The News
China was hit particularly hard by US President Donald Trump’s “Liberation Day” trade salvo, unveiled Wednesday, with Beijing now facing 34% tariffs on top of existing 20% duties.
The country vowed retaliation, saying the sweeping tariffs “endanger global economic development,” but did not specify how Beijing could hit back.
The duties deal a further blow to China as it attempts an economic comeback in the face of a domestic housing market crisis, unemployment woes, and deflation.
SIGNALS
Already-fragile sectors now face further risk
The tariffs strike at the heart of China’s export economy: The US accounted for nearly 15% of the country’s total exports last year, and the forecasts aren’t optimistic, The Straits Times wrote. Macquarie economists estimate the tariffs could shave 15% off China’s exports and reduce its GDP growth by 2 to 2.5%; an ING analyst noted the levies could add to deflationary pressure; and Eurasia Group’s Dan Wang said the tariffs will deal a blow to employment, as they affect a labor-intensive segment of the economy. Chinese firms will also no longer be able to reroute production through other countries, since new tariffs apply to every US trade partner. “The China+1 workaround is effectively closed,” Wang said.
Immediate focus shifts to negotiation and retaliation
Attention now shifts to how Beijing could respond to the duties, both in terms of retaliation and negotiation. The “reaction is unlikely to be weak, and I doubt Xi [Jinping] and his team will just roll over and do nothing while trying to negotiate,” China observer Bill Bishop wrote in his newsletter. Beijing now has a “maturing economic coercion response toolbox” that includes export controls and probes into US firms. The punishing nature of the US duties also dent the possibility of a “grand bargain” agreement that would thaw tensions between the superpowers, the Financial Times reported. That could lead to a “hard decoupling,” possibly derailing talks over a sale of TikTok’s US operations ahead of Saturday’s deadline, analysts said.
The ‘golden opportunity’ for China
Despite the tariff shock, there are some silver linings for China, Bloomberg wrote. With nearly every country in the world affected by US tariffs, those nations could look to China as an alternate trading partner. The salvo incentivizes “all other countries to trade with each other instead of America,” a Shanghai-based professor said. “China now has a golden opportunity to beat America at its own game.” Leader Xi Jinping will reportedly travel to several Southeast Asian countries in the coming weeks, which have been particularly hard hit by Trump’s tariffs. But that pitch could be met with skepticism in places like Europe, where officials “are often quick to note that whatever their disagreements with Trump, they still have serious complaints about China’s economic policies,” one analyst said.