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The trade war between the United States and China has intensified, with the latest tariffs imposed by US President Donald Trump severely impacting Chinese imports.
Effective immediately, the US has enacted ‘reciprocal’ trade tariffs, which have seen China facing a staggering 125 percent levy on goods sold to the US.
This drastic increase in tariffs is set against a backdrop of escalating tensions, as the US seeks to negotiate new trade deals with other nations while imposing increasingly punitive measures on its largest trading partner.
As a result of this trade war, anything imported from China will cost more than double compared to just two months prior, and China has retaliated by raising its tariffs on US goods to 84 percent.
The stock markets have reacted negatively since the announcement of these tariffs, reflecting investor concerns about the future of global trade and economic stability.
President Trump has frequently accused China of exploiting the US regarding trade practices, advocating for a protectionist agenda aimed at reviving domestic manufacturing and reshoring American jobs.
In an escalation of the trade conflict, Trump has implemented a series of tariffs on Chinese imports since February 3, starting from an additional 10 percent and then progressively increasing it to 20 percent on March 5.
By April 2, Trump’s tariffs had reached a total levy of 54 percent, with further increases announced shortly thereafter.
In response, China implemented a 34 percent reciprocal tariff on US imports on April 4, prompting Trump to issue warnings about further tariff increases.
On April 8, he threatened additional tariffs amounting to 50 percent unless China withdrew its tariffs by the next day.
This would raise the total levy on Chinese imports to 104 percent, illustrating the escalating nature of the trade confrontation.
In a clear signal of intent, China responded to the US tariffs by increasing its own tariffs on US goods to 84 percent, immediately prompting Trump to retaliate with even higher tariffs on Chinese imports, ultimately reaching 125 percent.
China’s Commerce Ministry has expressed its firm resolve to retaliate, stating that it possesses the means to take necessary countermeasures and is prepared to fight back against what it sees as economic bullying from the US.
The ministry asserted that the US tariff increases will not remedy its own issues but instead could destabilize financial markets, elevate inflation, weaken the US industrial base, and risk a recession, ultimately backfiring on the US economy.
In a follow-up statement, Beijing characterized the US actions as “completely groundless” and accused the Trump administration of bullying tactics.
They maintained that the reciprocal tariffs serve to protect China’s sovereignty, security, and development interests and aim to sustain a balanced international trade environment.
The ongoing trade conflict is expected to have significant repercussions for China’s economy, which has heavily relied on exports.
According to the Office of the United States Trade Representative, America imported $438.9 billion in Chinese goods last year, representing about 3 percent of China’s total gross domestic product (GDP).
Goldman Sachs has predicted that Trump’s latest tariffs could depress China’s GDP by as much as 2.4 percent.
The investment bank projects a growth forecast of 4.5 percent for China in the coming year, although this figure falls below the Chinese government’s official growth target of 5 percent for 2025.
Pessimism persists within the financial community, with some analysts at UBS suggesting that the tariff hikes could reduce China’s economic growth rate to just 4 percent in 2025, contingent upon government intervention through fiscal expansion measures.
Concerns loom prominently as China continues to experience slower economic growth than at the onset of Trump’s first trade war in 2018, when GDP growth was officially reported at 6.6 percent.
Jayati Ghosh, a professor of economics at the University of Massachusetts Amherst, has suggested that China is relatively well-equipped to weather the economic fallout from these escalating tariffs.
In light of the increasing tensions, Chinese officials are reportedly taking steps to reassure the markets.
Al Jazeera’s Beijing correspondent, Katrina Yu, noted that the Chinese government possesses the capability to intervene robustly in the financial markets.
On Tuesday, Premier Li Qiang emphasized that China is fully capable of countering adverse external influences.
In a concerted effort to stabilize the stock market, several public investment firms, including Chengtong and Huijin, pledged to ramp up equity investments to counterbalance financial market volatility.
Chinese stock exchanges have, thus far, fared better than many other markets in Asia, with Shanghai’s SSE Composite Index rising by 1.1 percent and Shenzhen’s SE Composite increasing by 2.2 percent, while Japan’s Nikkei index fell by 3.9 percent.
Investors, however, remain anxious as they monitor the potential repercussions of this ongoing trade war.
In terms of future actions, Beijing is likely to focus on boosting domestic economic stimulus and enhancing relationships with other trading partners to strive for its growth target of around 5 percent.
Ghosh highlighted expectations of further reductions in China’s already low interest rates, augmented borrowing by local governments, and assistance for export workers adversely affected by the tariffs.
Furthermore, she anticipates that China may “quietly” increase exports to Global South trading partners through financial mechanisms, including loans and debt relief.
There is also a chance that China’s central bank may choose to allow the yuan to depreciate, thereby reducing export prices and partially offsetting losses incurred from US tariffs.
While many economists express caution regarding Beijing’s fiscal stability amid growing government debt, Ghosh argues that China’s $20 trillion economy should be resilient enough to absorb the impacts of heightened tariffs.
In a notable turn in sentiment, Fitch Ratings recently downgraded China’s sovereign credit rating due to burgeoning government debt and its apparent risks to public finances as adjustments are made in response to US tariffs.
However, Ghosh dismissed the notion of an imminent collapse of the Chinese economy, stating instead, “I’m far more concerned about the US economy.”
The evolving dynamics of this trade war signify an uneasy period ahead as both nations navigate the uncertainties of an entrenched conflict.
