China wasted no time in firing back at Donald Trump’s latest tariff tantrum, slapping duties on a range of American goods and launching an antitrust investigation into Google—all within hours of Trump’s fresh 10% tax on Chinese imports. The world’s two largest economies are now locked in yet another trade standoff, with global markets bracing for the fallout. In a carefully calibrated response, Beijing has imposed a 15% tariff on US coal and liquefied natural gas (LNG) and a 10% duty on American oil equipment and agricultural products. But the real sting comes from export controls on tungsten-related materials—a critical mineral used in everything from missiles to semiconductors—signalling that China is willing to weaponise supply chains in return. Adding insult to injury, Beijing has placed PVH (owner of Calvin Klein and Tommy Hilfiger) and US gene-sequencing firm Illumina on its blacklist of entities, effectively restricting their operations in China. And to keep Washington guessing, China’s State Administration for Market Regulation has opened an antitrust probe into Google, just to remind Silicon Valley who really holds the keys to the world’s largest consumer market.

Despite its sharp retaliatory measures, Beijing has so far played its hand cautiously. Chinese officials have stopped short of escalating the conflict too aggressively, crafting a response that delivers a political punch while minimising domestic economic damage. Beijing is making it clear that it will respond, but in a way that doesn’t invite further immediate retaliation. This strategic restraint, combined with speculation that Xi Jinping could soon announce fresh stimulus measures, has kept markets relatively stable. But, the yuan continues to slide, and Asian currencies tied to China’s economic health, including the Australian and New Zealand dollars, have tumbled by nearly 1%.

Financial markets are on high alert as Trump’s tariffs add yet another layer of uncertainty to an already fragile global economy. The Bloomberg Dollar Spot Index climbed nearly 1%, its biggest jump since mid-November, as investors bet that higher tariffs will stoke inflation and force the Federal Reserve to keep interest rates higher for longer. Meanwhile, Beijing’s tungsten export controls have raised concerns about supply chain vulnerabilities. China dominates 80% of the global tungsten market, and any disruption to its supply could have far-reaching implications for the defence, technology, and aerospace industries.

With Canada and Mexico also retaliating against Trump’s tariffs, a full-scale trade war is now underway. While Trump has hinted at direct talks with Xi Jinping, Beijing’s decision to strike back before negotiations suggests that China is no longer willing to play by Trump’s rulebook. The big question now is how far this will escalate. A more aggressive Chinese response—such as broad restrictions on rare earth exports or further investigations into American tech firms—could trigger a global economic downturn at a time when central banks are already struggling to contain inflation.

While Trump insists that his tariffs are about economic security, the reality is that they are pushing US allies and rivals alike into forming closer trade partnerships—potentially sidelining the US from the very global supply chains it once dominated. With Xi’s government flexing its economic leverage, corporate America on edge, and central banks preparing for the worst, one thing is clear: Trump’s trade war revival is setting the stage for another economic storm that the world may not be ready for.