How will the 104% US tariffs affect Chinese markets and global trade?

Written by

Fabien Yip

Market Analyst

Latest development on US-China trade tensions

The trade relationship between the US and China has deteriorated significantly since President Trump's inauguration in January 2025. What began as a 10% additional tariff on Chinese goods in February has rapidly escalated into a full-blown trade war, with the latest US tariff rate reaching a staggering 104% on all Chinese imports. The 'Liberation Day' marks a significant turning point in global trade relations.

Here's the timeline of key events in this escalating trade conflict:

• 4 February: US imposed 10% additional tariff on Chinese goods
• 7 February: Temporary tariff exemption for Chinese goods worth less than $800
• 10 February: China hit back with 15% tariff on US coal and liquefied natural gas exports plus 10% levy on oil and agricultural equipment, and expanded their blacklist of US entities
• 4 March: US doubled tariff on Chinese goods to 20%
• 10 March: China imposed 10% additional tariff on US soybeans, and introduced 10%-15% tariffs on agricultural imports including beef, cotton, and pork
• 2 April: Trump unveiled the latest reciprocal tariff policy hitting all Chinese imports with an extra 34% starting 9 April and cancelling the exemption for goods worth less than $800 starting 2 May
• 4 April: China announced a restriction of rare earth export and 34% retaliation tariff on all US goods effective 10 April
• 9 April: In response to Beijing's countermeasures, US slapped on an additional 50% tariffs, taking the blanket rate on all Chinese goods to a jaw-dropping 104%

Economic implications for China

China has been working to reduce its dependency on US trade since Trump's first term, successfully decreasing the share of US exports from 19% in 2018 to under 15% in 2024 based on figures provided by the People's Daily. However, the total value of exports to the US remains substantial at $525 billion, accounting for nearly 3% of China's GDP.

Hong Kong exports to the US, which totalled approximately $38 billion in 2024, will also face these reciprocal tariffs, compounding the economic impact on the region. With exports being a critical driver of GDP growth, economists estimate these tariffs could reduce China's annual growth by one to two percentage points.

Chinese financial markets have responded negatively to the escalation, with the Hang Seng Index dropping more than 20% from its peak on 19 March, officially entering bear market territory. This market volatility reflects growing investor concern about China's economic outlook.

The Chinese offshore yuan has also plunged to record lows against the US dollar, reaching 7.42855 before rebounding slightly to around 7.38. This currency weakness could partially offset tariff impacts by making Chinese exports more competitive, but it introduces other economic challenges.

Beijing's economic measures

In reaction to the market downturn, Beijing has activated several economic levers to stabilise the situation. State-backed funds, including Central Huijin, have been actively purchasing exchange traded funds (ETF), state-owned enterprises, and technology firms to support stock prices.

The People's Bank of China (PBoC) has room to reduce both the Reserve Requirement Ratio and interest rates to improve money supply. Government officials have also reportedly met to discuss potential consumption stimulus plans that could boost domestic demand.

Currency policy has been another key response tool. The PBoC set the reference rate for USD/CNH at 7.2066 on 9 April, the lowest since September 2023. This deliberate weakening makes Chinese exports more appealing to foreign buyers, potentially offsetting some tariff impacts.

China has simultaneously strengthened ties with other trading partners, including the European Union and Japan, which have also been affected by US tariffs despite being long-time allies. This diversification strategy aims to reduce China's vulnerability to US trade actions while expanding alternative markets.

While the Chinese government has ramped up its actions to defend the economy as trade tensions escalate, what we have seen so far is probably insufficient to offset the damage. More concrete stimulus measures will be needed for China to meet its ambitious 5% GDP growth target in the face of these trade headwinds.

Sector-specific impact assessment

Export-oriented sectors have been hit hardest by the escalating trade tensions. Technology companies, apparel manufacturers, and materials exporters are among the worst performers in recent market activity, with some experiencing dramatic share price declines exceeding 30% in just five days.

Five-day performance for the bottom movers in the Hang Seng Index (as of 8 April):

• WuXi Biologics: -34.1%
• Lenovo: -28.4%
• Techtronic Industries: -22.7%
• Shenzhou International: -21.2%
• Xiaomi: -20.9%

In contrast, companies focused on domestic consumption, utilities, and consumer staples have demonstrated remarkable resilience. Their stable cash flow profiles and limited exposure to international trade disputes make them attractive defensive plays in the current environment.

The top performers in the Hang Seng Index over the same period show significantly smaller losses:

• Power Assets: -0.2%
• CK Infrastructure: -0.5%
• Tingyi: -0.9%
• CSPC Pharmaceutical: -1.0%
• China Mengniu Dairy: -1.6%

If the Chinese government implements new stimulus measures focused on boosting domestic consumption, the consumer sector could potentially benefit significantly. Companies with strong domestic market positions may weather the trade tensions better than export-dependent businesses.

Technical analysis and market outlook

The Hang Seng Index suffered a record single-day drop of 3021 points on Monday and is now hovering around its 200-day moving average at approximately 19,900. Failure to hold or rebound above this level would confirm the bear market trend that appears to be developing.

Without additional negative developments, the index should find support around 17,000. However, if trade tensions continue to escalate, a return to 2024 lows could mean a further drawdown of 25%. The relative strength index currently sits at 26, indicating oversold conditions that could trigger a technical rebound towards 21,100.

Figure 1: Hang Seng Index (daily) price chart

For the offshore yuan, the currency faces continued pressure amid the trade dispute. If recent movements represent Wave V under the Elliott Wave Theory, the 1.618 Fibonacci extension suggests an upper bound of 7.53 for the USD/CNH pair. Alternatively, the pair could follow through with Wave A, retreating to 7.35. Traders should closely monitor official statements from both governments, as any indication of de-escalation could trigger significant market movements.

Figure 2: USD/CNH daily price chart