China braces for a “fight to the end” against US tariffs

Trade war escalates with no end in sight: We seem to be heading to a long war of attrition between the world’s biggest two economies, after China’s Commerce Ministry vowed to “fight to the end” against what it labeled as “unilateral bullying” by the US. Beijing is already deploying a number of monetary and fiscal measures to absorb tariff shocks, with little signs that the crisis will be resolved any time soon.

IN CONTEXT- The Trump administration announced yesterday it will move forward with an additional 50% tariff on Chinese goods, bringing average tariffs on Beijing’s exports to over 120%. The combined tax includes the existing 20% tariffs over fentanyl trafficking accusations and the more recent 34% unilateral tariffs, as well as pre-existing 20% tariffs from before Trump’s second term.

The Chinese government allowed the CNY to depreciate on Monday in a bid to improve export competitiveness, fixing the rate against the USD at an 18-month low of just below CNY 7.20. Beijing will likely move forward with gradual depreciation rather than sudden currency moves to avoid destabilizing its economy, Barclays Asia Cross-Asset Strategy Head Kaanhari Singh told the Financial Times.

Other fiscal measures could include increased subsidies and export tax rebates to support affected industries. While such measures carry the risk of exacerbating industrial overcapacity and fueling deflationary pressures, the risk may be worth it for Beijing who “does not view the US measures as conducive to creating the right atmosphere for negotiations,” Bo Zhengyuan, Partner at Plenum, told Reuters.

State-owned companies are also pledging to increase share purchases and engage in stock buybacks in a bid to stabilize the stock market which saw a 7% drop on Monday’s session, before paring back some of the losses yesterday.

Tariffs could push China to seek alternative markets, potentially deepening trade ties with the EU and other developing nations in a bid to mitigate some of the impact. Beijing was Washington’s second largest source of imports last year, logging USD 439 bn in Chinese imports, while US exports to China reached USD 144 bn.

But not everyone inflicted with tariffs is in a confrontational mood, and traditional alliances might end up prevailing. The EU is exploring ways to resolve the conflict without taking distance from Washington as “sooner or later, we will sit at the negotiation table with the US and find a mutually acceptable compromise,” EU Trade Commissioner Maros Sefcovic said yesterday.

MARKETS THIS MORNING-

It’s a mixed morning for Asian markets, with Japan’s Nikkei down 2.7%, while Shanghai Composite remains unchanged. Meanwhile, Wall Street futures indicate more losses on market open, after the S&P 500 dropped 12% over the last four days.

THE CLOSING BELL-

The EGX30 rose 0.6% at yesterday’s close on turnover of EGP 4.8 bn (36.8% above the 90-day average). Local investors were the net sellers. The index is up 3.1% YTD.

In the green: Eastern Company (+7.1%), Oriental Weavers (+4.8%), and Sidi Kerir Petrochemicals (+3.5%).

In the red: CIB (-2.2%), Abu Qir Fertilizers (-1.0%), and Juhayna (-0.6%).

CORPORATE ACTIONS-

#1- Telecom Egypt will distribute a dividend of EGP 1.50 per share for its 2024 earnings on 24 April, according to a disclosure (pdf) to the EGX.

#2- GB Corp will pay shareholders a dividend of EGP 0.35 per share over two installments on 30 April and 17 July, according to an EGX disclosure (pdf).

#3- E-finance’s assembly approved a 52.6% capital hike to EGP 1.73 bn, through the distribution of bonus shares at a ratio of one share for every two held. The increase will be financed from reserves, according to a disclosure (pdf) to the EGX.