Global economies scramble to shield against fallout from US-China trade war

Global economies slash rates, aid industries amid US-China trade war.

Economies around the globe are scrambling to shield themselves from the escalating US-China trade war, as growing tariffs, market volatility, and supply chain disruptions fuel concerns about a worldwide slowdown or even recession. Central banks in India to New Zealand have cut interest rates, and governments in South Korea to Spain are pouring billions in emergency assistance, subsidies, and tax breaks into distressed industries such as car manufacturing, the Wall Street Journal reported.

Emergency measures blanket the world

South Korea rolled out a $2 billion package to support its car industry, in the form of low-cost loans and tax reductions, while Spain and Portugal initiated financing for manufacturers and exporters targeted by soaring US tariffs. Canada placed counter-tariffs on US autos and committed to applying the revenues to help the affected workers. In the meantime, UK, eurozone, and Swiss central banks are anticipated to follow suit with rate cuts in the next few weeks to protect their economies from trade disruptions and financial turbulence.

In response to Trump's "Liberation Day" tariffs, including a 10% floor tariff on almost all imports, China raised its own tariffs to 125% on American goods, imposed new limits on American businesses, and let the yuan slide to assist exports. E-commerce platform JD.com committed to purchasing $27 billion in local goods to support Chinese manufacturers.

Tariffs, trade shifts, and currency plays ratchet up

More than 70 countries are now in a mad scramble to negotiate exemptions or sign new trade agreements with the US before a July deadline, promising to purchase more American goods or reduce their own tariffs in order to gain relief. Vietnam, for example, has offered to purchase more liquefied natural gas and farm products from the US in order to sidestep economic retaliation.

But several governments also are preparing for sustained disruption, with measures that would stimulate domestic demand and protect sensitive industries. India's central bank cautioned that tariff war uncertainty might drain both investment and consumption. Trade Minister Piyush Goyal asked firms to practice "economic nationalism," advocating preference for locally produced goods.

Recession fears intensify as world growth prospects darkening

Capital Economics economists predict world GDP growth might dip to 2.2% in 2025—below the 2.5% level broadly regarded as a recession trigger—if tariff tensions persist or escalate. Canada's Prime Minister Mark Carney, whose government is heading for an election this month, declared the US recession risk is increasing and unveiled fresh social and fiscal support schemes to ease the blow for Canadian workers and businesses.

With Trump's 10% tariff now implemented and more increases in the offing if talks break down, nations are not only struggling to maintain their international competitiveness but also to avert a

further economic plunge. The European Central Bank is set to spearhead the next phase of monetary relaxation, with Switzerland poised to drop interest rates to zero by June to offset trade-led financial pressure.

A new era of economic nationalism

From Asia to Europe to North America, governments are shifting beyond monetary policy to adopt wider industrial and trade protection policies—indicating a more fragmented global economy influenced by increasing nationalism, strategic decoupling, and increasing uncertainty about the future of open trade.