Growth Dragons Weekly: From Tariffs to Treasuries—China’s Economic Counterattack Begins
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The ongoing trade conflict between the United States and China has entered a volatile new phase in 2025—marked by steep tariff hikes, strategic countermeasures, and sweeping domestic adaptations on both sides. With the U.S. imposing record-high tariffs on Chinese goods and China striking back, the global economic balance is shifting. Trade flows, agriculture, financial markets, and national strategies are all being upended.
The Latest Round of Tariff Escalation
According to the Office of the U.S. Trade Representative, the U.S. exported $143.5 billion in goods to China in 2024 while importing $438.9 billion—highlighting a long-standing trade imbalance. In a bold move, former President Donald Trump raised tariffs on a broad range of Chinese goods, bringing the cumulative duty rate to 145%. This includes a 20% tariff hike imposed earlier this year, justified by China’s alleged role in the fentanyl supply chain.
Certain sectors remain exempt from these duties, including steel, aluminum, vehicles (already facing separate 25% tariffs), pharmaceuticals, semiconductors, copper, lumber, and energy products—though reports suggest these areas may be targeted in future rounds.
China, for its part, has signaled that it does not seek escalation but is fully prepared to respond. Initially, it raised tariffs on U.S. goods from 34% to 84%—a move that was reciprocal, though not equivalent. After the U.S. raised tariffs to 125%, China quickly matched the increase. This suggests Beijing sees this as a final warning and may respond more aggressively through other economic channels. Indeed, Chinese officials have stated they will not raise tariffs further, arguing that U.S. goods are now effectively priced out of the Chinese market.
Beyond Tariffs: Treasuries, Currency, and Trade Alliances
Instead of continuing with tit-for-tat tariff hikes, China appears to be shifting toward alternative forms of retaliation. The following measures have been rumored or hinted at:
Selling $50 billion worth of U.S. Treasury bonds.
Some have blamed Trump’s tariff reversal for the recent spike in U.S. bond yields, speculating that China is quietly offloading Treasuries.Targeting key agricultural imports such as U.S.-origin soybeans and sorghum with new tariffs.
Banning U.S. poultry and Hollywood films from entering the Chinese market.
Suspending U.S.-China cooperation on fentanyl control.
Implementing trade-in-services countermeasures that could hinder American firms in finance, consulting, and tech.
Launching investigations into U.S. companies’ intellectual property advantages in China.
We believe the conflict is increasingly morphing into a currency and monetary war. The Chinese yuan has weakened significantly in the past week—even more so than the U.S. dollar, which itself has declined against major currencies. A weaker yuan helps offset the impact of tariffs by making Chinese goods more competitive. While currency depreciation has limits, it’s likely to be part of a broader, multi-pronged response.
Meanwhile, China is also shoring up its trade relationships elsewhere. Talks of deeper economic integration with Japan and South Korea are underway, and President Xi is scheduled to visit ASEAN nations next week. China is already the largest trading partner for many countries. Even if the U.S. market contracts, global demand can keep China’s exports flowing—tariff-free. Expect new trade deals with favorable terms, particularly in Asia, to further insulate China from U.S. pressure.
Redirecting Exports to Domestic Markets
As exports face headwinds, Chinese firms are doubling down on domestic demand to absorb the excess supply. JD.com and Alibaba’s Freshippo (Hema) are leading this effort.
JD.com has announced a ¥200 billion (roughly $27.35 billion) fund to help Chinese exporters redirect goods to local consumers. This includes embedding staff in factories, purchasing surplus inventory directly, and featuring these products in a special section of its e-commerce platform—backed by dedicated traffic and marketing.
Freshippo has launched a fast-track onboarding process for exporters, streamlining product approvals and offering access to its warehouse network. These efforts aim to create alternative revenue channels for struggling exporters, although China’s sluggish domestic economy remains a concern.
Other major retailers are also stepping in. Yonghui Superstores, for example, has pledged to stock exporters’ goods within 15 days—highlighting the flexibility and responsiveness of China’s domestic retail infrastructure in the face of global trade disruption.
The Agricultural Sector: A Strategic Flashpoint
Among the industries most exposed to retaliatory tariffs is U.S. agriculture. China has long been one of the biggest buyers of American farm goods, especially soybeans and sorghum. But with China imposing stiff tariffs, these exports are now on the chopping block.
The upside? China’s domestic agricultural sector is set to benefit. With imports curtailed, local producers will fill the gap—potentially accelerating the country’s push toward food self-sufficiency.
Multi-front Economic Confrontation
The U.S.-China trade war is no longer just a battle over tariffs—it’s a multi-front economic confrontation involving currency, debt markets, trade alliances, and domestic pivots. With tariffs soaring to 145% on one side and 125% on the other, both countries are recalibrating their economic strategies.
From Midwest farms to Beijing’s retail shelves, the ripple effects are real—and growing. Whether this confrontation results in strategic advantage or mutual harm remains to be seen. But one thing is clear: the old rules of global trade no longer apply.