China Hits Back with 125% Tariffs as US Trade War Escalates

China escalated its trade war with the U.S. on Friday by raising tariffs on American imports to 125%, retaliating against President Donald Trump’s move to hike duties on Chinese goods to 145%. This tit-for-tat intensifies global economic tensions, threatening $650 billion in trade and further destabilizing global supply chains.

U.S. markets ended a turbulent week on a high, but the dollar weakened sharply. Gold prices surged to record highs while 10-year Treasury yields saw their steepest weekly gain since 2001, signaling growing investor unease. The bond sell-off has raised borrowing costs and reflected eroding confidence in the U.S. economy.

Trump, aboard Air Force One, dismissed market concerns, predicting a stronger dollar and stable trade deals ahead. He claimed over 75 countries have shown interest in negotiations, including India and Japan. However, analysts warn that continued tariff escalation may make U.S.-China trade virtually impossible.

China’s finance ministry condemned Trump’s actions as “unilateral bullying,” warning the U.S. to cease its “destructive behavior.” While Beijing indicated this round of tariffs may be its last in kind, it hinted at alternative retaliation. The Chinese embassy emphasized that the country “will never bow to maximum pressure.”

Meanwhile, inflation fears are growing. The University of Michigan’s Consumer Sentiment Index dropped to 50.8, with inflation expectations soaring to 6.7%—the highest since 1981. Treasury Secretary Scott Bessent is monitoring the bond market, as industrial metals prices begin to rise due to existing import levies.

Economists warn “tarifflation” may soon drive prices higher, exacerbating recession risks. Trump continues to express optimism about future deals, while Chinese President Xi Jinping urged the EU to unite against “unilateral bullying,” signaling broader geopolitical implications.