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Something for your Espresso – China wants tariffs to continue

Trump is increasing uncertainty and hurting both the economy and risk assets in an attempt to do the opposite. Are there ways to shield yourself from the ongoing geopolitical landscape? We believe so!
2025-02-05

Hello from Europe.

Donald Trump was scheduled to have a call with Xi Jinping yesterday on tariffs, similar to his conversations with both Trudeau and Sheinbaum on Monday. It now seems that the base case is for tariffs to continue rolling through toward China, with a tit-for-tat dynamic emerging between the U.S. and China. In a surprising statement, Trump also claimed he would simply acquire Gaza to solve the conflict.

As we wrote yesterday, there are several reasons why it makes sense for Trump to direct tariffs toward China: (1) the trade deficit with China is significantly larger than with Mexico or Canada, and (2) China has little leverage to offer in return. However, what’s interesting is that China has not attempted to cushion the economy through USDCNY at all. The fixing after the holidays shows that they are continuing to move the USDCNY fix lower—a clear signal that they are comfortable with the current trajectory of events.

China likely views back-and-forth tariffs as more damaging to the U.S. economy than to China from a trade perspective, meaning we should brace for more U.S.-China headlines in the coming weeks.

Chart 1: China is comfortable with tariffs

Trump is increasing uncertainty and hurting both the economy and risk assets in an attempt to do the opposite. Are there ways to shield yourself from the ongoing geopolitical landscape? We believe so!

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