BEIJING — Analysts from Greater China predict that China’s response to new tariffs imposed by the United States will prioritize domestic economic stimulation and fostering trade relationships with other countries.
Following U.S. President Donald Trump’s announcement of an additional 34% tariff on Chinese imports, the Chinese Ministry of Commerce promptly urged the U.S. to reconsider and indicated it would implement undetermined countermeasures. The new tariffs also targeted the European Union and significant Asian nations.
This year, U.S. tariffs on Chinese exports had already escalated by 20%, raising the cumulative tax on these shipments to a staggering 54%, one of the highest rates set by the Trump administration. Individual product lines, however, may experience varying effective rates.
As is customary, the concluding remarks of the Chinese official statement emphasized the importance of negotiation.
“I anticipate that China’s immediate focus will not be on imposing retaliatory tariffs or similar actions,” stated Bruce Pang, adjunct associate professor at CUHK Business School, according to a translation by Finance Newso.
Rather, Pang predicts that China will channel its efforts into strengthening its economy by diversifying its export destinations and product lines, alongside a renewed emphasis on enhancing domestic consumption.
Since September, China, the world’s second-largest economy, has intensified its stimulus initiatives by enlarging the fiscal deficit, augmenting a consumption trade-in subsidy program, and urging a cessation of the real estate downturn. A notable action was a rare meeting in February between Chinese President Xi Jinping and tech leaders, including Alibaba founder Jack Ma, signaling support for the private sector.
This shift from prior regulatory restrictions reflects Beijing’s anticipation of an impending downturn or potential collapse in exports, according to Larry Hu, Chief China Economist at Macquarie, as detailed in a report prior to Trump’s latest tariff imposition. He noted that the surge in exports during the pandemic in 2021 allowed Beijing to initiate an aggressive regulatory campaign.
Hu reiterated his position in an email on Thursday, stating, “Beijing will leverage domestic stimulus to mitigate the effects of tariffs, aiming to maintain a growth target of around 5%.”
Instead of imposing retaliatory tariffs, Hu believes that Beijing will resort to maintaining blacklists, implementing export controls on essential minerals, and investigating foreign companies operating in China. He also foresees that China will maintain a strong yuan against the U.S. dollar and resist retailers’ demands to lower prices, thereby shifting inflationary pressures onto the U.S. economy.
In early March, China’s leadership announced a GDP growth target of approximately 5% for the year, emphasizing the considerable effort necessary to achieve this goal. The finance ministry has also hinted at potential increases in fiscal support if required.
Exports account for roughly 20% of China’s economy, according to estimates from Goldman Sachs, which previously calculated that new tariffs of around 60% could reduce real GDP by approximately 2 percentage points. Nonetheless, the firm maintains a full-year GDP growth forecast of 4.5%.
Changing Global Trade
The current landscape diverges significantly from previous tariffs established during Trump’s first term, as China is now just one of several nations facing severe restrictions on their exports to the U.S. Other countries, including Vietnam and Thailand, had previously served as alternative routes for Chinese goods into the U.S. market.
Business owners at the Yiwu export hub displayed a nonchalant attitude regarding the recent U.S. tariffs, interpreting that their foreign competitors would not gain a significant edge, according to Cameron Johnson, a senior partner at the consulting firm Tidalwave Solutions based in Shanghai.
Johnson noted that past U.S. trade actions aimed to compel companies to eliminate China from their supply chains and relocate to alternative countries. However, he observed that Chinese manufacturers have concurrently expanded their operations abroad.
“The reality is this [new U.S. tariff policy] essentially grants much of Asia and Africa to China, leaving the U.S. unprepared,” stated Johnson, adding that he anticipates China will avoid imposing unnecessary hurdles for U.S. businesses and instead strive to cultivate additional trade partnerships.
Since the conclusion of Trump’s first term in early 2021, China’s trade with Southeast Asia has grown substantially, making the region Beijing’s top trading partner, followed by the European Union and then the United States.
The 10 member nations of the Association of Southeast Asian Nations (ASEAN) have collaborated with China, Japan, South Korea, Australia, and New Zealand to establish the world’s largest free trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which took effect in early 2022, excluding the U.S. and India.
“Member countries of RCEP will naturally enhance their trade connections,” remarked Yue Su, principal economist for China at the Economist Intelligence Unit, in a Thursday report.
“This is also partly due to the belief that China’s economy is likely to remain one of the most stable, considering the government’s firm commitment to growth targets and readiness to implement fiscal measures when necessary,” she added.
Uncertainties Persist
The forthcoming imposition of tariffs across various nations remains uncertain, as Trump is anticipated to utilize these duties as leverage in negotiations, particularly with China.
In recent comments, he suggested the U.S. might reduce tariffs on China to facilitate an agreement regarding the sale of TikTok’s U.S. operations by Beijing-based ByteDance.
However, the magnitude of new tariffs on China exceeded many investors’ expectations.
“Contrary to some optimistic market projections, we do not foresee a comprehensive US-China agreement,” stated Ting Lu, chief China economist at Nomura, in a note on Thursday.
“We expect to witness a significant deterioration in tensions between these two major economies,” he added, emphasizing that China is making notable advancements in high-tech sectors such as artificial intelligence and robotics.
