(April 8): China pledged to retaliate against Donald Trump’s latest tariff threat and stepped up efforts to support the market and economy, raising the risk of a prolonged trade war between the world’s two largest economies.

“The US threat to escalate tariffs on China is a mistake on top of a mistake,” the Chinese Ministry of Commerce said in a Tuesday statement. “If the US insists on its own way, China will fight to the end.”

The Chinese response came hours after US President Donald Trump vowed to slap additional 50% import taxes on China unless it withdraws its tit-for-tat retaliation against his earlier levies. The blunt reaction suggests Beijing intends to resist Trump’s pressure, dimming the prospect of a deal in the short term.

“The rhetoric from China is strong. Without Trump backing down investors may need to prepare for trade decoupling between both countries,” said Michelle Lam, greater China economist at Societe Generale SA.

Chinese authorities seem determined to support markets. This week, China’s central bank has loosened its grip on the yuan to boost the appeal of its exports and a group of state-linked funds known as the national team scooped up assets. The authorities also promised loans to help stabilise the market and were reported to have considered frontloading some stimulus.

The onshore yuan slid to the weakest level since September 2023, while the offshore unit hit a two-month low Tuesday. The Hang Seng China Enterprises Index jumped as much as 3.7% after capping its worst loss since the financial crisis in the previous session.

Trump’s latest charge would come on top of the 34% “reciprocal” duty set to kick in on April 9 as well as a 20% levy implemented earlier this year, according to a White House official. That takes the cumulative tariff announced this year to 104%, or effectively doubling the import price of any good shipped from China to the US.

The Chinese Ministry of Commerce also called for dialogue to resolve disputes in its statement, although Trump on Monday said “all talks with China” about a meeting will be terminated if Beijing doesn’t take action, without specifying what would be required.

The escalation of tensions makes any imminent leadership call less likely. Trump hasn’t spoken with Chinese President Xi Jinping since returning to the White House, the longest a US president has gone without talking to his Chinese counterpart post-inauguration in 20 years.

Earlier in the week the Communist Party’s official newspaper published an editorial declaring Beijing is no longer “clinging to illusions” of striking a deal. Xi has vowed to boost domestic consumption as the tariffs are expected to hurt exports, a sector responsible for a third of China’s economic growth last year.

Underscoring Beijing efforts to stem an equities rout, a basket of eight exchange-traded funds favoured by the so-called national team saw record net inflow of 42 billion yuan (US$5.7 billion or RM25.7 billion) Monday.

A weaker yuan helps offset the effect of higher tariffs, and the Chinese central bank’s weak fixing on Tuesday — past the keenly watched 7.20 per dollar level — signals more tolerance for depreciation. Bets on monetary stimulus have supported demand for China bonds, as 10-year sovereign yield hovered close to a record low set in early February.

Ding Shuang, chief economist for Greater China & North Asia at Standard Chartered, said China will hit back at new US tariffs with equivalent measures as any fresh US levies will add limited pain to the Asian nation.

“The marginal effect of raising tariffs further from the existing level of about 65% will shrink,” he said of additional US tariffs. “Most Chinese exports to the US have already been affected. For goods that are not price sensitive, tariffs won’t work no matter how high they go.”

In response to the latest US move, China’s embassy in Washington said US threats and pressure are “not the right way to engage” with China and the nation will defend its interests.

“The US hegemonic move in the name of ‘reciprocity’ serves its selfish interests at the expense of other countries’ legitimate interests and puts ‘America first’ over international rules,” embassy spokesman Liu Pengyu said.

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