deficit with the US. Trump said these were “reciprocal tariffs” – meaning if a country taxes American stuff, the US will do the same.

After the back-and-forth with China, both sides ended up with 125% tariffs on each other’s goods. Over the following days, the world’s two largest economies settled into a pattern of mutual retaliatory measures – each side raising rates to counter the other’s policies.

Strange & childish mess

According to Trump, America – the wealthiest nation in the world – had been looted by other countries for too long. According to him, it was time for the US to do the "ripping”.  However, the consequences of these actions were immediate. Stock markets across the globe plunged within a week, with trillions of dollars evaporating.

By Monday, April 7, global stock markets experienced their worst day in years, with massive losses felt in every corner of the world, from Hong Kong and Japan to the UK, India, and Pakistan. The consequences of this tariff war are already apparent.

Tariffs went too far

Suddenly imposing tariffs on multiple countries without negotiation was bound to cause damage – and it did. Both sides suffered. Exporting countries faced losses, but American consumers are being hit the hardest, even though the tariffs were meant to ‘protect’ American jobs. Trump warned that “enough was enough”, and in a literal game of “select all” on the world map, he pressed a button that affected almost every country.

Oddly basic math

The method the Trump administration used to calculate tariffs was oddly basic. They simply took the trade deficit the US had with a country, divided it by the value of imports from that country, and then imposed a tariff equal to half that percentage. Trump put it as: “We’ll charge them about half of what they’re happy to be charging us.”

Take China, for example. The US had a trade deficit of $295 billion and imported goods worth $439.9 billion from China. According to this formula, the result was 67%. Trump mistakenly claimed this was the tariff China was charging the US – which it wasn’t – and slapped a 34% tariff in response. This math was repeated for multiple countries. Strangely enough, nobody around him thought to correct this school-level error.  

And just when you thought it couldn’t get weirder, Trump went ahead and imposed a 10% tariff on uninhabited islands near Antarctica. Yes, you read that right. Heard and McDonald Islands, home only to penguins and having being untouched by humans for over a decade, were hit with US tariffs. “Trust me, I’m like a smart person,” Trump once said. But the results of these policies say otherwise.

Jokes aside, these tariffs had serious consequences. Since the US is a massive consumer market, many countries rely heavily on exporting to it. In response, regions like China, the EU, and Canada imposed their own tariffs – strategically targeting industries and regions that make up Trump’s voter base.

China went after corn and car production; Canada targeted poultry and AC units; and Europe hit steel and meat sectors. The message was clear: if you want to pressure Trump, pressure the people who elected him.

Unpredictability in global markets

With Trump in charge, economic predictability became a luxury. On April 9, he suddenly paused tariffs for all countries (except China) for 90 days, reducing them to 10%. His reasoning? China retaliated, others didn’t. But even Trump probably wasn’t sure of his own plan.

Manipulating the market?

Just before announcing the tariff pause, Trump tweeted, “This is a great time to buy!!!”—and the stock market shot up after his announcement. Critics call this a clear case of stock market manipulation.

U-turn or trap?

Some believe Trump did not expect the global backlash. Others argue this was a calculated move: shock the world, then ease off – except on China. Either way, such reckless moves with global consequences are not just games. They reflect either incompetence or dangerous short-term thinking.

Not a first

Tariffs are not something new in America. George Washington introduced the first Tariff Act in 1789 with a 5% tax on imports. But in 1890, under William McKinley – Trump’s so-called hero – tariffs were raised drastically on 1,500 goods to 49.5%. The result? A depression in 1893, with 25% unemployment.

The world was going through a tough time. Businesses slowed down, and countries stopped trading as much with each other. Things got so bad that only the start of World War II eventually pushed the US and other nations to start recovering from the mess. Later, Democrats lowered tariffs, which contributed to rapid economic growth. However, by 1920s, Republicans shifted back towards protectionism. Still, at the heart of such a trade war lies a seemingly simple concept – tariffs.

What is a tariff – in simple words

A tariff is basically a tax on goods from other countries. Let us say you buy a sweater made abroad – because of the tariff, it might cost more.  There are two main reasons governments levy tariffs:

Making money: Tariffs help the government earn money, just like any other tax.

Protecting local businesses: Tariffs make imported goods more expensive, so local products look cheaper and more attractive.

Historically, tariffs have been used effectively to protect local industries. The point is when these tariffs are used strategically they can boost local economies. Take South Korea, for example. In the 1980s-90s, the country’s farmers were struggling to compete with cheap imported rice. To protect its farmers, they imposed high tariffs on rice imports, making sure that locally grown rice remained affordable. As the time passed, this strategy helped the country's farmers modernize. As their efficiency grew, South Korea gradually lifted tariffs.

On the other hand, when tariffs are imposed recklessly, the effects can be catastrophic. For example, Brazil and Argentina engaged in a trade conflict due to economic instability, high inflation, and protectionist policies in the 1980s.

The then leaders of both countries imposed high tariffs on each other’s goods, especially in sectors like automotive and textiles. It caused strained bilateral trade and fueled political tensions. However, by the late 1980s, both realized the importance of cooperation and moved towards regional integration, eventually leading to the creation of Mercosur in 1991.

What's next?

Trade wars are not just economic theories; they affect millions of small and large businesses around the globe. The tariffs are no longer the solution they once were. The global economy is highly interconnected, and actions in one country can have instant effects across the entire world.

Businesses face uncertainty. They cannot easily predict whether tomorrow’s tariffs will allow them to price their goods competitively or force them to adjust abruptly. For a rational resolution, the lesson is clear. Instead of unilaterally imposing tariffs and hoping opponents will “re-negotiate,” countries should engage in diplomatic dialogue. Negotiations could lead to mutually beneficial agreements that balance protectionism and free trade. 

Regrettably, the sudden, sweeping approach, such as that adopted by Trump in his dramatic, high-stakes tariff imposition, has paved the way for today’s volatile economic landscape. That is just clear now on how the ongoing trade war between the US and China illustrates how a single policy decision can trigger a domino effect across the global economy.

Why it matters

As the global race for critical minerals heats up, rare earths – 17 special elements – are needed to make things like weapons, electric cars, and electronics. The US has only one operational mine and mostly depends on China to get them. Hence, the US sits in a vulnerable spot. China controls a staggering 92% of the world's processing of these minerals, and the US gets around 70% of its rare earth supply from China. Officials under Trump say China is using this power to gain political advantage, and that the US needs to act fast.

Now, as the US-China rivalry deepens, rare earths are more than just metals — they have become the front line in a high-stakes struggle for global influence. As tensions rise, all eyes remain on what comes next in this global power play.