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China’s Response to Economic Challenges Amid US Trade Tensions

Recently, President Xi Jinping unveiled a strategy aimed at addressing the ongoing economic challenges facing China, particularly in the context of the US trade war. This announcement follows speculation that China is contemplating the reduction of tariffs on certain US goods, which may include vital sectors like semiconductors.

During a meeting on Friday, the politburo convened to evaluate the current economic landscape, which has been strained since the pandemic struck. Challenges fueled by a problematic housing market, rising youth unemployment, and tariffs introduced during Donald Trump’s administration have compounded the situation.

An official report from the state-run outlet, Xinhua, highlighted that while China’s economy is starting to show positive recovery signs with increasing public confidence looking toward 2025, the external economic pressures have heightened significantly.

“It is essential to reinforce foundational thinking, proactively prepare emergency responses, and ensure robust economic productivity,” the report emphasized.

In reference to the tariffs imposed during the prior US administration, the statement indicated that China would work collaboratively with the international community to advocate for multilateralism while opposing unilateral coercive actions.

The readout suggested several interventions aimed at stimulating the domestic economy and safeguarding citizens and businesses from Trump’s tariffs. These measures include enhancing unemployment benefits, increasing the incomes of low- and middle-income earners, advancing the service sector, and stimulating consumer spending.

“We need to implement various strategies to support struggling enterprises,” the report added. “Strengthening financial assistance and expediting the integration of domestic and foreign trade are crucial.”

Moreover, there’s a pressing need for more proactive macroeconomic strategies, the swift establishment of a new housing model, increased residential construction, and revitalized urban renewal programs.

Wen-ti Sung, a non-resident fellow at the Atlantic Council’s Global China Hub, pointed out that the decisions made during the politburo meeting indicate China’s recognition of a challenging international economic climate and a readiness to manage domestic inflation as a buffer against tariffs.

“This suggests that China is preparing for a prolonged trade confrontation with the US,” Sung noted.

He also remarked that the Chinese government is intensifying efforts to drive domestic demand and foster fiscal expansion amid a stagnant international market.

During the meeting, reports surfaced indicating that Chinese authorities were evaluating a selection of US goods potentially eligible for exemption from the hefty 125% tariffs placed on all US imports. Sources from Bloomberg and Reuters indicated that items including medical equipment, semiconductors, and specific industrial chemicals, such as ethane, were under consideration for inclusion in this exemption list.

A supplier based in Shenzhen reported that it received notification from customs that eight different semiconductor products would no longer incur the 125% tariff.

Additionally, Michael Hart, head of the American Chamber of Commerce in China, stated that Chinese officials were inquiring about which US products were uniquely essential for import. Hart expressed optimism regarding the early indicators of both nations reviewing tariffs and generating lists of exempted goods, which led to a rise in stock markets throughout the Asia-Pacific region.

The ongoing trade conflict has placed considerable strain on both the US and Chinese economies, and tariff exemptions may signal an attempt by both countries to mitigate the conflict. The US has already exempted several categories of Chinese products, including smartphones and laptops, from tariffs. This week, Trump indicated that his tariffs on China would be significantly reduced, although he stated that they would not disappear entirely.

However, the public narratives from the two governments diverge regarding the progress of negotiations aimed at resolving the trade conflict.

On Friday afternoon, the Chinese foreign ministry reaffirmed its stance that there are no active tariff negotiations with the US, countering Trump’s assertions made the day prior.

At a White House press briefing, Trump maintained that discussions are ongoing, implying that meetings had taken place without revealing specific details or parties involved, while he referenced their earlier statements asserting the absence of negotiations.

Source
www.theguardian.com