US vs China: Trade war tensions escalate

Tensions between the US and China have escalated once more. Beijing struck back on Monday morning (2 June) against Washington, claiming Washington has “seriously violated” the trade truce reached by the two nations in Zurich last month.

The ministry vowed to take all necessary measures to safeguard its interests. It rejected a statement by Donald Trump last week. He had accused China of having “totally violated” the trade deal with the United States.

The ministry said in a statement:

“The U.S. government has unilaterally and repeatedly provoked new economic and trade frictions, exacerbating uncertainty and instability in bilateral economic and trade relations.”

Bloomberg reported that China was critical of new US measures.
These included AI chip export controls and restrictions on chip design software sales to China. China also condemned the suspension of Chinese student visas.

Asia-Pacific equities fell on Monday as investors fear that communication between the two is falling apart.

Last Friday, the US president stated that China “HAS TOTALLY VIOLATED ITS AGREEMENT WITH US.” This statement fuelled concerns that the trade war will continue. Many fear it will keep shaking the world economy.

US dollar weakens from trade war

This fresh uncertainty is destroying the US dollar. The greenback weakened against a basket of currencies.

The legality of Trump’s trade war was challenged last week. A US federal court ruled that his “liberation day” tariff plan is against the law. However, a federal appeals court temporarily reinstated the plan, pending the continuation of the case.

China has entirely violated its trade agreement with America, says Trump

Donald Trump announced that China has “totally violated its agreement” with the US. This came just two weeks after the two countries had reached a deal. His statement triggered fears that the trade war will continue to rock the global economy.

Trump wrote on Truth Social early Friday morning.
He said, “I closed a fast deal with China to extract them from what was going to be a very terrible deal.” The statement drew attention to his ongoing stance on US-China trade negotiations. He noted that everyone was happy — that’s the good news. But the bad news, he added, is that China, much to the surprise of some. She has completely breached its agreement with the US.

Trump’s post follows comments by Treasury Secretary Scott Bessent.
During an interview on Fox News, Bessent stated that trade talks with China “are a bit stalled.” However, he also mentioned that more meetings with Chinese officials are planned. These meetings are expected to take place in the next couple of weeks. The White House has not otherwise given any real details regarding why trade talks have stalled.

US stock markets plummet

US equities moved into the red after the announcement. The Dow ended the day up 0.13% whereas the S&P 500 and Nasdaq registered slight falls.

It’s nearly four months now since Trump first announced a 10% tariff on Chinese imports in February, the start of the trade spat that reached a crescendo over the spring. After a tariff hike to 20% in March, a trade war broke out when Trump levied 145% tariffs on China and China levied 125% tariffs on American goods in retaliation.

On 12 May, Trump agreed to slash tariffs to 30%. In response, China agreed to reduce US tariffs to 10%. This move paved the way for more constructive discussions and possible access to American exports in the future.

Trump’s Friday post, though, signals the continued uncertainty in the president’s trade war, which has spooked markets around the world for weeks.

Investors appeared somewhat comforted Wednesday evening by reports a US court of international trade panel of judges thwarted most of Trump’s broad tariffs, including tariffs based on countries of import such as ones Trump placed on China. Within 24 hours, however, a federal appeals court put the decision on hold, leaving Trump’s tariffs in place.

US court blocks Donald Trump’s tariffs

Donald Trump’s trade policies have hit their biggest obstacle so far after a US federal court ruled that his “liberation day” tariff plan is illegal.

In the latest twist in the US president’s mercurial global trade war, the ruling could undo border taxes revealed early last month. The White House has, nonetheless, filed a notice of appeal, and tariffs will stay in effect as the case proceeds through the courts.

What has been reported?

The US Court of International Trade (CIT) found that Trump’s use of the International Emergency Economic Powers Act –IEEPA, which is an extensive presidential power, to justify his use of tariffs on imports from Mexico, Canada and China, was wrong.

Legal objections to the tariffs had been filed with the court by the non-partisan Liberty Justice Centre campaign organisation on behalf of small US companies, along with a dozen US states, including New York, Arizona and Oregon.

IEEPA is a law from 1977 that allows the president to regulate commerce during a national emergency without the approval of Congress.

The three-judge panel of the court, however, ruled that the economic concerns posed by the White House as justification for the tariff proposals do not meet the necessity test of “unusual and extraordinary threats.”

The judges were named to the court by three presidents: Ronald Reagan, Barack Obama and Trump himself.

What is the impact?

In the short term, the decision will add to uncertainty on an already volatile trading climate. The ruling has been greeted mostly positively by investors as a signal that Washington’s tariff approaches could be limited, minimising the damage to global trade and the US economy. However, additional uncertainty will further erode business and investor confidence.

The judgment is a devastating blow to Trump’s economic program, by depriving the self-proclaimed “tariff man” of his strongest, and most favoured, policy tool.

There are also various legal avenues for the president to pursue his foundation economic policy. They are section 122 of the Trade Act of 1974, section 232 of the Trade Expansion Act of 1962, and sections 301 and 338 of the Trade Act of 1930. They all provide the president with the power to act on trade policy, but in most times more slowly and, with less flexibility.

A major investor worry revolves around the implications for Washington’s rising levels of federal borrowing and debt as growing alarm in financial markets intensifies.

Trump hoped for additional revenues from tariffs to finance some of his sweeping tax reductions announced in his One Big Beautiful Bill Act which could add $5 trillion to US debt.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.