China has responded to President Donald Trump’s sweeping tariffs with targeted measures of its own, signaling a measured approach to the escalating trade tensions between the world’s two largest economies. The Chinese government announced a 15% tariff on U.S. coal and liquefied natural gas, along with a 10% levy on crude oil, agricultural machinery, and certain vehicles, set to take effect on February 10.
In addition to the tariffs, China has launched an anti-monopoly probe into Alphabet Inc.’s Google (NASDAQ: GOOGL) and placed PVH Corp (NYSE: PVH) and Illumina Inc. (NASDAQ: ILMN) on a list of potential sanctions. The country has also imposed export controls on critical metals such as tungsten, which are essential for electronics, military equipment, and solar panels.
Despite these retaliatory measures, U.S. stock markets showed resilience on Tuesday morning. The Dow Jones Industrial Average dipped by approximately 0.1%, while the S&P 500 remained near the neutral line. The tech-focused Nasdaq Composite even saw a modest increase of about 0.2%. This muted reaction suggests that investors may view China’s response as relatively restrained, potentially leaving room for negotiations.
The limited nature of China’s retaliation is evident in the scope of its tariffs. Capital Economics estimates that China’s additional tariffs would apply to about $20 billion of annual imports, a fraction of the $450 billion worth of Chinese goods subject to Trump’s 10% tariff. This measured approach may be an attempt to engage Trump in talks to prevent a full-blown trade war.
President Trump has indicated his willingness to negotiate, announcing plans to speak with Chinese President Xi Jinping later in the week. This development, along with Trump’s last-minute decision to suspend 25% tariffs on Mexico and Canada for 30 days, has somewhat eased market concerns about an imminent global trade conflict.
However, economists warn that the trade tensions could still have significant economic implications. Goldman Sachs analysts estimate that the tariffs could reduce the S&P 500’s fair value by roughly 5%. The uncertainty surrounding trade policy has also contributed to an increase in long-term bond yields, with the 10-year Treasury yield rising to 4.54%.
As the situation continues to evolve, investors and policymakers alike will be closely monitoring the upcoming discussions between Trump and Xi. The outcome of these talks could determine whether the current trade tensions escalate into a full-scale trade war or if a more conciliatory approach can be reached, potentially stabilizing global markets and economic growth.
