Trump’s Tariff Gambit: A Global Economic War or a Godfather Move?

US President Donald Trump has seemingly ignited a full-blown economic war with China. On Friday (April 11), China fired back against his 145% tariffs on Chinese goods by slapping a 125% duty on American imports, restricting critical raw minerals to US aviation and other hi-tech sectors while even banning Hollywood films.

Beijing’s message is loud and clear: it’s ready to fight this trade and economic war.

Trump’s bold – some say reckless – strategy aims to re-industrialise America and shore up its fiscal health, even if it means trampling on other nations’ economic sovereignty.

But this nationalist push faces resistance, both at home, where patience is thin, and abroad, where allies and rivals alike bristle.

When titans like the US and China clash, the world economy takes the hit. Global markets are already reeling, with volatility spiking and uncertainty becoming the new normal.

It remains to be seen how Trump will respond to China’s latest move. Now he will not be able to call China’s tit-for-tat tariffs on American goods a “mistake”, as was done earlier.

The unfolding eye-for-eye retaliation between the two leading powers seems like a Thucydides’ trap – a term that refers to that ancient Greek historian whose magnum opus on the Peloponnesian War in the 5th century BCE provided valuable insight as to what would happen between a rising power and a ruling power.

At times, the unfolding tariff saga has taken on an almost theatrical quality, with Washington’s economic maneuvers evoking comparisons to Don Corleone’s actions in The Godfather.

Trump, however, blinked on Wednesday, if only slightly. Faced with a bruised stock market and growing anxiety in the bond markets, he introduced a 90-day pause on the harsher ‘reciprocal’ tariffs – for countries that agreed to open trade discussions with his administration.

During the pause, the US will still levy a baseline ‘reciprocal’ tariff of 10% on all imports entering the American market.

Trying to mask mounting economic concerns, Trump claimed that China has shown a “lack of respect” to the “world’s markets” – even as markets reeled on April 2 when his initial round of tariffs kicked in. The sudden imposition of these tariffs has already cost global investors trillions of dollars.

Still, Trump pinned the blame squarely on Beijing. “I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately,” he declared on Truth Social, his platform of choice.

Doubling down, Trump warned: “At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A, and other Countries, is no longer sustainable or acceptable.”

Washington is in a tearing hurry to conclude trade deals with some 70 countries, a move that suggests it wants to isolate China. But global supply chains are anchored on Chinese manufactured products.

Yet, his unilateral actions are a vindication that for Washington, fairness, rule-based trade and non-discrimination – core principles of the multilateral trading system – do not matter.

Across the globe, exporters now confront a new reality: a baseline 10% tariff from the US, with country-specific surcharges depending on Washington’s mood. While such measures run afoul of the General Agreement on Tariffs and Trade and the World Trade Organisation (WTO) framework, the WTO seems powerless to act.

Ironically, on the eve of the WTO’s 30th anniversary on Thursday, the institution appears more like a bystander at a funeral than a steward of fair trade. Its inability to challenge Washington’s unilateralism has starkly exposed its limitations.

China, however, has refused to back down. Echoing Mao Zedong’s declaration on Liberation Day in 1949 – “The Chinese people have stood up” – Beijing has mounted a robust defence of its trade interests.

Jagat Seth moment

Meanwhile, India has quietly aligned itself with the US, despite the significant downside risks. The Indian commerce minister’s recent criticisms of China seem more like an echo of Trump’s rhetoric than a clear-eyed strategy.

New Delhi’s silence at the WTO on April 9 – when over 20 countries, led by China, condemned the US ‘reciprocal’ tariffs – was telling.

India’s diplomatic embrace of Washington continues. “[We] agreed on the importance of the early conclusion of the Bilateral Trade Agreement,” announced India’s external affairs minister (EAM) following discussions with his US counterpart.

The next day, he doubled down: “What is our strategy? I think that’s pretty clear; we decided that we will engage the Trump administration early … and … try to negotiate a bilateral trade agreement by fall of this year.”

Yet it remains unclear whether the EAM has raised the issue of the 27% ‘reciprocal’ tariff that now stands to burden Indian exports to the US.

Also read: On Trump's Capitulation and Why Jaishankar Should Be Careful Before Pledging Allegiance

And amid New Delhi’s eerie silence, Indian exporters face steep US tariffs across key sectors, including steel and aluminium, where Washington’s unilateral 25% tariff continues to bite.

Further, the 25% tariff on cars and auto products has hit Indian exporters of auto products.

Indian pharmaceutical manufacturers are bound to be hit once Trump announces the tariffs on pharma products. 

New Delhi’s continued silence in the face of the US economic war against China seems like a Jagat Seth moment in Indian trade history – historian Partha Chatterjee has written in his book in The Black Hole of Empire that members of the Jagat Seth family conspired with the British to bring down Siraj-ud-Daula, the Nawab of Bengal.

As China pushes back against the US’s tariff aggression with the rest of the world watching the repercussions, India’s decision to cozy up to Washington, much like Israel, raises questions about its long-term strategic and economic priorities.

The math doesn’t favour India. With average US tariffs on Indian goods now at 27%, which may come down after Trump’s tailor-made-solution, and Indian tariffs on US imports weighted or otherwise averaging much below 27%, the so-called “reciprocity” is heavily lopsided.

Even worse, India must now negotiate a bilateral trade agreement under the shadow of this new, elevated US tariff floor.

In essence, New Delhi risks bargaining from a position of weakness – with a partner who is not only unpredictable but increasingly transactional.

Of course, India too adopted the transactional strategy, undermining its credentials of representing the Global South.

The road to a “fair” bilateral trade agreement with the US is littered with systemic disparities, opaque rules and the sheer ambition of a US administration intent on rewriting the rules of global trade in its image. The punitive costs of this alliance with Uncle Sam will only be known in the coming years when some of its architects may not be around.

Goyal made an astonishing comment on Friday: that India is not negotiating at gunpoint. But Trump has said India appears scared and reduced its import duties substantially. Who is telling the truth – Goyal or Trump?

Ravi Kanth Devarakonda is a financial journalist based in Switzerland.

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