On Wednesday, April 2, President Trump announced sweeping new tariffs, fueling fears of a full-scale trade war and triggering a flight to safety. China bore the brunt of the measures, with cumulative tariffs now reaching 64%—the most severe yet under Trump’s administration.
Key tariff details included:
Significantly, Wednesday’s tariffs left China with incremental tariffs of 64% since President Trump’s first term. These new measures follow targeted actions in Q1, including 20% tariff hikes and restrictions on Chinese tech firms.
Tony Sycamore, market analyst at IG.com, remarked on Treasury Secretary Bessent’s tally on China’s tariffs:
“After today’s 34% new reciprocal tariff rate on China, I now have the absolute tariff rate on China at 64%, not 54% as Treasury Secretary Bessent said.”
Sycamore outlined the US tariff history to arrive at 64%:
In a restrained initial response, China’s Commerce Ministry reportedly urged Washington to cancel its unilateral tariff actions and pursue ‘equal dialogue’ with trading partners.
Meanwhile, reports emerged of China President Xi Jinping planning to meet European leaders in Vietnam on April 14, seeking to strengthen ties with the EU and ASEAN as a counterbalance to the US.
However, discussions could be tough for European leaders, who face China’s growing dominance in the EV and AI sectors and pressure to diversify trade dependencies. Europe’s desperate need to find an alternative to the US could play firmly into China’s hands.
Daniel Romero at HyperTechInvest underscored China’s EV potential, stating:
“As a European, I’m all in on improving trade relations with China. Give me some affordable Chinese EVs.”
Robin Brooks, Senior Fellow at the Brookings Institute, commented on China’s restrained approach to recent tariff escalations but warned of potential shifts, stating:
“China kept a very low profile in recent months, even as the US raised China tariffs by 20 ppts. We will now see if this approach changes. […]. If China devalues, that’s a game changer…”
On Thursday, April 3, the People’s Bank of China (PBoC) reportedly lowered the Daily CNY Central Parity Rate by 96 pips to $7.1889, the steepest adjustment since December 3 and the weakest level since January 17. Despite the move, the CNY Central Parity Rate remains over ‘600 pips stronger than market expectations.’
The PBoC sets the Daily Central Parity Rate for several reasons, including maintaining stability in China’s export-oriented economy and protecting it from external shocks. Thursday’s cut signals the potential for further CNY depreciation.
In response to tariff developments, the USD/CNY pair soared 0.49% to a morning high of $7.3040, the highest level since February 13, before easing back. A marked weakening in the Yuan would offset the effects of tariffs but may invite fresh US scrutiny and the threat of more levies.
Markets in Asia opened lower following the tariff news, which overshadowed upbeat Chinese services PMI data.
The Hang Seng Index was down 1.77% to 22,791, while the CSI 300 and Shanghai Composite Index dropped 0.55% and 0.36%, respectively. Meanwhile, the Nasdaq 100 Futures tumbled 671 points in early trading.
While Trump’s tariffs overshadowed China’s PMI data, the March survey suggested Beijing’s stimulus measures have gained traction. A continued transition toward a consumption-led economy would limit the effect of US tariffs. Additionally, Beijing’s policy measures targeting domestic consumption and closer trade ties with the EU could help mitigate reliance on US markets.
However, failure to deliver on policy promises or a flare-up in geopolitical tensions could weigh on Hong Kong and Mainland markets in the near term.
Markets will closely monitor China’s next move. A marked Yuan devaluation could trigger a sell-off across Hong Kong and Mainland equity markets on fears of a full-blown trade war. Conversely, measured responses and exchange rate stability may help restore investor confidence.
Stay with us for in-depth coverage of China’s economic trajectory and global market implications.
With over 28 years of experience in the financial industry, Bob has worked with various global rating agencies and multinational banks. Currently he is covering currencies, commodities, alternative asset classes and global equities, focusing mostly on European and Asian markets.