President Donald Trump knows his hike in tariffs for China's goods to 145 percent will up the ante in a trade war, but Beijing also holds a strong hand with its control of the materials critical for the United States defense industry.

China first responded on April 3 to Trump's initial salvo of 54 percent levies on its exports by placing export restrictions on rare earth elements, which are key for the fighter aircraft that will form the backbone of the U.S. Air Force's next-generation fleet.

China will pause exports of critical minerals to the United States in the country’s latest move to counteract President Donald Trump’s tariffs. Trump has set a tariff on China at a hefty 145%, which it has responded to with a 125% reciprocal tariff.

The U.S. granted tariff exemptions on laptops, smartphones, and other items. China called on the U.S. to “completely cancel” its tariffs, saying that the exemptions were a “small step” toward doing so.

Beijing on Friday increased its tariffs on U.S. imports to 125%, hitting back against U.S. President Donald Trump's decision to hike duties on Chinese goods to 145% and raising the stakes in a trade war that threatens to up-end global supply chains.

Meanwhile, the turmoil unleashed by Trump's tariffs showed few signs of easing on Friday, with markets tumbling and foreign leaders puzzling how to respond to the biggest disruption to the world trade order in decades.

China increased its tariff on U.S. goods to 125% on Friday in a retaliatory measure against President Donald Trump’s 145% tariffs against China. 

Here is how the last week or so went: President Donald Trump unveiled a half-baked package of gigantic tariffs — so half-baked that one of them was a tariff on a group of islands inhabited mainly by penguins — which threw the markets into chaos.

But the chaos was not simply the result of higher expected prices and supply chain disruptions. What markets hate is uncertainty. Financial crises are usually the result of some unexpected, uncontrollable shock that overwhelms the policymakers who are trying to maintain stability.

In response to why Beijing is not backing down to Donald Trump on tariffs, the answer is that it doesn't have to.

China's leaders would say that they are not inclined to cave in to a bully – something its government has repeatedly labelled the Trump administration as – but it also has a capacity to do this way beyond any other country on Earth.

Before the tariff war kicked in, China did have a massive volume of sales to the US but, to put it into context, this only amounted to 2% of its GDP.

President Trump blinked on Wednesday, pausing most of the tariffs he had sought to put on nations around the world.

The one big exception is China, now the focus of an escalating trade war. American tariffs on China now total 145 percent while China has sought retribution with levies on U.S. imports that it raised to 125 percent in the early hours of Friday.

1. President Donald Trump's so-called "trade war."

Many call the American effort to obtain either tariff parity or a reduction in the roughly $1 trillion trade deficit and 50 years of consecutive trade deficits a "trade war." But then what do they call the policies of the past half-century by Europe, Asia, China, and others to ensure asymmetrical tariffs, pseudo-health and security trade restrictions, and large surpluses?

A trade peace? Trade fairness?

2. Do nations prefer surpluses or deficits?

China announced Friday that it will raise tariffs on U.S. goods from 84% to 125% — the latest salvo in an escalating trade war between the world’s two largest economies that has rattled markets and raised fears of a global slowdown.

While U.S. President Donald Trump paused import taxes this week for other countries, he raised tariffs on China and they now total 145%. China has denounced the policy as “economic bullying” and promised countermeasures. The new tariffs begin Saturday.

President Trump finally decided to take the proverbial “win” on trade and the stock market rallied nearly 3,000 points.

You can thank the bond market, with an assist from Treasury Secretary Scott Bessent, for making it happen.