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Key Takeaways:

• The Trump Administration has announced that an additional 50 percent tariff will be added on top of the 34 percent tariff on Chinese goods that is set to go into effect at 12:01 AM on April 9.
• It is now clear that the United States and China have entered a period that can only be called a true escalatory “trade war.” There are no unambiguous signs that U.S.- China trade negotiations will commence any time soon, despite the Trump Administration’s apparent willingness to start talks with other partners in Asia.
• In turn, China is exercising the full range of trade tools it developed in recent years to respond to U.S. tariffs – targeting a spectrum of differentiated measures. Beijing’s latest announcement of retaliatory measures sought to incur relative costs on the United States with minimal harm to the Chinese economy.
• Additional retaliation by China on April 9 is entirely possible – even likely. Following Trump’s April 7 threat to add another 50 percent, the Chinese government responded that it would “fight to the end.” President Trump’s singling out of China for additional tariffs and his inflammatory rhetoric have created a situation where President Xi must maintain face domestically and continue to respond blow-for-blow. Chinese social media is heating up on the issue, leading to the possibility of consumer backlash against American products sold in China.
• To adapt to the rapidly evolving situation, Beijing will also continue to use a range of macroeconomic tools to mitigate the impact of the U.S. tariffs, including lowering reserve requirement ratios, expanding government debt, and intervening in financial markets to stabilize investor confidence.
• Over the medium term, Beijing will take additional steps to diversify its trading relationships with Europe and Asia and further decrease reliance on trade with the United States, a process that is already unfolding.
• China’s leaders will also carefully track how other countries fair in their negotiations with Trump. If the majority of countries in Europe and Asia do reach for negotiations with Washington, China could feel isolated and more actively consider taking the risks of starting talks with the Trump White House.

PHOTO CREDIT: Ying Tang/NurPhoto via Getty Images