Trump unveils more tariffs on China, raising risk of further retaliation

By Bloomberg News

 

President Donald Trump unveiled additional tariffs on Chinese imports, raising the risk of further retaliation by Beijing and a spiraling of tensions between the world’s two largest economies. 

Trump said Thursday in a social media post that China will be charged an additional 10 per cent tariff on March 4, citing continued drug flows from North American neighbors at what he called “very high and unacceptable levels” and China’s alleged role in its supply.

 

The new tariffs come on top of a previous 10 per cent duty implemented earlier this month and represent part of Trump’s broad salvos against Beijing on issues spanning trade, technology and investment. Beijing responded to the tariffs with targeted steps but signaled room for more forceful countermeasures if needed.

 

A gauge of Chinese shares listed in Hong Kong slid as much as 2.4 per cent, heading for its biggest single-day decline since Jan. 2. The onshore benchmark CSI 300 Index fell as much as 0.7 per cent, on course to suffer its first weekly loss in a month. 

“Trump may be pressing his luck,” said Chang Shu, chief Asia economist for Bloomberg Economics. She wrote in a note the risk is China’s restraint so far “could shift to a more strident retaliatory stance — and a much more damaging trade war.”

 

China’s Ministry of Commerce and Foreign Ministry didn’t immediately respond to requests for comment.

 

Trump’s new measures came without public warning and took Chinese officials by surprise. The levies are set to take effect on Tuesday, one day before President Xi Jinping heads into the party’s biggest political meeting of this year where his lieutenants will unveil their blueprint for the economy in 2025.

 

The growth target for the current year and fiscal policy have been set for months, and are unlikely to be immediately swayed by the tariffs, but could dampen sentiment going into that event.

 

As tensions rise, Xi has called on his top officials to stay composed. Notably, China’s major state media outlets including Xinhua News Agency and People’s Daily didn’t report on the US leader’s remarks as of Friday morning.

 

“The additional levy would increase the average tariff of Chinese goods to the US to about 33 per cent,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd, who expects it will reduce China’s GDP growth by a small amount.

 

However, what China does to offset this potential damage will actually help the economy, he said, pointing to likely support for consumption and tech investment, as well as efforts to support the yuan and the private sector.

 

Bloomberg economist Maeva Cousin said the shock of the existing and expected tariffs on the Chinese economy “should be manageable,” citing the small share of its value added — just over 2 per cent — tied to US exports.

 

“In the medium term, it is also likely that China will find new markets for its exports — although this may be met with resistance from partners in the rest of the world, already concerned about Chinese overcapacity in some sectors,” Cousin wrote in a note on Friday. 

 

Such pushback is already becoming apparent. Over the past week, both South Korea and Vietnam followed in Washington’s footsteps and slapped tariffs on Chinese steel products to halt surging supplies from the world’s biggest producer of the metal.

 

The US action means that the government will need to announce an additional stimulus worth 500 billion yuan ($69 billion) to 700 billion yuan to meet its growth targets, according to Michelle Lam, Greater China economist at Societe Generale SA.

 

“Now investors will focus on whether there will be more fiscal stimulus to deal with additional tariffs at next week’s NPC,” she said, referring to the National People’s Congress session that starts March 5. “The news increases the chance of policymakers doing sufficient measures on the margin, but alternatively, they may still wait to assess the impact and see if future trade talks with the US can bring down tariffs.”

 

The tariffs will also likely raise prices of US imports, as companies in China will try to pass on the increased costs to US customers. That impact could be even bigger than many expect, according to new research from the US Federal Reserve, which argued that US data is undercounting how much is actually imported from China. 

 

Over the past week, the US announced new curbs on investment flows between the two nations, proposed fees for anyone shipping goods to the US on Chinese-made vessels and is currently talking to Mexico about that nation also imposing tariffs on Chinese goods.

 

Despite the escalation, both Beijing and Washington appear keen to prevent a breakdown in their relationship. Chinese Vice Premier He Lifeng spoke with Treasury Secretary Scott Bessent last Friday — the second high-level contact since Trump took office — indicating continued communication. China’s Defense Ministry said Thursday talks with the US military are in the works. 

 

Trump has also highlighted his personal ties with Xi, saying last week that a new trade deal with China was possible. While he signaled in early February that he’d be speaking with Xi “very soon,” that conversation has yet to take place.