China vowed to retaliate against Donald Trump’s biggest tariffs yet, putting the world’s largest economies on a collision course that risks decimating bilateral trade and upending supply chains.
The Ministry of Commerce urged the US to “immediately cancel” tariffs and resolve trade differences through dialogue, hours after Trump hiked levies on China by 34%, as he unveiled the steepest American duties in a century on scores of countries.
“China firmly opposes this and will resolutely take countermeasures to safeguard its own rights and interests,” the ministry said in a statement Thursday, branding the tariffs a danger to both global supply chains and economic growth.
Trump’s move brings average US tariffs on China to at least 65%, when counting pre-existing duties, according to banks including Morgan Stanley. While a handful of nations including Vietnam and Cambodia were slapped with larger “reciprocal tariffs,” Beijing has emerged as the top target of Trump’s trade war, having already been hit twice before by blanket levies.
“Put simply: if Trump’s prior 20% tariff hikes took a hammer to US-China trade, today’s actions are a bazooka,” said Jennifer Welch, chief geoeconomics analyst for Bloomberg Economics.
The yuan weakened in both onshore and offshore markets after Trump’s move, despite support from the central bank and big lenders. China’s benchmark CSI 300 Index of onshore stocks closed 0.6% down. Government bonds rallied as the tariffs fanned speculation that the PBOC may step up monetary easing.
Tariffs at the proposed level would shrink Chinese exports to the US by some 80%, according to Bloomberg Economics. China is now facing a 1 to 2 percentage point loss to growth as a result of the hikes, according to economists at BNP Paribas SA, Societe Generale SA, Oversea-Chinese Banking Corp and ING Bank. Many said Beijing would ramp up stimulus to offset the impact.
President Xi Jinping has just under a week before tariffs take effect to calibrate Beijing’s response, with prospects for negotiating a deal in that window looking slim. Talks so far have stalled at lower levels, with the world’s most powerful men not speaking since the Republican leader returned to the White House. That’s the longest a US president has gone without talking to his Chinese counterpart post-inauguration in 20 years.
Even when talks do start, it’ll be harder for Beijing than other countries to strike a deal, according to Morgan Stanley economists including Robin Xing.
“The higher US tariffs on China are rooted in strategic objectives to protect sensitive industries and incentivize domestic investment and production in the US,” they wrote in a Thursday note, adding that for China: “This implies the bar to clear for negotiations and tariff de-escalation is much higher.”
What Bloomberg Economics Says ...
US President Donald Trump’s “Liberation Day” tariff on China looks close to — or worse — than our worst-case scenario and stands to crush exports and dent growth at a time the recovery is already looking fragile ... Our base case is that Beijing will refrain from a proportionate response this time around as well — though its patience could be stretched.
Chang Shu, Chief Asia Economist
Read more here
Beijing has responded to Trump’s previous tariffs with targeted measures designed to avoid hurting its own economy, which is battling a property crash and facing its longest spell of deflation since the Mao Zedong era. Retaliation has included restricting exports of critical minerals, putting tariffs on US agricultural goods — often produced in Trump-voter heartlands — and investigating US firms, including Google, which has little business in China.
China has also taken steps to restrict local companies from investing in the US, Bloomberg previously reported, in a move that could give Beijing more leverage for potential trade negotiations with the Trump administration.
The economic conflict between the two governments has already spilled over to private companies in both countries. Chinese officials have pushed back against Walmart Inc.’s efforts to pressure Chinese suppliers to cut prices to offset Trump’s tariffs. Hong Kong tycoon Li Ka-shing attracted Beijing’s ire by agreeing to sell his company’s ports in Panama to appease Trump.
“Today’s action could harden views in Beijing and lead to serious escalation far beyond tariffs, using the tools Beijing has sharpened over the past four years,” Martin Chorzempa, senior fellow at the Peterson Institute for International Economics in Washington.
The new so-called reciprocal tariffs will add to a slew of US moves designed to curb the US’ trade deficit with China.
Trump also announced the de minimis tariff exemption, which allows packages worth $800 or less from China and Hong Kong to enter the US duty-free, will end on May 2. That’s likely to hurt online marketplaces hosted by internet giants Shein and PDD Holdings Inc.’s Temu, which ship goods directly to US shoppers from Chinese factories.
Nomura estimates such exports account for 11% of China’s total shipments to America. While the US says that it purchased $439 billion in goods from China last year, Beijing reported exporting almost $525 billion worth to the US, with de minimis trade likely accounting for much of that gap.
Ending the loophole will cause problems for both sides, according to Lu Ting, chief China economist at Nomura Holdings Inc.
“Prices in the US will go up and the volume of US imports may decline,” he said. “Prices of Chinese exports will come down, adding to deflation pressure in the country.”
Trump’s moves trended on China’s X-like Weibo on Thursday, with some users characterizing the US president as crazy, while the Commerce Ministry’s vow to fight back drew support.
Citing a famous saying from Mao Zedong, one user wrote: “It’s time to abandon hopes and prepare for battle.”
--With assistance from Colum Murphy, Yujing Liu, Iris Ouyang, Fran Wang and Josh Xiao.
