Calibrated Countermeasures: China’s Response to Trump’s Tariffs

China retaliated against Trump’s tariffs with a measured yet pointed set of actions aimed at key US sectors. Beijing imposed a 15% levy on less than $5 billion of US energy imports and a 10% duty on American oil and agricultural equipment, sending a clear signal to Washington without triggering an all-out trade war. In addition to these commodity tariffs, Chinese authorities have taken targeted measures against specific US companies. Calvin Klein owner PVH Corp. and gene sequencing leader Illumina Inc. have been placed on a blacklist, while export controls on tungsten and other critical metals used in electronics, aviation, and defense have been tightened. Beijing also announced an investigation into Google for alleged antitrust violations, despite its search services having been unavailable in the country since 2010. Market Overview:

• China imposes 15% and 10% tariffs on select US energy and agricultural goods.
• Targeted actions include blacklisting PVH Corp. and Illumina Inc.
• New export controls on tungsten and critical metals signal a strategic warning.

Key Points:

• Measures affect approximately $13.9 billion of US goods in 2024.
• Actions are designed to pressure US companies with significant operations in China.
• Investigation into Google adds an additional layer of regulatory scrutiny.

Looking Ahead:

• Tariffs set to take effect on Feb. 10 may pave the way for further negotiations.
• Both sides appear committed to dialogue amid escalating trade tensions.
• Investors will closely monitor the impact on US companies and global supply chains.

Bull Case:

• China’s measured response to U.S. tariffs, including a 15% levy on energy imports and a 10% duty on oil and agricultural equipment, demonstrates restraint, leaving room for future negotiations and de-escalation of trade tensions.
• By targeting select U.S. companies like PVH Corp. and Illumina Inc., China is applying strategic pressure without broad economic disruption, signaling a calculated approach to safeguard its interests.
• Export controls on tungsten and other critical metals highlight China’s leverage in global supply chains, particularly in industries like electronics, aviation, and defense, reinforcing its importance as a key supplier.
• The investigation into Google for alleged antitrust violations could serve as a bargaining chip in future trade talks, potentially leading to more favorable outcomes for both sides.
• Initial market reactions were muted, with Chinese indices rebounding and the offshore yuan stabilizing, suggesting that investors view China’s actions as controlled and unlikely to provoke an immediate escalation.

Bear Case:

• China’s retaliatory tariffs and blacklisting of U.S. companies like PVH (PVH) and Illumina (ILMN) escalate trade tensions, increasing uncertainty for businesses operating across both nations.
• Export controls on tungsten and other rare metals could disrupt global supply chains, particularly in high-tech sectors, leading to increased costs for U.S. manufacturers reliant on these materials.
• The investigation into Google adds another layer of regulatory scrutiny for U.S. firms operating in China, potentially discouraging further investment and collaboration between the two econ Initial market reactions were muted, with Chinese indices rebounding and the offshore yuan stabilizing despite earlier losses. Analysts view Beijing’s actions as a calculated effort to leverage its economic power without provoking a full-scale escalation, maintaining room for future talks. Ultimately, the targeted countermeasures reflect a delicate balancing act by Beijing. By inflicting selective economic pressure and demonstrating readiness to protect its strategic interests, China aims to keep trade tensions in check while signaling that further escalation is on the table if US policies remain unyielding.

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