China says “bring it” to Trump’s new tariff threats
China is ready for a protracted trade war with the US.
On Monday, US President Donald Trump issued an ultimatum to China.
- Drop your 34% retaliatory tariffs or face an additional 50% tariff starting April 9.
Quick math: If Trump follows through with this threat, effective average US tariffs on China will reach well over 100%.
China’s response?
- Stick it up your Mar-a-Lago.
A Ministry of Commerce spokesperson called Trump’s threatened tariffs “groundless and a typical unilateral bullying practice” and “mistake on top of a mistake” saying:
- “If the United States insists on its own way, China will fight to the end.”
Get smart: Chinese policymakers believe that attempts to placate the US will only lead to renewed threats down the line.
- Instead, Beijing will stick to its strategy of responding to each US provocation with a multipronged retaliation.
Get smarter: The impact of additional Trump tariffs on Chinese imports has diminishing marginal returns.
- That's because current average tariffs on Chinese goods of around 75% are already prohibitive for most products.
- US households and businesses will only be buying essential Chinese imports that cannot be sourced elsewhere – such as medical supplies and rare earths – for which price elasticity of demand is incredibly low.
- That means an additional 50% tariff will do little to decrease Chinese imports, but it will hike up prices of these essential Chinese imports.
The upshot: If China judges that the economic relationship has already hit rock bottom, Beijing could crank up the pain meter on the US without fear of meaningful reprisal from Washington.
- Expect China to strike back hard and fast should Trump follow through with his threat.