Being the First Country to Counter Trump's Tariffs, China: Ample Room for Rate Cuts and RRR Reductions

TradingKey - In response to the U.S. tariff war, China became the first country globally to implement reciprocal counter-tariffs. Following this move, the official Chinese official media outlet People’s Daily emphasized that China possesses strong resilience against the impact of U.S. tariff hikes and retains ample room to adjust monetary policy tools, such as interest rate cuts and reserve requirement ratio (RRR) reductions.

On April 2nd, U.S. President Donald Trump announced his so-called "reciprocal tariff plan," imposing a baseline 10% tariff on all trading partners, with even higher tariffs targeting dozens of countries, including China, Japan, the European Union, and Cambodia.

On April 4th, China responded by imposing a 34% tariff on U.S. imports, becoming the first nation to formally counter Trump's new tariff measures.

Yuyuantantian, a media outlet under China Central Television (CCTV), commented that the unprecedented move to impose tariffs on global trading partners reflects the U.S. government's attempt to disrupt the WTO-centered global trade system. China’s firm and swift countermeasures aim to decisively curb this trend.

Furthermore, a People’s Daily commentator stated that although the imposition of U.S. tariffs would have an impact on China, “the sky won’t fall.” Over the past year, China has actively diversified its exports markets, reducing its dependence on the U.S . Meanwhile, many U.S. consumer goods, consumer goods, and intermediate products remain reliant on Chinese supply, with few immediate substitutes available in the short term.

The People’s Daily also noted that, depending on the situation evolves, China has sufficientroom to adjust monetary policy, including interest rate cuts and RRR reductions, which can be implemented as needed. Fiscal policy has already been clarified to increase spending intensity and accelerate disbursements, with additional room to expand fiscal deficits, special bonds, and treasury bonds if required.

On the morning of April 7th, China’s 10-year government bond yield fell nearly 5%, reaching a near-historic low of 1.642%.

Economists at ING Bank NV believe there is a high likelihood that China’s central bank will cut interest rates or lower reserve requirements in the short term. The People’s Bank of China (PBOC) has held off on easing  for several months, awaiting an opportune moment. The outbreak of the trade war and resulting market turmoil may now provide that window.

As of April 7th, the Shanghai Composite Index had fallen 6.34% to 3,130.17, while the ChiNext Index plunged 9.74% to 1,864.24. Meanwhile, Japan’s Nikkei 225 dropped 7.36%, and Nasdaq 100 futures declined by more than 4%.