Many investors may already believe that China is facing a challenging year due to the incoming Trump administration’s commitment to significantly higher tariffs on Chinese imports. However, the specifics of these tariffs remain unclear. It’s important to recognize that trade with the U.S. is not a primary driver of China’s economy. Direct U.S. imports from China account for less than 3% of China’s GDP, based on both Chinese and U.S. trade data, and are unlikely to drop to zero under any realistic scenario.
During the first Trump administration, steep tariff increases did not significantly reduce U.S. imports from China. Instead, total imports from China remained near pre-trade-war levels, with an apparent increase in indirect imports through countries like Vietnam, Cambodia, and Thailand. If China's currency depreciates and more exports are rerouted through third-party nations, the impact of additional tariffs could be minimal. Supporting this perspective, the International Monetary Fund’s latest World Economic Outlook forecasts that a broad trade conflict—where both the U.S. and Europe impose new reciprocal tariffs on China—could potentially reduce China's GDP by just 0.2% in 2025.
Here's are some interesting points as noted by the Asia Society Policy Institute’s this month from the Center for China Analysis. They unravels China’s complexities and delivers independent policy-relevant analysis from a holistic, nuanced, and humanistic perspective. “When it comes to the broader geopolitical competition between China and the US… (China could) look at things like conducting anti-monopoly type investigations, performing (stiffer) audits of (US) firms in China, and (exerting) export controls and restrictions.”
WHO BENEFITS?
As Trump targets more countries in his tariff war, Xie said Beijing could potentially play a bigger role in reshaping the supply chain. “We’ve spoken to Chinese companies (which told us) their biggest concern right now is not how much the US is imposing on China, but how much the US is going to impose on ASEAN,” Xie said. “But in the longer run, whether the US imposes tariffs on ASEAN or not, the trend is very clear: ASEAN is going to play a very important role (with) all the supply chain coming from China. This part of the world should continue to thrive in the coming years.”
Capri said trade partners are “appearing to be giving concessions upfront to mollify Trump, at the same time thinking about how to respond with retaliatory tariffs… that gets a whole process going of lobbying and legal actions.
“I would not be surprised to see some kind of quid pro quo or deals that might come out of (Trump’s) big announcements, for example, around artificial intelligence diffusion or semiconductors,” he added, saying this could play out especially in countries transacting between China and the US.
Chinese authorities also launched an antitrust probe into Google, putting the technology giant on notice for possible sanctions.
As Donald Trump continues to flex the United States’ financial power by ordering tariffs on imports, trade partners are gradually figuring out how best to respond to the threats, said observers.
Analysts said Trump’s announcements often come across as mercurial and ad hoc, with frequent U-turns and delays, and his transactional approach to many policies means negotiation and deal-making.
On Monday (Feb 10), fresh tariffs from China kicked in for certain American goods, including 15 per cent on coal and liquefied natural gas, and 10 per cent on crude oil, agricultural machinery and large-engine cars.
Trump’s tariffs on Canada and Mexico were put on pause for a month after both nations promised to reinforce their borders with the US, in a deal Trump saw as a victory in addressing illegal immigration and drug trafficking.
His tariff gamble also paid off on Colombia, forcing the South American country to accept deportees by threatening a 25 per cent tariff.
AI Movements
Competition to AI via emergence of Chinese AI app, DeepSeek, a competitor to OpenAI and it’s ChatGPT tool erased nearly $600billion or 17% on Wallstreet, from NVIDIA’s market value in just one day, on January 27, 2025. This loss more than double the prior one-day record set by NVIDIA last September at a 11.9% drop. Apparently, the east Chinese, company located in Hangzhou has shown the ability to match the capacity of the US AI pace-setters for a fraction of the investments made by American companies. It surged over the weekend to become the most downloaded app on Apple’s US App Store, displacing OpenAI’s ChatGPT. Their latest R1 model was made out of necessity, without access to NIVIDIA’s state of art chips after the US government placed export restrictions on them. Microsoft plans to invest $80bn and Meta announced at least $60bn investments in AI this year.
Company/Index | Change | Key Event | |||||||||
Meta & Microsoft | N/A | Scheduled to report earnings this week | |||||||||
Broadcom (US Chipmaker) | ⬇ 17.4% | Stock fell sharply | |||||||||
ASML (Dutch Semiconductor Equipment) | ⬇ 6.7% | Stock declined | |||||||||
Constellation Energy | ⬇ 20% | AI-related energy capacity plans, stock sank | |||||
S&P 500 | ⬇ 1.5% | Broad market decline | |||||
Dow Jones | ⬆ 0.7% | Index advanced | |||||
In Europe, the Frankfurt and Paris stock exchanges closed in the red while London finished flat. Asian stock markets mostly slid.
Just last week following his inauguration, Trump announced a US$500 billion venture to build infrastructure for AI in the United States led by Japanese giant SoftBank and ChatGPT-maker OpenAI.
SoftBank tumbled more than 8 per cent in Tokyo on Monday while Japanese semiconductor firm Advantest was also down more than 8 per cent and Tokyo Electron was off almost 5 per cent.
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