U.S. Focuses Tariff Onslaught on China

[para. 1] Over the past week, tensions between China and the U.S. have escalated, marked by a significant hike in tariffs. In retaliation for U.S. President Donald Trump’s decision to impose a total of 145% tariffs on Chinese goods, China raised its tariffs on American imports from 84% to 125%. The U.S. tariffs include two 10% hikes tied to China’s alleged role in fentanyl trafficking. Despite these measures, China’s Ministry of Finance stated that further tariff increases from the U.S. would be ignored, as American goods are unlikely to gain market acceptance at current levels.

[para. 2] Chinese President Xi Jinping is planning state visits to Vietnam, Malaysia, and Cambodia next week. These nations, key trading partners for both China and the U.S., are central to China’s efforts to counter U.S. trade policies. China’s commerce minister has been engaging with global counterparts, including those from Saudi Arabia and South Africa, urging coordinated action against the U.S.’s “reciprocal tariffs.”

[para. 3] As part of the trade fallout, China is decreasing its imports of American films. Market dynamics and disapproval of U.S. policies have reportedly contributed to declining trends in Hollywood film imports, with box office revenues in China dropping from nearly 20 billion yuan ($2.73 billion) in 2019 to roughly 6 billion yuan in the past few years. Hollywood’s share of China’s box office market also plummeted from 36% in 2019 to 16% in 2023.

[para. 4] President Trump has extended the deadline for ByteDance, TikTok’s Chinese parent company, to finalize a deal allowing the app to operate in the U.S. to avoid a ban. With 75 more days granted, ByteDance must navigate complex negotiations involving U.S. buyers, regulators, and Chinese authorities. Trump has indicated that he might reduce tariffs on China to facilitate the deal.

[para. 5] The U.S. has removed the “de minimis” tax exemption, increasing tariffs on Chinese packages valued under $800. These shipments are now taxed at 120% of their value or a minimum of $100. E-commerce platforms like Shein and Temu, which grew by leveraging this exemption, have been heavily impacted. The number of shipments under this exemption rose dramatically, surpassing 1 billion annually by 2023.

[para. 6] Apple supplier Luxshare Precision Industry Co. Ltd. assured investors that it won’t bear the costs of new U.S. tariffs. The company pointed to its diversified production bases outside China as a mitigating factor. Despite uncertainties, shifting certain operations to the U.S. is projected to reduce tariff impacts to 5%, with a minimal 2.5% rise in product prices.

[para. 7] Amid volatile markets, China’s central bank has committed to stabilizing its economy. It pledged support for stock market investments made by its sovereign wealth fund, Central Huijin Investment Ltd., which increased holdings in exchange-traded funds (ETFs) to offset market declines.

[para. 8] The offshore yuan rebounded against the U.S. dollar, breaking the 7.3 mark. This recovery followed a dollar weakening, with the U.S. Dollar Index reaching its lowest point since July 2023. Earlier in the week, the yuan had hit its weakest level in over a decade.

[para. 9] China’s Ministry of Finance criticized Fitch’s downgrade of its sovereign credit rating from A+ to A. It viewed the decision as biased and unreflective of China’s actual economic state. Fitch cited growing public debt and economic transition as reasons for the downgrade.

[para. 10] Chinese stock markets saw significant inflows from state-backed buyers, including Central Huijin Investment Ltd., amassing 175.5 billion yuan on Monday and Tuesday. State intervention in turbulent markets, often attributed to the “national team,” remains a common stabilizing practice in China.