China shrugs off new Trump tariffs but bruising trade war looms

BEIJING – US President Donald Trump’s new tariffs will probably not have a major impact on China’s economy but may herald the opening salvo of another bruising trade war with Beijing, analysts have warned.

Mr Trump on Feb 1

announced sweeping measures

against three of the United States’ major trade partners, with goods from China facing an additional 10 per cent tariff on top of the duties they already endure.

He said the measures aim to punish countries for failing to halt flows of illegal migrants and drugs, including fentanyl, into the US.

However, his action against Beijing is “not a big shock to China’s economy”, according to Mr Zhiwei Zhang, president of Pinpoint Asset Management.

Given Beijing has already factored in higher tariffs in 2025, the move is “unlikely to change the market expectation on China’s macro outlook”, Mr Zhang said.

“I don’t think China needs to take action, such as exchange rate depreciation, to offset (the impact),” he added.

According to Bloomberg Economics, the 10 per cent levy could knock out 40 per cent of Beijing’s goods exports to the US, affecting 0.9 per cent of Chinese gross domestic product.

That is a small fraction of China’s vast economy, but it will put extra pressure on policymakers already grappling with slowing growth, a property sector crisis, and sluggish domestic consumption.

‘First strike’

Experts said Mr Trump’s focus seems to be on trade relationships with Canada and Mexico more than China.

Under the new rules, Canadian and Mexican exports to the US will face 25 per cent tariffs, with a partial exemption for Canadian energy resources.

But with targeted countries already vowing retaliation and Mr Trump promising more duties in future, the move was “just the first strike in what could become a very destructive global trade war”, said Mr Paul Ashworth, chief North America economist at Capital Economics.

China has said it will take “corresponding countermeasures” against the tariffs, but has not elaborated what form those may take.

Mr Gary Ng, a senior economist at Natixis, said Beijing “may react by imposing reciprocal tariffs on US imports, limiting exports of critical materials and restricting market access to some American firms”.

“At the same time, China may also see this as an opportunity to divide US allies and build closer relationships with other countries,” he said.

Mr Zhang, of Pinpoint, said “the trade negotiation between China and the US will be a long process”.

“I think this is just the beginning. We will have to wait and see if the US will raise tariffs on China further down the road,” he said.

Collective shrug

On the streets of Beijing this weekend, the threat of looming tariffs was met with a collective shrug.

“China doesn’t really care too much about the (trade) barriers because we have already prepared for them,” Mr Xu Yiming, a private equity professional, said outside a busy downtown shopping mall.

China’s robust supply chains and cheap exports are “actually good for the American public, but Maga supporters might need some trade barriers to help bring jobs back to the US”, the 36-year-old added, using the acronym for Trump’s grassroots movement.

“In the end, it’s everyday people who bear the brunt of tariffs,” he said.

Most people said they were either unaware of the prospective levies or did not understand them well enough.

And though some declined to speak due to the political sensitivity of China-US ties, many seemed more interested in enjoying the ongoing Chinese New Year holiday.

“He should look after the US and leave China to us,” a gruff middle-aged man said of Mr Trump, before wandering off in the direction of a raucous temple fair. AFP