The trade war between the United States and China is escalating uncontrollably. U.S. President Donald Trump stated that if China does not withdraw the 'counter tariff,' he will impose an additional 50% tariff. In response, Chinese state media have indicated that they have at least six options prepared, including significantly increasing tariffs on U.S. agricultural products, showing their determination not to back down easily. Furthermore, China is mobilizing its sovereign wealth funds to stabilize the stock market, which plummeted the previous day, as it braces for a protracted trade war.
On the 8th, the account 'Nutanchin,' operated by the Chinese state news agency Xinhua, reported that it had heard several updates regarding specific tariff retaliation measures against the U.S. and that 'China has prepared at least six options.'
The first measure is to significantly increase tariffs on U.S. agricultural products such as soybeans and sorghum. Additionally, imports of U.S. chicken may also be completely banned. Nutanchin quoted sources saying, 'As bird flu has frequently occurred in the U.S., officials strongly advised China to ban imports of U.S. poultry to ensure food safety for the Chinese people.'
Additionally, the cessation of cooperation with the U.S. regarding the synthetic drug 'fentanyl' has also been mentioned. Trump had imposed a 20% retaliatory tariff after taking office in January, urging China to crack down on the production of the painkiller 'fentanyl.' Nutanchin stated, 'The U.S. has completely ignored China's humanitarian assistance, failing to understand China's goodwill while slandering, blaming, and shifting responsibility in various ways, seriously undermining the foundation of U.S.-China cooperation on fentanyl.'
Furthermore, Nutanchin noted that the participation of U.S. corporations in the service sector may be restricted, and business collaborations such as legal consulting may also be limited. Additionally, there are considerations to ban imports of U.S. films and to investigate situations where some U.S. companies enjoying substantial monopoly profits in China are acquiring intellectual property rights.
China's mention of these cards comes as the U.S. tariff pressure is intensifying. The day before, Trump announced through social media platform Truth Social that if China does not withdraw the 34% tariff on U.S. imports by the 8th, the U.S. will impose an additional 50% tariff, which will take effect from the 9th. In response, the Chinese Ministry of Commerce made it clear in a statement via a spokesperson that 'if the U.S. insists on its way, China will surely confront it to the end.'
◇ Mobilizing sovereign wealth funds to stabilize the stock market; the Central Bank supports export corporations through exchange rates
Alongside its retaliatory measures against the U.S., China is also simultaneously working to support its domestic market. A notable example is that on this day, Chinese sovereign wealth funds significantly increased their holdings in exchange-traded funds (ETFs). Central Huijin, a state-owned investment company that dominates over 20 major financial firms, including four major state-owned banks, announced that it would continue to increase its ETF holdings. This move comes after the Shanghai Composite Index fell over 7% and the Shenzhen Composite Index dropped more than 9%. In addition to Central Huijin, China Chengtong Group and China Guoxin also decided to expand their holdings of state-owned enterprise stocks and ETFs.
The People's Bank of China, the central bank of China, also initiated support for export corporations through exchange rates. On this day, the bank announced that the reference exchange rate of the yuan was set at 7.2038 yuan per U.S. dollar, a decrease from the previous day's 7.1980 yuan. This marks the weakest level since September of last year. Bloomberg reported that after U.S. President Trump was elected in November of last year, the 'soft red line' of 7.2 yuan per U.S. dollar was first breached. Lowering the currency value reduces the prices of export products, which can offset the impact of tariffs.
The market anticipates that China will further lower the value of the yuan. U.S. investment bank Wells Fargo estimates that the yuan's value could fall by as much as 15% within two months, while Jefferies predicts it could drop by up to 30%. Becky Liu, head of macro strategy for Standard Chartered in China, stated, 'China is allowing greater foreign exchange flexibility as a tool to ease growth pressures amid (the U.S.'s) aggressive tariff increases.'
Meanwhile, Taiwan, which faces a 32% mutual tariff, has initiated negotiations with the U.S. According to reports from Taiwanese media including Liberty Times, President Lai Ching-te has assembled a government negotiation team to resolve the issue of mutual tariffs with the U.S. He has appointed Director General Cheng Li-chuen to lead the team and is expected to dispatch it to the U.S. soon. Observations suggest that Taiwan will present options such as increasing imports of U.S. automobiles and health foods, as well as purchasing U.S. government bonds, as negotiation cards with the U.S.