China traders hold their breath in the wake of new US tariffs and consider contingency plans

This week's bombshell US announcement of further tariffs on exports from China – taking the cumulative total to about 67 percent – leaves investors and companies wondering what comes next.

Will China retaliate after President Donald Trump's latest trade assault, and, if so, how?

"We have to make a thorough assessment of the difficulties ahead," said He Weiwen, executive director of the China Association of International Trade. "Although the future may be not all that gloomy, we need to find new opportunities to counter the odds."

Theoretically, he added, a tariff of 50 percent is sufficient to bring bilateral trade to a standstill.

As traders around the world hold their breath amid fears of a global trade war breaking out, one thing is clear, according to analysts, Chinese exporters can best protect themselves from US protectionism by diversifying their global markets.

China's trade with the United States has dropped 2.5 percentage points in the overall weight in the past six years albeit growing volume, with the focus shifting to markets in Southeast Asia. According to China's Customs, the US is now China's third-largest trading partner, after members of the Association of Southeast Asian Nations and the European Union.

The trade association's He also noted that US consumers may be left in the lurch because much of what they buy from China can't be easily sourced from other countries because of universal duties the US is slapping on all nations. And some of the goods purchased from China aren't even available from US domestic producers.

Wang Tao, chief economist at UBS, said she expects the Chinese government to respond to the latest US tariffs by announcing policies to cushion the effect on the domestic economy.

"The Chinese government unveiled a set of policies to support the economy at the start of the year, and more stimulus, including initiatives to boost domestic consumption, could be expected to help traders diversify their business," Wang said.

Zhao Hongyu, head of Shanghai Hongtian Jingye International Trade Co Ltd, said his company, which exports work clothing, will actively explore to expand in the domestic market.

"The US tariff measures will claim a lot of victims," he said. "We are, on one hand, trying our best to seek certainties by finding safer clients, such as those in China. On the other hand, we will think about how to minimize tariff effects by negotiation with our partners."

Shanghai Zhonghao Knitwear Co Ltd, which exports 60 percent of its products, mainly socks, to the US, said the best way to mitigate losses in the current environment is to be more efficient and produce better products.

"The challenge is always there," its President Gao Baolin said.

Trade conflicts are nothing new to global commerce, but traders are on heightened alert this time because of the severity of the latest round of US tariffs and a rising chorus of economists warning they could tip the world into recession. Major stock exchanges in the US, Asia and Europe have plunged in the wake of Trump's tariff announcement on Wednesday.

In the US, the impact has hit big trade-oriented companies like Tesla, Nvidia, Nike, Apple and Amazon.

"US growth in 2025 is likely to be slower than the 1.7 percent we projected in March, given higher-than-anticipated tariffs," according to a research note by Fitch Ratings.

Fitch warned that steeper tariffs will result in higher consumer prices and lower corporate profits in the US, which, in turn, will squeeze real wages, weigh on consumer spending and act as a drag on the business environment.

"Growth prospects for the rest of the world have also deteriorated, particularly in Asia," Fitch said, in a somewhat gloomy report.

In the immediate aftermath of Trump's tariff announcement, Chinese shares withstood the shock better than Asian counterparts. The Shanghai Composite Index slid 0.24 percent on Thursday, and the Shenzhen Composite Index lost 1.4 percent. Chinese markets were closed on Friday for the annual Qingming Festival holiday.