U.S President Donald Trump has paused the “reciprocal” tariffs levied against dozens of countries 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 raised the tariffs on Chinese goods to 125 per cent from 104 per cent, effective immediately. The move followed China’s 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 announced on April 2 were being put on hold, countries other than China will still be subjected to a 10 per cent baseline tariff.
Prime Minister Mark Carney confirmed that no new tariffs were imposed on Canada, which was spared, along with Mexico, from the global “reciprocal” tariffs.
News of the reprieve sent stocks soaring after trillions of dollars were lost over three days of trading. As of Wednesday’s market close, the S&P 500 had jumped up by 9.5 per cent, recouping almost $4 trillion in value — its biggest one-day rise since the Second World War.
The S&P TSX Composite index rose 5.4 per cent, adding roughly $200 billion in value, with the Dow Jones industrial average rising 7.9 per cent and the tech-heavy Nasdaq up 12.6 per cent. Oil prices also rose after hitting their lowest level since the global COVID-19 pandemic.
“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 the world’s largest economic powers are getting increasingly embroiled in a dangerous and unprecedented fight 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 those imposed on other countries, Americans might turn to Canada to buy goods, which, in theory, could benefit Canadian producers, Ciuriak added.
But there would be a glut of Chinese products in the international market, causing an “import surge” into Canada.
This could ultimately harm Canadian producers, according to Ciuriak, as prices for Chinese imports will likely plummet, causing local producers to lose market share.
While falling prices might sound like good news to Canadian consumers, the economy will shrink, economists said, meaning there will be less business investment, more layoffs, and a lower standard 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,” he said.
Weaker commodity prices, in turn, could translate into a weaker Canadian dollar.
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.
But how far are the giants willing to go? Sui Sui, professor of global management studies at the Toronto Metropolitan University, thinks it’s likely China will forcefully retaliate.
“No one will come out on top,” she said. “There are lots of people warning about a global recession.”
“This is not about only economic, but also political power. Everyone’s watching.”
With files from Tonda MacCharles, Josh Rubin and Nathan Bawaan.