By Reshma Kapadia
China came out swinging in response to President Donald Trump's tariff blitz, matching his latest levies with its own 34% tariff on U.S. imports effective April 10.
That marks a shift in Beijing's previous restrained approach to Trump's earlier tariff threats, raising hopes among some analysts that it could offer a path to an off-ramp.
China's Ministry of Finance said the new tariff won't be reduced or exempted, mirroring the language from Trump officials like Commerce Secretary Howard Lutnick who said Trump won't back down from tariffs -- even as the president himself left the door open for negotiations.
In its statement, the ministry aldo added 11 U.S. companies to its "unreliable entities" list and expanded export controls, restricting sales.
Gerard DiPippo, acting associate director of the RAND China Research Center, sized up China's move .
"They're going with a tit-for-tat response. It's an approach Trump will understand," DiPippo told Barron's. "While he said he wasn't sure the tariffs would actually go into effect, noting past salvos included waivers and rebates, it sent a strong signal that they aren't afraid."
"At least symbolically, Beijing isn't holding back," he said. "They're also getting out in front of other countries' retaliation."
In a note to clients, Leah Fahy, China economist at Capital Economics said there could be more than just tariffs, with China's customs also announcing a suspension of imports from some U.S. agricultural firms.
Concerns about a trade war have already rattled markets, with the S&P 500 seeing its steepest drop since March 2020 on Thursday. The index fell another 2% immediately after Friday's opening.
China's retaliation came after the Trump administration unveiled a 10% baseline tariff and sweeping individualized tariffs, hitting China with 34% on top of the 20% it imposed earlier related to fentanyl flows.
Also in the mix: threatened 25% tariffs on countries like China that buy oil from Venezuela. Those were on top of up to 25% tariffs on $350 billion of goods still on from the first term.
Confusion even 24-hours after the tariff blitz remained on the effective tariff rate, but most analysts put it at higher than 60% for China -- worse than expected and likely to shave 1.5 percentage points to two percentage points of China's GDP.
The tariff blitz and China response comes ahead April 5, the deadline for TikTok, owned by China's ByteDance, to find U.S. buyers to avoid being banned. Trump extended the timeline and has voiced his support for the ubiquitous social media app.
"TikTok and fentanyl offers room for upside surprises in tariff reduction. Beijing has published a white paper on controlling the fentanyl industry and didn't include the 20% tariffs in its calculated response," Rory Green, head of China research for TS Lombard, told Barron's. "If a TikTok deal allowing the company to keep control of the algorithm can be reached, this would indicate there is a chance of progress on trade."
There could also be positives for Chinese stocks, with a TikTok sale suggesting less clout for national security hawks within the administration, a positive for U.S.-listed Chinese stocks threatened in the America First investment memo, Green said The iShares MSCI China exchange-traded fund was down 6% at $50.33 on Friday.
China's economy is still struggling to stabilize after a multiyear property downturn -- and a trade war is the last thing it needs. Beijing had held back some of its fiscal firepower, in part as it waited for what tariffs could be headed its way.
The stimulus it has announced for this year -- with its deficit expected to rise to about 9% of GDP or two percentage points more than last year -- so far won't be enough to handle the blow from this level of tariffs, DiPippo said.
But the speed of China's response also suggests Beijing could also move rapidly to deploy more fiscal stimulus to buttress its economy from the tariff blitz and resulting uncertainty, Green said.
Also of note: The People's Bank of China, which sets the currency rate within a band, fixed it at the lowest level versus the dollar so far this year, said Marc Chandler, veteran currency strategist and managing director at Bannockburn Global Forex.
While small, the "fix" has been moving around more than usual, which could signal a tactical change toward a weaker renminbi. A weaker currency could help Beijing absorb some of the tariff blow.
"They are daring Trump to up his tariffs as he said he would do if countries retaliated. They are calling his bluff, and I think signaling that they are not going to enter negotiations on his terms. Implicit in this seems to be a belief that if there is a contest as to who can take more economic pain for longer," said Arthur Kroeber, head of research for Gavekal, who thinks China probably will win on this front.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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April 04, 2025 09:36 ET (13:36 GMT)
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