China Signals Yuan Shift as Trump Mulls Additional 85% Tariff Hike

Trade War Escalates: Trump Threatens 50% Tariff Hike as China Vows Retaliation

President Trump’s proposed 34% tariff on Chinese goods is set to take effect on Wednesday, April 9, potentially jeopardizing the prospects of a US-China trade agreement. If enacted, total US tariffs on Chinese imports would rise to 64%.

In response, China has announced a reciprocal 34% tariff on US goods, effective April 10, riling the US President.

On Monday, April 7, Trump threatened additional tariffs on China unless Beijing withdrew its planned 34% tariff, stating:

“If China does not withdraw its 34% increase above their already long term trading abuses by tomorrow, April 8th, 2025, the United States will impose ADDITIONAL Tariffs on China of 50%, effective April 9th. Additionally, all talks with China concerning their requested meetings with us will be terminated! “

If implemented, the additional 50% tariff would raise total US tariffs on China to an unprecedented 114%. The tariff rhetoric intensified further on Tuesday, April 8, when CN Wire reported:

“China Commerce Ministry: Firmly opposes and will take countermeasures if the US enacts additional 50% tariffs. If the US side is bent on having its own way, the Chinese side will follow it to the end.”

Beijing’s stance suggests an impasse, with the US and Chinese economies exposed to heightened tit-for-tat tariff risk.

The Kobeissi Letter commented:

“Amid all the noise today, markets barely reacted to perhaps the biggest news of the trade war thus far: President Trump threatening ADDITIONAL 50% tariffs on China is huge news. […] The United States imports a total of $439 BILLION from China per year. China has until April 8th to drop their 34% tariff on China or President Trump says these tariffs will go live. Minutes ago, China said they “will fight until the end” against Trump’s tariffs. Amid all the noise, trade war tensions hit a new high today.”

US-China Trade War: The Economic Fallout

Global markets stumbled on April 7 as fears of a full-scale trade war surged. Notable losses included:

• Hang Seng Index plummeted 13.22%, rivaling the 10.4% fall on October 24, 1997, during the Asian Financial crisis.
• Nasdaq Composite Index slid 5.97%, leaving the Index down 19.2% year-to-date.

Recession risks have escalated due to increased economic uncertainty.

Goldman Sachs raised its recession probability, stating:

“We are lowering our 2025 Q4/Q4 GDP growth forecast to 0.5% and raising our 12-month recession probability from 35% to 45% following a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed.”

These forecasts assume that the April 9 tariffs do not take effect. If implemented, Goldman anticipates a recession.

Is China Replaying its Trump 1.0 Playbook?

Beijing could be reviving strategies from Trump’s first term to counter US tariffs.

We recently discussed China’s potential countermeasures to US tariffs, which included

• Reciprocal tariffs targeting US agricultural products.
• Currency weakening to offset tariffs.
• Strategic negotiations akin to the 2020 Phase One trade deal.

With reciprocal tariffs now imminent, the focus could shift to currency actions. On April 8, the People’s Bank of China cut the Central Parity Rate by 58 pips to $7.2038, the weakest level since September 2023.

Robin Brooks, Senior Fellow at the Brookings Institute, commented:

“China tonight continues to weaken the Yuan in small steps. This marks a shift in policy and is a clear signal to Washington. Up until “Liberation Day,” the official fix (white) was basically stable. No longer. This is Beijing saying – still politely – this is getting too much…”

Following Trump’s renewed accusations of currency manipulation, the USD/CNY rose 0.31% to $7.3305 on April 8, its highest level since September 2023. While the weaker Yuan could offset the effect of US tariffs, it risks prompting further retaliation

Mainland and Hong Kong Equities Rebound on Policy Support and Buybacks

Asian markets opened higher on Tuesday, April 8. The Hang Seng Index rose 1.53% to 20,132, while the CSI 300 and Shanghai Composite Index gained 0.20% and 0.28%, respectively.

Policy measures to stabilize the Mainland China markets crucially drove the Indexes higher. China’s State Administration of Financial Regulation increased the proportion of insurance funds invested in the stock market by:

• Raising the upper limit of equity asset allocation ratio.
• Optimizing the regulatory policy on the proportion of insurance funds.
• Increasing support for the capital market and real economy.
• Increase the proportion of concentration of investment in venture capital funds.

Leading Chinese companies also announced stock buybacks after Monday’s sell-off, boosting risk sentiment further. Meanwhile, the Nasdaq 100 Futures up 263 points in the Asian session.

Outlook

Tariff announcements and Yuan moves remain key drivers. Mainland China and the Hong Kong markets could face another sell-off if the US and China proceed with yet higher tariffs. Conversely, a de-escalation could lift demand for Mainland and Hong Kong equities. However, Yuan depreciation and policy actions from Beijing also warrant close attention as China advances its shift to a consumption-led economy.

Stay with us for in-depth coverage of China’s economic trajectory and global market implications.