China's response is expected to lead to the US imposing more tariffs, which Beijing is likely ready for and has prepared counter-measures. This escalation in trade tensions could potentially trigger a full-scale trade war between major economies, adding further pressure on global economic growth.
Contrary to previous expectations of a measured response from China to allow for negotiation space, economists from Oversea-Chinese Banking Corp. led by Tommy Xie noted on Monday that China has taken a more confrontational approach.
The Chinese yuan depreciated by 0.4% despite the People’s Bank of China setting the daily reference rate stronger than anticipated. Chinese shares listed in Hong Kong plunged by 10.8%, marking the worst day since the global financial crisis, while the yield on China’s 10-year government bonds dropped by 8 basis points to 1.63%.
Global banks like Morgan Stanley have expressed concerns about the impact of punitive US tariffs and escalating trade tensions on the Chinese economy. Amid dwindling hopes for a deal between the US and China, financial markets have experienced a sell-off, fueling speculation that China may resort to devaluing the yuan against the dollar.
China is emphasizing to its domestic audience its resilience following its retaliation against US tariffs by imposing levies on American goods. The Communist Party’s mouthpiece publication highlighted plans to support domestic demand with stimulus measures like lower interest rates to mitigate the economic impact.
China has assured that it has ample policy measures to protect its economy against Donald Trump's tariff hikes while still leaving room for negotiations with the US.
Prioritized by the People’s Daily, China aims to strengthen domestic demand as a long-term strategy and elevate consumption as a key driver of economic growth. The government plans to boost consumer spending significantly, lower interest rates, inject liquidity into the banking system when required, increase fiscal deficit, issue more bonds, and enhance public spending.
After announcing countermeasures in response to US tariffs, China is considering advancing pre-planned measures to stabilize the economy and markets. The country also met with American firms to provide support amid the ongoing trade tensions.
China seeks to steer the US back to multilateralism through its retaliatory actions, emphasizing the importance of maintaining supply-chain stability. Potential policy adjustments are expected during the Communist Party’s meeting in late April and in upcoming talks between Chinese officials and the Trump administration.
China is prepared to take necessary steps to stabilize the capital market, restore confidence, and support industries impacted by the trade war. The trade dispute is acknowledged to have a significant impact on bilateral trade and the global economy, with China outlining strategies to navigate the challenges ahead.