Chairman’s Note

Private and Confidential
For SIIA Corporate Members and Advisors
14 May 2025

Trump Tariffs and China

Many are talking about the tariffs that US President Trump enacted on “liberation day” on 2 April. There are multiple dimensions to consider, including the legality of the tariffs and the extent to which they hurt – first and foremost – the US itself and will spike inflation.  Market anxiety is now clear.

Against this context, this note focuses on the impacts and responses of China.  While US tariffs have been raised against all countries, the US-China trade and economic interdependency is the single most important bilateral relationship. Questions about relationship loom large and are fast changing. At the time of writing, representatives from the US and China have met in Switzerland and have just agreed to a 90-day tariff cut. Trump has also expressed his willingness to speak to Chinese president Xi Jinping later this week.

Please allow me to share some of my thoughts on China’s responses with you as our corporate member and friend.

1. Tit-for-Tat: Within days of returning to office, Trump first upped tariffs by 10% against China in tandem with those on Canada and Mexico. China’s initial reaction was measured. Then came Trump’s Liberation Day tariffs that imposed a cumulative 54% tariff on Chinese goods, leading to a swift and stronger response from Beijing, to impose its own reciprocal tariffs on American goods. Trump then warned China to step back or face further tariff hikes, which China refused. Both sides soon entered a cycle of tit-for-tat escalations. A mere eight days later, headlines on 10^th April read that the total tariff on all China exports to the US have been raised to 145%. China imposed a retaliatory tariff of 125%, and the US responded by putting a 245% punitive tariff on China. As of time of writing, the US will cut tariffs to 30% and China will reduce tariffs to 10% for 90 days from 14 May.

2. China and Other Asian Countries: China has vowed to “fight to the end” as proclaimed from a source linked to state-controlled media. Its decision to retaliate starkly contrasts with other Asian countries’ efforts to accommodate Trump’s tariffs. Most Asian countries have welcomed negotiations, and some have already sent delegations to the USA to do so, with pledges to increase purchases from the US and reduce surpluses. This is not only Japan and South Korea, which are allies. Notably India has sought to start talks with the US to seek a new trade deal.

3. Nationalist Impulses and Posturing: While Washington announced the first round of Liberation Day tariffs, Xi and six other members of the Politburo Standing Committee were out planting trees as part of a campaign to counter deforestation. Planned or otherwise, China presented a calm and measured posture. On the media front, a China Daily editorial published that “caving in to the US pressure is out of the question for Beijing”, and that China “knows that kowtowing to the US’ tariff bullying will gain it nothing”. Similarly, Xinhua News Agency reported that Beijing will continue to take “resolute measures” to defend its economy and safeguard its sovereignty and security.

4. Next steps: At the time of writing, media reports say that a meeting is being held in Switzerland. China has unexpectedly appointed a new trade envoy, with Li Chenggang, a former assistant commerce minister and WTO ambassador. He takes over from veteran trade negotiator Vice Commerce Minister Wang Shouwen who had prior experience negotiating with the first Trump administration. China initially has signalled that tariffs should be reduced as a precondition for discussion. It remains to be seen how the two parties proceed. While both have economic reason to compromise, neither wants to look weak.

5. Domestic economy: The US tariffs add pressure on the already weakened economy in China. Growth has been poor since the end of the pandemic and there is a broad unhappiness in many quarters. Freight companies are reporting plunging shipments from China to the US, while China’s Purchasing Manager’s Index (PMI) has fallen to 49.0 from 50.5, marking a 16-month low. . Beijing has taken steps to boost domestic consumption at the recently concluded Two Sessions, or lianghui and in Premier Li Qiang’s 2025 Government Work Report. Anticipating Trump’s tariffs, Beijing put significant emphasis on guarding against “global shocks” and “defusing” risks to reduce reduction of supply-chain vulnerabilities.

6. Exporters and E-commerce: The US is a major market for many Chinese exporters and tariffs are impacting them sharply. Specific measures to tighten e-commerce especially hit, Chinese manufacturers in textile and fast fashion firms like Temu and Shein. Policy responses by Beijing could assist in looking for alternative markets but there is a limit to demand outside of the USA. Another policy shift could be to devalue the yuan. This would aim to water down the tariff impacts in USD terms but could push deflation further.

7. Against the World or Against China: Many try to dissect Trump’s intentions to see if there is some method to the madness. A key question is whether the tariffs are a US reaction to all countries, as signalled by the initial approach to impose tariffs on around 90 countries. Yet these were suspended for 90 days, whereas tariffs against China will proceed. As such, some now read the US intention is to orchestrate a collective stance against China. If so, other countries will be targeted to prevent trade diversion and close any potential loopholes. But otherwise, the US will be relatively light on them and might even seek to have them put up tariffs or other trade restrictions against China.

8. Ripple Effects on Asean: Looking for markets outside the US, China now appears to be re-emphasizing ties with Asean for both economic and political reasons. President Xi’s trips in April 2025 to Vietnam and Malaysia evinces this intention. Yet Asean countries and businesses must safeguard against China-washing or risk getting hit by higher US tariffs. A case in point is Vietnam, which was targeted by a 46% tariff as many report it has been a location for China’s trade diversion tactics to bypass US tariffs. Similar accusations too have been made about Malaysia. Another ripple effect to Asean could come from the mass of cheaper Chinese goods being diverted from the US marker and dumped into the region. These could undercut domestic products, hurting efforts to increase in-country industrialization. Indonesia has already signalled this concern and there was talk of increasing tariffs against China or else to take emergency measures against dumping.

This note has focused on China because of the large volume of trade between the two largest economies and the level of tariffs now imposed on their bilateral trade. But Trump’s tariffs impact all countries and the SIIA plans to share more notes about our region.

Quickly after “Liberation Day” the SIIA convened a closed door discussion among experts. We have had further discussions in Indonesia on tariffs and will be participating and speaking at a number of discussions on the issue in the coming weeks with Asean and other experts. We will program more talks and briefings on the issue as it develops.

If you wish to share insights or discuss this further, I would be glad to hear from you.

Yours sincerely,

Simon Tay
Chairman