“Trump shifts stance on China tariffs, easing trade war fears and boosting market optimism.”, — write: www.fxempire.com
“Trump: We are thinking in terms of 25% tariffs on Mexico and Canada. I think we will do it on Feb 1.”
On the campaign trail, President Trump had threatened 60% tariffs on Chinese goods. However, the US President appears to have taken a different tack on China. Before his inauguration, Trump had lowered potential tariffs on Chinese goods to 10% and appointed former US Senator David Perdue as the US Ambassador to China.
Perdue, with his experience living in Hong Kong and working in China, is seen as a bridge to improve bilateral relations.
Trump’s call with China’s Premier, the silence on tariffs, and David Perdue’s appointment could ease concerns about a US-China trade war.
On Friday, January 17, President Donald Trump shared news of a call with China’s Premier Xi Jinping, saying,
“I just spoke to Chairman Xi Jinping of China. The call was a very good one for both China and the U.S.A. It is my expectation that we will solve many problems together, and starting immediately. We discussed balancing Trade, Fentanyl, TikTok, and many other subjects. President Xi and I will do everything possible to make the World more peaceful and safe!”
The IMF’s outlook and concerns about trade policy uncertainty underscored the importance of more stimulus targeting consumption.
However, China’s Q4 2024 GDP numbers raised uncertainties about whether Beijing will roll out more stimulus measures. Natixis Asia Pacific Chief Economist Alicia Garcia Herrero reacted to the data, saying:
“China’s 2024 GDP growth exactly on target (5.0028%!!). What a coincidence. Does this mean that China’s economy is doing so well that there is no need for further stimulus?”
Analysts suggest Beijing may focus on policies to boost consumption as part of its economic strategy.
Consumption and Stimulus Measures The economic rebound and the potential for improving US-China relations could boost consumer sentiment.
A pickup in economic activity could fuel job creation, wage growth, and consumer spending, crucial for China’s economic outlook. A pickup in job creation and wage growth may also contribute to an uptick in consumer confidence.
The potential improvement in consumer sentiment could make Beijing’s consumption-focused stimulus measures more effective.
On January 15, Beijing announced trade-in-policies for mobile phones, smartwatches, and tablets, effective January 20. Fresh measures targeting consumption could further bolster China’s economy.
Upcoming indicators, including retail sales and unemployment data, will reveal the effectiveness of these measures. A significant pickup in consumer spending could signal a shift toward a consumption economy.
Market Reactions: Diverging Trends Hopes for improving US-China relations and Beijing’s stimulus measures boosted demand for Hong Kong-listed stocks. The Hang Seng Index was up 0.40% on Tuesday, January 21, adding to its 1.75% gain from Monday.
However, uncertainty about Trump’s longer-term tariff goals and Beijing’s stimulus plans pressured Mainland China’s equity markets. The CSI 300 and Shanghai Composite dropped by 0.16% and 0.35%, respectively.