China says ‘We’re ready to defend ourselves against any US hostility’

China is ready for battle. Earlier today, He Yongqian, spokesperson for China’s Ministry of Commerce, told reporters during a press conference that China will take “necessary measures” to protect its economy.

“In the face of one-sided acts of economic bullying from America, we will firmly protect our own rights and interests,” Yongqian warned. The commerce ministry’s spokesperson was referring to the trade war US President Donald Trump initiated on Tuesday.

China’s Ministry of Foreign Affairs spokesperson Lin Jian already said on Wednesday that China “deplores and opposes” the US decision to increase tariffs under the guise of the fentanyl crisis. He warned that the steps taken by China are essential for “safeguarding our legitimate rights and interests.”

Trump’s administration imposed the 10% tariff as punishment, accusing Beijing of failing to stop fentanyl shipments to the US. The new duties come on top of the existing tariffs of up to 25% that Trump implemented during his first presidency.

Beijing wasted no time retaliating, announcing tariffs of up to 15% on US liquefied natural gas (LNG) and various products, set to kick in on February 10.

Tariffs slam China’s struggling economy 

The Trump administration also revoked the de minimis exemption, making it pricier for Chinese e-commerce merchants to ship directly to American consumers. The timing couldn’t be worse for China, which is already dealing with a shaky economy.

Goldman Sachs economists said on Monday that the extra 10% tariffs could slice 50 basis points off China’s GDP growth this year, bringing it down to 4.5%.

Inflation is another headache. Consumer prices barely grew last year, with inflation rising only 0.2% year-over-year.

Goldman now expects inflation to stay weak, rising by just 0.4% in 2025, as US tariffs reduce external demand for Chinese goods. As exports get squeezed, China’s Ministry of Commerce urged Washington to “create a fair and predictable environment for cross-border trade.”

The pressure doesn’t end there. Trump has ordered a review of China’s compliance with the 2020 trade agreement signed during his first presidency. The review, due on April 1, could set the stage for even more tariffs.

Wang Tao, chief China economist at UBS, warned that there’s a lot of uncertainty. “The 10% tariff hike came quickly,” she said, “but we don’t know how much further this will go.” UBS isn’t ruling out additional US tariffs of 60% on some Chinese exports.

China braces for currency battles 

As the trade war escalates, the offshore yuan fell 0.60% to 7.3631 against the US dollar on Monday, its lowest level since Trump’s November victory. The yuan has lost 3.7% since then, but the People’s Bank of China (PBOC) is determined to keep things under control.

The central bank has been capping the exchange rate since August 2024, allowing the onshore yuan to trade within a 2% range of the daily reference rate. The rate set on Wednesday will be a key signal of how Beijing plans to counter the impact of tariffs.

Goldman Sachs analysts expect the PBOC to let the yuan gradually rise between 7.40 and 7.50 per dollar while maintaining tight controls.

Exports remain one of the few bright spots, contributing nearly 20% of China’s GDP in 2023, according to the World Bank. Last year, exports to the US climbed 4.9% to $524.6 billion, representing 15% of China’s total exports. But Trump’s latest tariffs are expected to hit this key revenue stream hard.

Goldman Sachs economists predict that China’s fiscal deficit will widen by 2.6% of GDP in 2025 as the government rolls out more expansionary policies. Beijing is expected to announce additional measures during its annual parliamentary meetings in March.

On Sunday, the Commerce Ministry said it would challenge Trump’s tariff decision at the World Trade Organization (WTO), calling it a “serious violation” of international trade rules. While China’s previous WTO complaints haven’t resulted in immediate relief, Beijing is signaling it won’t sit back and let the US dictate the terms.

Economists say Beijing’s response has been relatively measured so far, but that could change, and when it does, the global economy might get caught in the crossfire.

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