Has Trump ‘liberated’ China and Europe?
13 MAY, 2025
By Alexis Bienvenu
Among the countries hit by the new U.S. tariffs, China is the most affected: since 10 April, the tariff rate had stood at 145%, effectively amounting to a blockade. However, a recent agreement has been announced under which tariffs on Chinese goods will be reduced for a 90-day period. Yet, since Donald Trump’s inauguration on 20 January, Chinese equities have been among the best performers: as of 8 May, the MSCI China index (in US dollars) was up 16%, while the U.S. stock market was down 5% over the same period.
This apparent inconsistency applies to other countries too. The MSCI Europe index (also in US dollars) rose 13% over the same period, despite Europe – which exports large volumes of manufactured goods to the U.S. – facing 10% tariff barriers since 9 April.
So, do punitive measures against exporting countries have a beneficial effect? Several factors explain this surprising phenomenon.
Firstly, there is the economic response of the affected regions. In both China and Europe, the U.S. offensive has, at least indirectly, triggered stimulus plans. The contexts differ, of course. Mired in a property and consumption crisis for several years, China had already begun rolling out stimulus measures over previous quarters, and the country reinforced them, loosening financial conditions even further. On 8 May, Beijing once again cut its benchmark interest rates and reduced banks’ reserve requirement ratios.
Europe, on the other hand, has not launched an exceptional fiscal stimulus package, but the continent has quickly adopted a new doctrine on public debt: it can now be incurred as long as it contributes to strengthening military capabilities. While this new stance is grounded in geostrategic reasoning, these fiscal measures also conveniently compensate for the anticipated export slowdown. Germany, which now seeks to move beyond the previously unbreakable dogma of strict limits on public debt, provides the clearest example of this shift. As for the European Central Bank, its policy – like that of its Chinese counterpart – may become more expansionary, particularly as the risk of a growth slowdown, and therefore potentially medium-term inflation, becomes more acute.
The second reason lies in the relative distrust towards U.S. assets. This sentiment, fuelled by the apparent chaos of the White House’s trade policy and the tensions between the executive and the Federal Reserve, signals the potential for further instability.
The strength of non-U.S. markets can also be explained by the contrast in monetary policies. In the coming months, the Federal Reserve may face challenges in cutting interest rates if inflation rebounds due to the new import tariffs. In a way, ‘Liberation Day’, rather than freeing the U.S. economy from its constraints, has tied the Fed’s hands.
Finally, from a geopolitical perspective, China’s defiant stance – boldly responding to the U.S. tariff offensive – marks its emancipation from the status of being commercially dominated by U.S. demand. There is nothing in China’s behaviour to suggest it will back down in the face of the costs of a trade war. Symbolically, a milestone has been reached.
This liberation is less obvious in Europe, but even the region has gone as far as to threaten Washington with trade reprisals – something unthinkable before Trump’s second term.
Therefore, the non-U.S. world may have reason to thank President Trump for forcing it to shake off the yoke of dependency on U.S. demand – something the markets are now celebrating.
