What was supposed to be a historic, era-defining trade war launched by US President Donald Trump against a range of countries has, for now, narrowed in on a singular target: China.

On Wednesday, Trump announced a three-month pause on all the “reciprocal” tariffs that had gone into effect hours earlier – with one exception, deepening a confrontation set to dismantle trade between the world’s two largest economies.

The pace of that escalation has been stunning. Over the course of a week, Trump’s tariffs on Chinese imports have jumped from 54% to 104% and now 125% – figures that add to existing levies imposed prior to the president’s second term. And China has retaliated in kind, raising additional, retaliatory duties on all US imports to 84%.

The showdown sets up an historic rupture that will not only cause pain for both of these deeply intertwined economies – but add tremendous friction to their geopolitical rivalry.

“This is probably the strongest indication we’ve seen pushing towards a hard decoupling,” said Nick Marro, principal economist for Asia at the Economist Intelligence Unit, referring to an outcome where the two economies have virtually no trade or mutual investment.

“It’s really hard to overstate the expected shocks this is going to have, not just to the Chinese economy itself, but also to the entire global trading landscape,” as well as on the US, he said.

Trump appeared to link his decision not to grant China the same reprieve as other nations to Beijing’s swift retaliation, telling reporters Wednesday that “China wants to make a deal, they just don’t know how quite to go about it.”

But the view from Beijing looks dramatically different.

Chinese leader Xi Jinping, China’s most powerful leader in decades, sees no option for his country to simply capitulate to what it calls America’s “unilateral bullying.” And he’s playing to his crowd. Publicly, Beijing has drummed up fervent nationalism around its retaliation – part of a strategy it’s been quietly preparing for more than four years since Trump was last in office.

While China has long said it wants to talk, Trump’s rapid escalation instead appears to have confirmed for Beijing that the US doesn’t. And in Xi’s calculation, observers say, China is prepared not just to fight back, but to use Trump’s trade turmoil to strengthen its own position.

“Xi has been very clear for a very long time that he expects China will enter a period of protracted struggle with the United States and its allies, that China needed to prepare for that, and they have quite extensively,” said Jacob Gunter, lead economy analyst at Berlin-based think tank MERICS.

“Xi Jinping has accepted that the gauntlet is thrown down, and they are ready to put up a fight.”

‘War of attrition’

Whether Trump would have suspended his so-called retaliatory tariffs on China alongside other nations had Beijing not moved so swiftly to retaliate remains an open question. Canada had retaliated but was included in the reprieve, which does not remove a 10% universal tariff imposed last week.

Regardless, Trump, who the White House described earlier this week as having a “spine of steel,” and Xi now appear locked in a war of attrition with the potential to upset a lopsided but highly integrated trade relationship worth roughly half a trillion dollars.

For decades, China has been the world’s factory floor, where increasingly automated and high-tech production chains churn out everything from household goods and shoes to electronics, raw materials for construction, appliances and solar panels.

Those factories satisfied the demand of American and global consumers for affordable goods but fueled an enormous trade deficit – and a feeling among some Americans, including Trump, that globalization has stolen US manufacturing and jobs.

Trump’s ratcheting up of tariffs to well over 125% could now cut China’s exports to the US by more than half in the coming years, by some estimates.

Many goods from China won’t be able to be quickly replaced – driving up US consumer prices, potentially for years, before new factories come online. That could ring up a tax hike for Americans of roughly $860 billion before substitutions, JP Morgan analysts said Wednesday.

In China, a wide swath of suppliers are likely to see their already narrow margins completely erased, with a new wave of efforts to establish factories in other countries set to begin.

The scale of the tariffs could lead to “millions of people becoming unemployed” and a “wave of bankruptcy” across China, according to Victor Shih, director of the University of California San Diego’s 21st Century China Center. Meanwhile, US exports to China could “go close to zero,” he added.

“But China can sustain that (situation) much more so than American politicians can,” he said.

That’s, in part, because China’s ruling Communist Party leaders do not face swift feedback from voters and opinions polls.

“During Covid they shut down the economy (causing) untold employment, suffering – no problem.”

Beijing too believes it can weather the storm.

“In response to US tariffs, we are prepared and have strategies. We have engaged in a trade war with the US for eight years, accumulating rich experience in these struggles,” a commentary on the front page of Communist Party mouthpiece People’s Daily said Monday.

It noted Beijing could take “extraordinary efforts” to boost domestic consumption, which has been persistently weak, and introduce other policy measures to support its economy. “The plans to respond are well-prepared and ample,” the commentary said.

And in the face of unknowns about how much further measures could escalate, voices from Beijing appear calm.

“The ultimate outcome hinges on who can withstand a longer ‘economic war of attrition,’” economist Cai Tongjuan of China’s Renmin University wrote in a state media op-ed earlier this week. “And China clearly holds a greater advantage in terms of strategic endurance.”

