In 2025, the US-China trade war escalated: President Trump announced high tariffs, putting pressure on the US stock market and government bonds, and Mexico became a safe haven for foreign investment.

In April 2025, the US-China trade war escalated as President Trump imposed a 145% tariff on Chinese goods, and China retaliated with a 125% tariff on US goods. Despite Trump temporarily suspending reciprocal tariffs against other countries for 90 days on April 9, global markets were in turmoil, with the US stock market losing $18 trillion in market value and Treasury yields spiking. China reduced its holdings of US Treasury securities to $706.8 billion, and gold prices reached a record high. Thanks to the USMCA, Mexico became the top choice for foreign investment in relocating production capacity, especially benefiting the automotive industry with favorable US tariffs.

Trump's Tariff Policy Shift and China's Countermeasures

On April 2, 2025, U.S. President Trump announced a "reciprocal tariffs" policy at his first Rose Garden press conference of his new term, imposing import tariffs starting at 10% on over 70 countries, with rates as high as 49% for the "most serious violators." China, due to its long-term trade surplus and market manipulation, was targeted with a planned 34% tariff.

However, on April 9, Trump adjusted his strategy, increasing tariffs on Chinese goods to 125% while reducing tariffs for other countries to a uniform 10%, with a 90-day negotiation period. China immediately announced a retaliatory 125% tariff on U.S. goods and stated it would file a lawsuit with the World Trade Organization (WTO). The Chinese side criticized the U.S. tariff policy for severely harming developing countries and stated that continuing to import from the U.S. "is no longer economically viable."

Financial Market Turmoil: Stocks, Bonds, and Gold

The escalation of the tariff war triggered severe volatility in global financial markets. The U.S. stock market saw an $18 trillion loss in value over a short period. The yield on the 10-year U.S. Treasury note briefly rose to 4.592%, and the 30-year yield surpassed 5%, indicating pressure to sell in the bond market. Analysts pointed out that this bond market turmoil is related to foreign investors, particularly China, reducing their holdings of U.S. Treasuries.

According to the latest data, China's holdings of U.S. Treasuries have dropped from a peak of $1.3 trillion to $706.8 billion. Foreign investors' overall holdings of U.S. Treasuries amount to $8.5265 trillion, accounting for 8.29% of the total U.S. debt. If China further sells off its holdings, it could cause a greater impact on the U.S. bond market.

Meanwhile, gold has become the preferred safe-haven asset. On April 11, gold prices hit a record high of $3,237.93 per ounce, with a year-to-date increase of 24%. Analysts noted that in addition to market demand for safe havens, China may also be increasing its gold reserves as part of its foreign exchange asset allocation.

Mexico as a Key Node in Supply Chain Restructuring

Amid rising U.S.-China trade tensions, Mexico has become the top choice for foreign investors seeking "nearshoring" due to its close economic and trade ties with the U.S. under the United States-Mexico-Canada Agreement (USMCA). Mexico's labor cost is about $3.8 per hour, significantly lower than the U.S.'s $25 to $30 and China's $6.5, offering a clear cost advantage.

Mexico's Economy Minister Marcelo Ebrard stated that after negotiations with the U.S., different levels of "preferential tariff schemes" will be offered for Mexican-made cars based on brand, model, and integration of U.S. components, to avoid the 25% high tariff. This measure helps protect Mexico's automotive industry and attracts more German car manufacturers like Mercedes, Volkswagen, Audi, and BMW to set up plants in Mexico.

However, experts also pointed out that if products fail to meet the USMCA's "North American origin" requirements, they may still face a high 25% tariff, posing challenges for industries like steel and aluminum. The Mexican government is negotiating with the U.S. to reduce steel and aluminum tariffs to 16%.

U.S. National Debt and Fiscal Pressure Intensify

The U.S. national debt currently totals $36 trillion, with $9.2 trillion maturing in 2025, including $6.5 trillion due in June. The Trump administration is attempting to increase fiscal revenue through tariff policies to address the massive debt pressure. However, the shaken confidence in U.S. Treasuries has led to soaring yields, which may instead increase U.S. borrowing costs.

Additionally, Trump's trade policy has sparked domestic political controversy. Democratic senators are calling for the U.S. Securities and Exchange Commission (SEC) to investigate whether Trump influenced the market through social media posts before announcing the tariff suspension, potentially involving insider trading.

References

• 川普升級美中關稅戰並非零風險，但精心布下的棋局已讓習近平輸了第一回合 - TNL The News Lens 關鍵評論網
• 中國商務部長：美關稅將對貧困國家「造成嚴重傷害」 – DW – 2025年4月12日
• 曝關稅影響減弱！謝金河揭中美貿易新戰場 川普小心股債匯三殺
• The bond market went haywire this week. Here's why that's a warning for the US and Trump.
• Tariff Tensions Send Gold Prices Soaring as Mining Stocks Amplify Gains: Two to Consider
• 美中關稅大戰 墨西哥藉貿易協定反成投資避風港 | 聯合新聞網
• 美国对等关税｜墨西哥藉贸易协定 反成投资避风港 | 中國報 China Press