China’s New Tech, Stimulus Plans Raise Stakes in US Trade War

China Announces Fresh Stimulus as Trade Tensions Escalate

On Wednesday, March 12, China’s Shenzhen announced fresh stimulus measures to boost domestic consumption. According to CN Wire:

“China’s Shenzhen to support vehicles trade-in program with subsidies up to 20,000 Yuan for vehicle replacement.”

The announcement coincided with a firm response from China’s Foreign Ministry regarding Trump’s steel and aluminum tariffs. The Foreign Ministry reportedly stated:

“China will take all necessary measures to safeguard its rights, interests. If US insists on suppressing China, China must resolutely counter it.”

China’s response to US tariffs on steel and aluminum, effective March 13, raises the chances of a full-blown US-China trade war. The tariffs on steel and aluminum followed sweeping tariffs on Chinese goods, effective in February and on March 4. Until now, China’s responses have been measured, calming market concerns. However, the latest tariffs could draw a more aggressive countermeasure from Beijing, especially as US recession signals grow stronger.

China’s Strategy: A Counterplay of Economic Policies

On March 12, Natixis Asia Pacific Chief Economist considered the outcome of China’s annual policy gathering (Lianghui). Policy measures are crucial in offsetting the effect of tariffs. She highlighted three policy adjustments:

• Maintaining low prices.
• Adopting expansionary macroeconomic policies
• Boosting manufacturing capacity.

Garcia Herrero noted that keeping prices low could enable China to boost exports, supporting its 2025 growth target of 5% GDP.

Rising deflationary pressures could give Chinese firms an advantage over Western firms, both domestically and globally. Notably, lower-priced Chinese goods would impact Western companies’ profits. This would come at a bad time, particularly for US firms that face increasing risk of a recession at home.

Beyond pricing and monetary policy, Beijing is also focused on reducing its reliance on foreign technology.

Beijing Accelerates Push for Technological Independence

Garcia Herrero’s comments on technological independence were particularly timely.

On March 12, news surfaced that China unveiled a new silicon-free chip, which is 40% faster than Intel’s chips and consumes 10% less energy. The development counters the US administration’s move to restrict China’s access to US tech.

In a bid to drive artificial intelligence (AI) and quantum technology, Beijing has also established a 1 trillion Yuan ($138 billion) national venture capital guidance fund.

Brian Tycangco, editor and analyst at Stansberry Research, shared views from Alibaba’s (09988.HK) Chairman Joe Tsai, saying:

“Joe Tsai knows. And he also knows China will be at the forefront of the global push towards full AI adoption to realize the lion’s share of $10 trillion.”

China’s AI sector gained momentum with DeepSeek, which rattled the US tech sector. Since then, momentum has increased, with China’s EV manufacturers also seeing a surge in demand.

Market Moves: Hang Seng and Mainland Stocks Gain Despite US Turmoil

While tariffs and rising threats of a recession plague US markets, sentiment toward China’s position in AI and tech has fueled demand for Hong Kong-listed stocks.

• In stark contrast to the US market woes, the Hang Seng Index has advanced 17.87% year-to-date (YTD), with the Hang Seng Technology Index surging 30.16%.
• Tech giant Alibaba has soared 60% YTD, while EV manufacturer Li Auto (02015.HK) has gained 20%.

Meanwhile, Mainland China equity markets have held their ground despite rising trade tensions. The CSI 300 is down 0.36% YTD, while the Shanghai Composite Index has gained 0.26%.

In contrast, the Nasdaq Composite Index has fallen 8.61% YTD, highlighting diverging economic trajectories and China’s advancement in the tech space.

What’s Next? AI, Trade Tensions, and Market Sentiment

The increasing risk of an all-out trade war could impact market sentiment. Despite rising risks, China’s AI developments continue to attract investor interest.

Further stimulus measures and AI developments could further help mitigate tariff risks, signaling a US-China economic decoupling.

Stay ahead of market trends—explore our in-depth analysis of China’s economy and global markets here.