The flags of China and the US can be seen printed on the paper in this illustration, taken on January 27, 2022.
Dado Ruvic | Reuters
BEIJING — After Beijing responded more forcefully than he had hoped for President Donald Trump’s latest tariffs, analysts say the risks of a fierce US-China trade war are rising rapidly.
In a change in tone, China dropped its trade negotiations in a weekend statement that denounced US taxation and raised the prospects for long-term tariff escalation.
“China has taken decisive steps to protect its sovereignty, security and development interests and will continue to take,” China’s Foreign Ministry said in a statement on Saturday.
Beijing on Friday retaliated with a 34% tax on all US goods. This coincided with the latest mandate of the Trump administration. These came on top of the 10-15% tariffs China collected in March and February.
“To raise all US import duties by the same amount as Trump’s latest tariffs indicates China’s determination to go where the US wants,” said Andy Shee, an independent economist based in Shanghai.
As part of a wide range of retaliation measures, Beijing placed export curbs on major rare earth elements, banning the export of double-used items to dozens of US companies, primarily in the defense and aerospace industry, and also placed 11 US companies on “unreliable entity lists,” and was subjected to widespread restrictions during its operations in China.
“Beijing’s offensive stance indicates that future retaliation will become more powerful, trigger an escalation spiral, and increase the likelihood of uncontrolled decoupling in 2025,” a team of analysts at the Eurasia Group said in a memo.
Analysts at the Eurasia Group said China’s response is likely to encourage more tariffs from the US to discourage similar moves from other trading partners, saying “Trump officials see this as a unique time to double China to accelerate the decup of commercial relations.”
According to Morgan Stanley chief economist Robin Singh, Beijing’s quick response comes after Trump’s announcement of an additional 34% tariff in China, raising the weighted average tariff rate for the US in China to 65%.
This could ease the world’s second largest economy by 1.5-2 points this year, with Xing estimated to be slowing export growth and entrenching domestic deflation.
Negotiations halted
Beijing’s shift to a more “aggressive and escalating” stance will involve short-term transactions to end the trade war between the two superpowers as “very unlikely,” said an economist in capital economics.
Until last Friday, Beijing’s behavior was considered relatively restrained and measured. Trump also made warm comments praising China’s President Xi Jinping, expressing his interest in arranging a bilateral meeting.
The “waiver of detention” in Beijing’s latest retaliation measure is likely to reflect the Chinese leader’s “decreased hopes for a trade contract with the United States,” Teno’s managing director Gabriel Wildeau said in a memo.
Trump ridden China’s latest response as an act of panic. In a post on social media platform Truthsocial, he said, “China got it wrong, they panic – one thing they can’t afford to do!” The president has said he will consider lowering Chinese tariffs if Beijing approves the sale of the short video app Tiktok to US investors.
But Beijing may not be on sale. “While the dignity of the nation is a key consideration for Beijing regarding Tiktok, exchanging Tiktok for relief from newly imposed customs will carry an undeniable whim to Chinese leaders succumbing to bullying,” Wildo said.
However, analysts at the Eurasian Group suggest that Beijing still wants to do business and is ready to negotiate. “Strong, asymmetric, harsh tariff retaliation is a prerequisite for Beijing to come to the negotiation table,” they added.
Without ruled out negotiations with the US, the state-backed publication People’s Daily said in an opinion article that Beijing is “fully prepared to deal with potential shocks” with a sufficient policy room to protect the IT economy.
Every day of people frequently used to communicate official policy views outlined Beijing’s plan to counter economic fallout by “strengthening domestic consumption with extraordinary strength, lowering “important policies whenever necessary) and promoting further fiscal easing.”
The decline in trading outlook between Beijing and Washington exacerbated the defeat of global markets, setting the Hangsen Chinese Enterprise Index, tracking Chinese stocks listed in Hong Kong, fell by more than 13% on Monday, the worst day since the global financial crisis.
China’s 10-year government bond yields plummeted at 1.634% from 9 basis points, while offshore euan fell 0.35% per dollar to 7.3212, according to LSEG data.
