China retaliated to Donald Trump’s opening trade war tariffs by targeting a handful of American companies and slapping levies on some US goods, in a move seemingly designed to avoid escalating tensions between the world’s biggest economies.
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Beijing imposed a 15% levy on less than $5 billion of US energy imports and a moderate 10% fee on American oil and agricultural equipment on Tuesday, moments after new US tariffs entered effect. China said it will also investigate Google for alleged antitrust violations, although Alphabet Inc.’s search services have been unavailable in the country since 2010.
In more targeted measures, authorities put Calvin Klein owner PVH Corp. and US gene sequencing company Illumina Inc. on a so-called blacklist of entities that could affect their sizable operations in China, and imposed new export control on tungsten and other critical metals used in electronic, aviation and defense industries.
President Xi Jinping’s response appeared carefully calibrated to avoid major blowback on China’s economy while showing Trump an ability to inflict damage on a range of fronts, including by disrupting the key minerals supply chain and hurting US companies with major operations on the mainland.
That restraint, coupled with speculation that Xi may do more to bolster China’s economy, led to a relatively muted reaction in markets — particularly as Trump signaled a desire to speak with the Chinese leader before the tariffs took effect. The Chinese tariffs are set to kick in on Feb. 10, potentially leaving room for negotiation.
“It looks like a fairly muted retaliation from first glance,” said Lynn Song, chief economist for Greater China at ING Bank in Hong Kong, noting that energy accounts for a small share of China’s imports from the US. The measures on US companies, however, can be seen as “a warning shot” to US businesses that depend China’s market, he added.
The Hang Seng China Enterprises Index of Chinese stocks listed in Hong Kong rebounded to gain 3% after initially diving at the news of the US tariffs and Chinese countermeasures.
The offshore yuan is little changed after paring earlier losses, while the broad dollar largely erased previous gains. Currencies with strong trade links to China such as the Australia and New Zealand dollar have also pared back on losses.
Xi’s government swung back almost immediately after US levies came into force, dashing hopes that Beijing would reach a deal to avoid the tariffs. The Republican hours earlier granted Canada and Mexico a last-minute reprieve from a 25% tariff following leader talks.
What Bloomberg Economics Says...
“China’s restrained response and a generally friendly tone in state media and social media ahead of the US deadline suggest an effort to create backdrop that’s conducive for talks.
In this light, we see a possibility that tariffs on China do not end up as high as the 60% level Trump threatened on the campaign trail. Even so, we see a high risk that they will go beyond the 10-ppt hike that kicked in Tuesday.”
— Chang Shu, Eric Zhu and David Qu
Click here to read the full note.
China’s response was “measured and appropriate,” according to Dylan Loh, assistant professor of politics at Nanyang Technological University in Singapore.
“It allows Beijing to be seen as doing something, without exactly reacting in a manner that would be seen as inviting further retaliation,” he added. “I think Beijing also sees what Canada and Mexico did, and know that they can still come to some sort of understanding.”
China’s two new tariff lists affect goods from the US that totaled $13.9 billion in 2024. Among those items, $9.5 billion of products including crude oil, tractors and functional vehicles will be subject to 10% additional levies, while $4.4 billion of goods — coal and liquefied natural gas — will face an extra 15% tax.
The measures look targeted to send Trump a warning without hurting its own access to important commodities. The export restrictions, however, may prove to be more consequential.
China is the largest producing country of tungsten, accounting for about 80% of the global production. Tungsten, known for its remarkable density and high melting point, acts as a buffer against intense temperatures and is most commonly used in armor-piercing missiles in the defense industry.
PVH is also the parent of Tommy Hilfiger and has been under Chinese regulatory scrutiny since September for allegedly boycotting cotton from the Xinjiang region, although the statement didn’t mention the issue. Illumina is the leading global provider of genetic sequencing, and a rival to Chinese biotech giant BGI Genomics Co.
Trump over the weekend ordered a blanket levy on Chinese exports to take effect after midnight on Tuesday in the US, for what he calls Beijing’s failure to prevent the flow of illegal drugs. The orders included retaliation clauses that would increase tariffs if the countries responds in kind.
A more aggressive response from Beijing would risk a spiraling of US-China relations that had been on a more stable footing since President Xi Jinping and then US leader Joe Biden sat down in San Francisco in November 2023.
Both countries have resumed high-level exchanges despite persisting tensions over tech access and territorial disputes. Xi and Trump spoke by phone before his inauguration to discuss trade, TikTok and fentanyl.
Trump said Monday the two leaders would speak again, “probably over the next 24 hours,” an assertion to which Beijing hasn’t publicly responded.
“The fact that Trump mentioned a direct line of communication with President Xi shows that tariff is meant to be a negotiation tactic rather than a fundamental structural change to US-China trading relations,” said Wen-Ti Sung, a nonresident fellow at the Atlantic Council’s Global China Hub. “China gets the message. Which is why the latest round of retaliatory sanctions from China seems to be still very targeted and selective in scope.”
--With assistance from Vlad Savov, Alfred Cang, Stephen Stapczynski, Karl Lester M. Yap, Jinshan Hong, Marcus Wong, Winnie Hsu and Betty Hou.
