U.S President Donald Trump has put the “reciprocal” tariffs levied against dozens of countries on hold for 90 days, sending global markets rocketing up, while at the same time escalating an unprecedented trade war with China.
On Wednesday afternoon, the Trump administration bumped the tariffs on Chinese goods up to 125 per cent from 104 per cent, effective immediately. The move followed China’s overnight announcement that it would hike tariffs on American goods to 84 per cent.
United States Treasury Secretary Scott Bessent said in a news conference that while the “reciprocal” tariffs were being put on hold, countries other than China will still get a 10 per cent baseline tariff. However, the change won’t affect the tariff rates that currently apply to Canadian and Mexican products, according to a White House official.
The news of the reprieve sent stocks soaring after trillions of dollars were lost over the last five days. As of Wednesday market close, the S&P 500 jumped 9.5 per cent while the S&P TSX Composite index was up 5.4 per cent.
“China kept escalating and escalating and now they have 125 per cent tariffs that will be effective immediately,” Bessent said.
“President Trump cares about trade and we want to negotiate in good faith.”
Speaking from the White House shortly after the announcement, Trump said he believes a deal will eventually be made with China.
But economists worry that the world’s largest economic powers are getting increasingly embroiled in a dangerous and unprecedented trade war that could knock out the global economy and, they say, drag Canada into a recession in the process.
“This is very frightening,” said Pau Pujolas, international economics professor at McMaster University. “We are on the verge of the collapse of world trade, which is going to be a disaster for everyone.”
“There is no angle in which any of these things is good for any Canadian,” he said. “It’s very likely that we are going to have a recession in Canada — a major one.”
The level of duties imposed by the U.S. and China is “prohibitive,” says Dan Ciuriak, a trade consultant and former deputy chief economist at Foreign Affairs and International Trade (Global Affairs Canada). That means trade between the two giants could immediately come to a halt.
“We have not seen anything like this.”
Earlier in the day Bloomberg Economics estimated that 100 per cent tariffs on Chinese goods would essentially wipe out all U.S. imports from the Asian manufacturing powerhouse over the medium term. The tariffs on Chinese goods have since been raised beyond that level, to 125 per cent.
Assuming tariffs on Canadian imports to the U.S. remain significantly lower than the ones imposed on other countries, Americans might turn to Canada to buy goods, which, in theory, could benefit Canadian producers, Ciuriak added.
But there will now be a glut of Chinese products in the international market, causing an “import surge” into Canada.
This will ultimately harm Canadian producers, according to Ciuriak, as prices for Chinese imports will plummet and they will lose market share.
While falling prices might sound like good news to the Canadian consumer, the economy will shrink, meaning there will be less business investment, more layoffs, and generally worse standards of living.
“Increasing pressure on China will depress Chinese demand for commodities, which has a negative impact on Canadian growth prospects,” said Mirza Shaheryar Baig, global foreign exchange strategist at Desjardins.
“For example, for the copper we export, the largest consumer of copper in the world is China.”
Ngozi Okonjo-Iweala, director-general of the World Trade Organization, warned that the collapse in global trade resulting from the escalating U.S.-China trade war could lead to a nearly seven per cent drop in global real gross domestic product over the long-term.
As of late afternoon Wednesday, markets were predicting a 66 per cent chance of an interest-rate cut by the Bank of Canada at the next meeting on April 16.
With files from Tonda MacCharles, Nathan Bawaan and wire services.
