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: TADAWUL-

The TASI rose 1.0% yesterday on turnover of SAR 8 bn. The index is down 6.0% YTD.

In the green: Zamil Indust (+9.9%), SPM (+8.2%) and Aldrees (+6.8%).

In the red: Americana (-5.0%), Almajed Oud (-3.8%) and Abo Moati (-2.5%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.6% yesterday on turnover of SAR 36.2 mn. The index is down 9.5% YTD.

In the green: HKC (+10.0%), Mulkia (+9.8%) and Aljouf Water (+9.3%).

In the red: Horizon Educational (-10.0%), Alhasoob (-9.8%) and Rawasi (-6.9%).

CORPORATE ACTIONS-

Bank AlJazira’s shareholders will vote on its proposed 25% capital increase to SAR 12.81 bn through a rights issue on Monday, 28 April, according to a filing to Tadawul. The increase will see shareholders receive an additional four shares for each share currently held. The increase will be funded by transferring SAR 1.3 bn from the bank’s statutory reserve account and an equal amount from its retained earnings account.

Tadawul-listed Americana Restaurants’ shareholders will vote on its proposed dividend policy for FY 2024 on Tuesday, April 29, according to a disclosure (pdf) to the exchange. The company’s BoD recommended a USD 126.99 mn dividend at roughly USD 0.015 per share, representing 75.4% of its total share capital.