Beijing increased its tariffs on US imports to 125% on Friday, hitting back against US President Donald Trump’s decision to hike duties on Chinese goods and raising the stakes in a trade war that threatens to up-end global supply chains.

China’s retaliation intensified the economic turmoil unleashed by Trump’s tariffs, with markets tumbling further and foreign leaders puzzling how to respond to the biggest disruption to the world trade order in decades.

“Recession risk is much, much higher now than it was a couple weeks ago,” said Adam Hetts, global head of multi-asset at Janus Henderson.

The brief reprieve for battered stocks seen after Trump decided to pause duties for dozens of countries for 90 days quickly dissipated, as attention returned to the escalating trade conflict between the US and China.

The tit-for-tat increases stand to make goods trade between the world’s two largest economies impossible, analysts say. That commerce was worth more than $650 billion in 2024.

Global stocks fell, the dollar slid and a sell-off in US government bonds picked up pace on Friday, reigniting fears of fragility in the world’s biggest bond market. Gold, a safe haven for investors in times of crisis, scaled a record high.

Asian indices mostly followed Wall Street lower on Friday.

In Europe, China’s latest tariff hike sent stocks lower.

TRADE WAR WITH CHINA

While announcing a 90-day tariff pause on dozens of countries earlier this week, Trump ratcheted up tariffs on Chinese imports, raising them effectively to 145%.

China hit back with its own new tariffs on Friday, with the finance ministry saying Trump’s new tariffs were “completely unilateral bullying and coercion.”

Beijing indicated that this would be the last time it matched the US, should Trump take his duties any higher. But it left the door open for Beijing to turn to other types of retaliation.

“Even if the US continues to impose even higher tariffs, it would no longer have any economic significance and would go down as a joke in the history of world economics,” the finance ministry said.

UBS analysts in a note called China’s declaration that it would not retaliate to any further tariff increases “an acknowledgement that trade between the two countries has essentially been completely severed.”

Trump had told reporters at the White House on Thursday that he thought the United States could make a deal with China and said he respected Chinese President Xi Jinping.

Xi, in his first public remarks on Trump’s tariffs, told Spanish Prime Minister Pedro Sanchez during a meeting in Beijing on Friday that China and the European Union should “jointly oppose unilateral acts of bullying,” in a clear swipe at Trump’s tariff policies.

FRAGILE PAUSE

US Treasury Secretary Scott Bessent shrugged off the renewed market turmoil on Thursday and said striking deals with other countries would bring certainty.

The US and Vietnam have agreed to begin formal trade talks, the White House said. The Southeast Asian manufacturing hub is prepared to crack down on Chinese goods being shipped to the United States via its territory in the hope of avoiding tariffs, Reuters exclusively reported.

Japanese Prime Minister Shigeru Ishiba, meanwhile, has set up a trade task force that hopes to visit Washington next week.

But all this has done little to soothe business leaders’ worries about the fallout from Trump’s trade war and its chaotic implementation: soaring costs, falling orders and snarled supply chains.

For European businesses in particular, a stronger euro automatically makes them less competitive in the global market.

The euro extended its rise on Friday, reaching its highest in over three years versus the dollar. It also rose to an 11-year high against the Chinese yuan in the offshore market.

Trump’s decision for a 90-day suspension on tariffs gave room for only a “fragile pause,” French President Emmanuel Macron said on X, partly because “this 90-day pause means 90 days of uncertainty for all our businesses, on both sides of the Atlantic and beyond.”

EU finance ministers brainstormed on Friday how to use the pause to get a trade deal with Washington. To help achieve that, the EU said on Thursday it would pause its first counter-tariffs.

Looking ahead, how tariff chaos will change policymakers’ thinking on rate cuts will be the focus when the European Central Bank meets next week.

Corporate earnings reports also pick up steam in the coming days, with markets expecting profit warnings.