In Beijing and Shenzhen, China is preparing for a prolonged economic battle with the United States due to escalating tariffs imposed by the U.S. on Chinese goods and countries involved with Chinese production. The retaliation from China has sparked threats of further escalation from U.S. President Donald Trump, leading to a situation where neither side wants to back down first.

China faces limited options in response to the tariffs and is exploring different markets globally for potential alternatives. However, other markets are smaller than the U.S. and may also be affected by the tariffs. Internally, options such as currency devaluation or offering subsidies to industries could mitigate the impact of tariffs, but these strategies come with their own risks.

Despite calls for policies to boost domestic consumption, Beijing has been slow to implement such measures as they could disrupt existing manufacturing sectors. Hitting back with tariffs and export controls may not be as effective for China, given the trade imbalance with the U.S., but it might be their only recourse if they perceive a higher tolerance for economic pain compared to Washington.

Arthur Kroeber, head of research at Gavekal, notes that China may not be able to cause as much damage to the U.S. as it receives due to the trade surplus and dependencies on exports. The situation remains tense as both sides have vowed to continue the trade dispute with no end in sight.