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Xi leaves door open for talks with measured response to Trump
Bloomberg News
5 min read
(Bloomberg) — For the second time in a month, China retaliated against US tariffs with targeted actions that appeared calibrated to avoid escalation as Donald Trump kicks off a global trade war.
China on Tuesday announced tariffs as high as 15% on US agricultural goods and banned trade with some defense companies, after the Trump administration doubled a blanket tariff on all Chinese exports. Beijing’s measures hit goods the Asian nation can source from other countries, shielding the domestic economy from blowback.
The Chinese response throws the ball back into the US court, with Trump’s review of Beijing’s compliance with the first trade agreement due in April adding to the urgency for negotiation. While Trump signaled a desire to speak with President Xi Jinping early last month, they have yet to have a call since the US leader took office.
“So far, China has given a measured, proportional response as they do not want to further escalate the situation,” said Henry Gao, a law professor at Singapore Management University who researches Chinese trade policies. “Once the April measures are out, that’s when China will likely negotiate with the US.”
The Chinese tariffs, effective March 10, hit as the US also imposed tariffs on Mexico and Canada. Trump is threatening further actions against the European Union and others, adding to the uncertainty and rising costs for companies and consumers all over the world.
What Bloomberg Economics Says...
“Targeted tariffs aimed at US farmers could be intended to swing US public opinion against a trade war that President Donald Trump is pursuing by making it felt in the pocket book... China’s relatively low-grade response to the US fresh tariff points to a continued attempt to bring the US to the negotiating table. ”
— Chang Shu and David Qu
Read the full note here.
Financial markets largely took the moment in stride — with Chinese stocks even climbing intraday. In the run-up to the deadline, though, US equities tumbled the most this year, while Treasury note yields fell to the lowest in four months and oil dropped to a three-month low. The Chinese yuan traded steady.
The latest trade salvos came a day before Xi heads into the government’s biggest political meeting of this year, where his lieutenants will unveil their economic blueprint for 2025. Policymakers are expected to boost domestic consumption to offset expected losses to its exports, which contributed nearly a third of the economy’s growth last year.
“I think the two most important reaction measures are still yet to come: the PBOC’s currency response and the fiscal package to be announced at the National People’s Congress,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong. “We’re approaching a moment of truth, when policymakers will reveal how aggressively they’re willing to use fiscal and monetary stimulus in order to offset the blow from rising US tariffs.”
Agriculture in Crosshairs
China hit back at Trump’s new levies with a mix of tariffs and other measures, drawing on a toolkit expanded after the first trade war.
Beijing will charge 15% duties on American food and agricultural products including chicken and cotton, while soybeans, beef and fruits are among products facing a 10% tariff, according to an announcement by the Ministry of Finance.
The Chinese Ministry of Commerce said it would add 10 American companies, which are mostly involved in defense work, to the “unreliable entity list.” It also put 15 firms, including defense contractors General Dynamics Land Systems and Skydio Inc., on an export control list.
While most of the companies likely don’t sell much to Chinese markets, the curbs will make it harder for them to buy parts or products made in China that are crucial for goods such as drones. Some of those firms had already been hit with Chinese sanctions.
China also banned the import of Illumina Inc. (ILMN) gene-sequencing machines. China first added the company to the unreliable entity list in February together with Calvin Klein owner PVH Corp. (PVH).
The Chinese tariffs affect some of the most important US agriculture exports to China, and come as American farmers are weeks away from planting crops for the coming season.
Among affected US products, soybeans stand out as a major export to China, with nearly half of US shipments going to China last year. Soybean futures fell about 0.6% in Chicago.
China responded to the earlier 10% tariff with import taxes on some US goods and action against American firms.
So far China’s countermeasures have been much more limited than during the first trade war in 2018 and 2019.
At the time, Beijing imposed hefty tariffs on key US farm products, causing sales of American soybeans to China to plunge almost 80% over two years, with Brazil taking much of that trade. The Chinese central bank also allowed the yuan to depreciate by 11.5% over that period, helping to offset some of the impact of US tariffs then while fueling complaints of currency manipulation.
The actions by both nations might not be the last hits to global trade, with the US saying it will impose tariffs on all metal imports next week and take further steps in April to curb the US trade deficit.
“The measures are still relatively measured for now,” said Lynn Song, chief economist for Greater China at ING Bank. “I think this retaliation shows China remains patient and has refrained from ‘flipping the table’ so to speak despite the recent escalation.”
—With assistance from Iris Ouyang, Paul Dobson, Hallie Gu, Fran Wang, Yujing Liu, Jinshan Hong, Jing Li, Colum Murphy, Josh Xiao, Shadab Nazmi and Yasufumi Saito.