‘Preparing for this day’

Beijing in recent weeks has also been talking to countries from Europe to Southeast Asia in a bid to expand trade cooperation – and one up the US by winning over American allies and partners exasperated by the on-again-off-again trade war.

But it’s been bracing for US trade frictions since Trump’s first trade war and his campaign against Chinese tech champion Huawei, which were a wake-up call to Beijing that its economic rise could be derailed if it wasn’t prepared.

“The Chinese government have been preparing for this day for six years – they knew this was a possibility,” said Shih in California, who added that Beijing had supported countries to diversify supply chains and looked to manage some of its domestic economic challenges in preparation, among other efforts.

Today, China is much better placed to weather a broader trade conflict, experts say. Compared with 2018, it’s expanded its trade relations with the rest of the world, reducing the share of US exports from roughly one-fifth of its total to less than 15%.

Its manufacturers have also set up extensive operations in third countries like Vietnam and Cambodia, in part to take advantage of potentially lower US duties.

China has also built out its supply chains for rare earths and other critical minerals, upgraded its manufacturing technology with AI and humanoid robots and ramped up its advanced technology capabilities, including semiconductors. Since last year, the government has also worked, with varying success, to address issues like weak consumption and high local government debt.

“(China’s) weaknesses are significant, but in the context of an all-out brawl, these are manageable. The US is not going to be able to, on its own, bring China’s economy to the edge of destruction,” said Scott Kennedy, a senior adviser at the Center for Strategic and International Studies think tank in the US.

“As much as Washington doesn’t want to admit it, when China says you can’t contain China economically, they have a point.”

El Salvador says it shares intelligence with the United States about gang members wanted by the Central American nation and provides “complete records” on them before formally requesting their deportation.

Villatoro’s comments come after the Trump administration deported more than 270 men to El Salvador, accusing them of being members of the Venezuelan Tren de Aragua gang or Salvadorans tied to the MS-13 gang.

US officials later admitted that one of those deported – Kilmar Armando Abrego Garcia, a Maryland-based sheet metal worker and father of three – was removed from the US in an “administrative error.” He is now in El Salvador’s notorious high security prison Cecot, despite a 2019 ruling by an immigration judge that was meant to protect him from deportation due to death threats from a gang targeting his family’s pupusa business.

The case has sparked a broad debate over due process in the deportations. While the Trump administration has alleged Garcia Abrego was a member of MS-13, his attorneys and family have rejected those claims and insist his detention is unjust.

The Salvadoran government has not commented on individual cases, including Abrego Garcia’s. But Villatoro said that Salvadorans deported from the US who are placed directly into the country’s prison system are those with pending criminal records in El Salvador.

“We checked all of them. And if we found someone who we are very sure that he is a member of any gang in El Salvador, we capture them and put them in jail,” he said.

He also addressed cases where individuals claim innocence, saying: “It’s very common that some people say, ‘Oh, he’s innocent.’ But the problem is: your background talks for you, right? You can say, ‘I’m not a member’ — OK, but what happened with your criminal record?”

‘Vague accusations’

Abrego Garcia’s legal team has flatly rejected that claim.

“The government of El Salvador has not provided any convictions or substantiated evidence to support its claims, and it is deeply concerning that these unverified allegations are being used to retroactively justify a deportation that violated court orders,” the statement continued.

The Supreme Court on Monday temporarily paused a court-imposed midnight deadline to return Abrego Garcia to the US, agreeing to a request from President Donald Trump that will give the justices more time to consider the case.

It’s unclear what is influencing the US decision to block his return.

Villatoro insisted that El Salvador actively shares its information with US law enforcement and that deportations are based on detailed records.

He said the country has kept extensive files on suspected gang members for years, including those believed to be living in the US and elsewhere.

“We know their background — how many times they were captured for homicide, for drugs, for weapons,” he said. “This is not about random deportations — this is based on the full record.”

Villatoro, who has served in President Nayib Bukele’s cabinet since the beginning of his term, is considered one of the architects of his country’s anti-gang strategy.

The Cecot jail where Abrego Garcia is being held houses both convicted criminals and those still going through El Salvador’s court system.

With constitutional rights suspended under El Salvador’s yearslong state of emergency, some innocent people have been detained by mistake, Salvadoran president Bukele previously admitted. Several thousand of them have already been released.

Last year, the prison director estimated the inmate population was between 10,000 and 20,000. He now says it’s approaching the prison’s 40,000-inmate maximum — but declined to provide a specific figure, citing security concerns.

Villatoro said the government is prepared to expand the facility, or even construct a second Cecot-like maximum-security prison, if needed.

“We have enough land to build even another (Cecot),” he said.

New Zealand politicians broke out in song Thursday after striking down a right-wing-backed proposal that opponents feared would erode indigenous rights.

