The US action means the Chinese government will need to announce an additional stimulus worth 500 billion yuan ($69 billion) to 700 billion yuan to meet its growth targets

Agencies BEIJING

China has issued a stern warning to the United States, threatening retaliation after President Donald Trump announced plans to double tariffs on Chinese imports from 10% to 20%. This escalation raises concerns about a potential trade war between the world's two largest economies. "If the US insists on having its own way, China will counter with all necessary measures to defend its legitimate rights and interests," a Chinese Ministry of Commerce spokesperson stated.

This response followed Trump's announcement of an additional 10% tariff, citing concerns about drug flows and China's alleged role in the supply chain. These new levies, set to take effect on March 4, build upon previous tariffs and are part of a broader US strategy targeting technology and investment, according  to Bloomberg news.

The announcement triggered a significant market reaction, with Chinese shares in Hong Kong experiencing a sharp decline, their largest single-day drop since October. The onshore CSI 300 Index also saw a decrease, potentially marking its first weekly loss in a month.

Analysts suggest that Trump's actions could prompt a more aggressive response from China. "Trump may be pressing his luck," noted Chang Shu, chief Asia economist for Bloomberg Economics, highlighting the risk of a shift towards a "more strident retaliatory stance”. The timing of the new tariffs, just before China's National People's Congress, where key economic policies will be unveiled, adds to the tension. While the tariffs are unlikely to alter pre-set growth targets, they could negatively impact market sentiment.

In a recent Politburo meeting, President Xi Jinping emphasized the importance of expanding domestic demand and stabilizing the housing and stock markets. He also called for composure amidst rising tensions. Despite this, there has been no direct communication between Xi and Trump since the US President's inauguration, although Trump indicated he expected a call. Both nations have shown a desire to maintain dialogue.

Recent high-level contacts, including talks between Vice-Premier He Lifeng and Treasury Secretary Scott Bessent, and planned military discussions, suggest efforts to prevent a complete breakdown in relations. China's statement expressing a desire for dialogue further underscores this intent. Historically, China has responded to tariffs after their implementation.

Following the previous round of levies, Beijing took swift action, including imposing additional tariffs, launching an antitrust investigation into Google, tightening export controls on critical minerals, and blacklisting US companies. This pattern suggests that China is prepared to take decisive measures in response to the latest tariff increase.