Janet Yellen stepped to the podium a year ago this week in Beijing to deliver a reassuring message. The U.S. doesn¡¯t want to decouple from China, the then-U.S. Treasury secretary said. ¡°Our two economies are deeply integrated, and a wholesale separation would be disastrous for both.¡±
Twelve months on, U.S. President Donald Trump¡¯s more than 120% tariffs on Chinese goods and Beijing¡¯s determination to fight back in kind mean the seismic cleavage Yellen warned of is rapidly becoming a reality. About $19 trillion has been wiped off the world¡¯s equity markets since the S&P 500 Index closed at a record high on Feb. 19, and this week¡¯s selloff in Treasuries is the worst since the pandemic. Economists have rushed to price in a U.S. recession as Washington and Beijing engage in a dangerous bout of economic brinkmanship.
The White House says Trump ¡°has a spine of steel and will not break.¡± On Wednesday he ratcheted up pressure on China, raising the import duty to 125%, even as he announced a 90-day pause on reciprocal tariffs for dozens of other trade partners. Beijing, meanwhile, has vowed to ¡°fight to the end.¡± Earlier on Wednesday, it responded to Trump¡¯s previous move by raising Chinese tariffs on U.S. goods to 84%, making it clear to all that Chinese President Xi Jinping is in no mood to cave.
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