Tens of thousands of people – predominantly from the Māori community – had already taken to the streets to oppose the bill, which sought to redefine the terms of a treaty that British colonialists signed with the indigenous group more than 180 years ago.

The proposal made global headlines when a video went viral of the nation’s youngest legislator tearing the bill in two and leading a haka – a ceremonial Māori dance – in parliament.

As the bill was voted down by 112 votes to 11 on Thursday, after an occasionally heated session, politicians from both sides of the house sang a Māori song, or Waiata, in celebration, marking the end of a bitter public debate.

“This bill hasn’t been stopped, this bill has been absolutely annihilated,” said Hana-Rāwihti Maipi-Clarke, the MP who led the parliamentary haka during the earlier debate.

The Treaty Principles Bill sought to define the principles of the Treaty of Waitangi – an agreement signed between the British Crown and a group of indigenous Māori leaders in the 1840s, which formalized New Zealand as a British colony and reserved Māori land and customary rights.

Its proponent, David Seymour, argued parliament needed to define the principles of the treaty because definitions currently only existed in a series of court rulings made over decades – rather than in an act of parliament.

His ACT Party – a minority party in the right-wing governing coalition – believes the current law has led to a society where Māori have been afforded different rights and privileges to non-Māori in New Zealand.

Opponents said the courts had already settled the principles of the treaty and that the draft list Seymour put forward would erode indigenous rights and harm social cohesion.

Speaking in parliament on Thursday, Labour MP Willie Jackson called the bill “right-wing obscenity, masquerading as equality.”

Labour’s leader Chris Hipkins, the former prime minister, said the debate would be a “stain on the country” and called the proposed law change a “grubby little bill, born of a grubby little deal.”

The bill was allowed to pass through to the select committee stage because the ACT Party had made it a condition of the coalition deal that helped put Prime Minister Christopher Luxon’s ruling National Party into power.

But the Nationals and the other party in the coalition, New Zealand First, never agreed to support the bill beyond the select committee stage. Luxon had tried to publicly distance himself and his party from it.

Despite the overwhelming opposition, Seymour has vowed to “never give up” on his efforts to change the law.

“The idea that your race matters is a version of a bigger problem, it’s part of that bigger idea that our lives are determined by things out of our control,” he said in parliament on Thursday.

‘Cremation day’

Prime Minister Luxon was not present in parliament as the bill was voted down, drawing the ire of those behind the public campaign against it.

“If you’re the leader of this country and you’ve got a Bill in Parliament that had 300,000 submissions made on it, which broke every single record by a country mile, you would think that the leader of our country would want to be in Parliament for an occasion that big,” Tania Waikato, a lawyer for the Toitū te Tiriti campaign, told RNZ.

Panama promotes itself “as the bridge of the world, heart of the universe” but lately the narrow Central American Isthmus and its namesake canal that joins the Atlantic to the Pacific have become the setting for a bitter clash between the world’s two preeminent economic superpowers.

The escalating war of words between the US and China over the canal has left Panama – which does not have a military – baffled and brings to mind the old proverb of how “when elephants fight, it is the grass that suffers.”

From the beginning of his second term, US President Donald Trump has claimed without proof that China secretly controls the canal where around 40% of US container traffic passes through. If China’s alleged influence over the canal wasn’t halted, Trump threatened to “take back” the iconic waterway that the US returned to Panama in 2000, employing military force if needed.

Panama’s President José Raúl Mulino rejects Trump’s claims but has also made significant efforts to placate the White House, such as dropping out of China’s Belt and Road investment initiative in February.

In March, US investment giant BlackRock announced a $22.8 billion deal to buy 43 ports, including two located on either side of the Panama Canal, from CK Hutchison, the Hong Kong logistics company that the Trump administration has accused of being under Beijing’s control – something Hutchison denies.

But those concessions seem to have only added fuel to the White House’s bellicose rhetoric, most recently this week from Secretary of Defense Pete Hegseth during a visit to Panama to attend the Central American Security Conference.

“I want to be very clear, China did not build this canal,” Hegseth said Tuesday. “China does not operate this canal and China will not weaponize this canal. “Together with Panama in the lead, we will keep the canal secure and available for all nations through the deterrent power of the strongest, most effective and most lethal fighting force in the world.”

Beijing angrily fired back at Hegseth’s verbal broadsides.

“Who represents the real threat to the canal? People will make their own judgment,” China’s government retorted.

Hegseth’s statements represented a shift – Panama was again a “partner” that, contrary to what Trump had said, “operates” the canal. Still, the defense secretary stopped short of saying publicly the canal belonged to Panama.

In fact, the Pentagon appeared to omit a key line to that effect from a joint statement, which in the Panamanian version reads, “Secretary Hegseth recognized the leadership and inalienable sovereignty of Panama over the Panama Canal and its adjacent areas.”

The discrepancy over the statement called into mind a similar puzzling episode in February where the State Department announced that Panama would waive tolls on US Navy ships going through the canal; Mulino the next day angrily denied his government had ever agreed to that.

But on Wednesday Panama’s Canal Affairs Minister José Ramón Icaza told reporters that the Panama Canal Authority agreed to find a “mechanism” that allows US Naval ships to pass through the canal at a “neutral cost” in exchange for security provided by those ships and the US recognizing Panamanian sovereignty over the canal.

Even though, according to Panama’s government, US Navy ships only spend on average a few million dollars each year crossing through the canal, the Trump administration had pushed hard for the concession from the Canal Authority which according to Panamanian law is supposed to charge all countries the same rates for crossings.

Mulino has proven to be a key ally on immigration to Washington. During the Biden administration, Mulino had already begun closing the Darien Gap, where hundreds of thousands had crossed on their way to the US and by accepting deportation flights from the US.

But there are clearly limits on which US demands he can accommodate, as his countrymen and much of the region grow exasperated by increasing saber rattling from Trump and demands for further concessions.

On Wednesday, at a news conference, Hegseth alluded to the possibility of reestablishing US military bases to guard the canal.

Minutes later, with Hegseth looking on, Panama’s Security Minister Frank Ábrego flatly denied that Mulino was considering the possibility of allowing US bases in the country.

It’s not clear if Trump will take “no” for an answer and as the US-China tug of war over the canal heats up, Panama is clearly feeling the strain.

Russian-American woman Ksenia Karelina, who was serving a 12-year prison sentence for treason in Russia, was released as part of a prisoner exchange that saw her swapped for an accused smuggler held in the US.

US Secretary of State Marco Rubio said on X early on Thursday that Karelina had been released and was on her way to the United States.

“American Ksenia Karelina is on a plane back home to the United States. She was wrongfully detained by Russia for over a year and President Trump secured her release,” Rubio said on X.

He added the president would “continue to work for the release of ALL Americans.”

Karelina was exchanged for Arthur Petrov, a dual Russian-German citizen who was being held in the US on charges of criminal offences related to export control violations, smuggling, wire fraud and money laundering, Russian state news agencies reported Thursday, quoting the FSB, the Russian security agency.

The United Arab Emirates’ Ministry of Foreign Affairs confirmed the exchange happened in Abu Dhabi on Thursday. The ministry said in a statement that the fact that Russia and the US chose Abu Dhabi as the location for the swap reflected “the close friendship between them and the UAE.”

The ministry said it was hoping “these efforts will contribute to supporting efforts to reduce tensions and promote dialogue and understanding, thus achieving security and stability at the regional and international levels.”

Petrov was charged for criminal offenses related to export control violations, smuggling, wire fraud and money laundering, according to the US Justice Department.

He was arrested in August 2023 in Cyprus at the request of the US and was extradited to the US in August 2024. He was 33 at the time.

According to the Justice Department, Petrov was allegedly smuggling US-made microelectronics to Russia where they were used to manufacture weapons and other equipment for the Russian military.

The US put export controls on many parts that could be used to make weapons after Russia launched its full-scale invasion of Ukraine in 2022, an effort to cut Russia off from Western technology.

The exchange happened as Russian and US officials were meeting in Istanbul, Turkey, to discuss embassy operations.

12 years for $50 charity donation

Karelina, then 33, was sentenced in August. She was convicted of treason after she made a donation of just over $50 to a US-based charity supporting Ukraine.

Her trial was held in the same court in Yekaterinburg where Wall Street Journal reporter Evan Gershkovich was convicted of espionage and sentenced to 16 years in prison last July.

Gershkovich was released in a historic prisoner swap that included former US Marine Paul Whelan, the prominent Putin critic and a permanent US resident Vladimir Kara-Murza, and the Russian-American journalist Alsu Kurmasheva.

They were exchanged for a number of Russia citizens held in several countries, including convicted assassin Vadim Krasikov.

Karelina is a Los Angeles resident and amateur ballerina who became a US citizen in 2021. She entered Russia in January 2024 but the US did not learn of her arrest until February 8, 2024.

According to a website run by her supporters, Karelina traveled to Russia to visit her 90-year-old grandmother, sister, and parents, intending to return to her home in Los Angeles after two weeks.

Karelina’s release marks the second release of an American citizen from Russia since Trump returned to the White House. Marc Fogel, an American teacher detained in Russia for more than three years, was released in February. He was swapped for the accused Russian money launderer Alexander Vinnik.

The US is tracking over half a dozen Americans detained in Russia, the US official said. Among them is Stephen Hubbard who has been officially declared by the US as wrongfully detained. Hubbard, 72, was sentenced to six years and 10 months in Russian prison last year for allegedly fighting as a mercenary for Ukraine.