China Readies Its Trade-War Arsenal

Summary

WSJ What’s News: China Readies Its Trade-War Arsenal
Release Date: April 10, 2025
Host: Luke Vargas
Author: The Wall Street Journal

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Introduction

In the April 10, 2025 episode of WSJ What’s News, hosted by Luke Vargas, The Wall Street Journal delves into the escalating trade tensions between the United States and China, the recent prisoner swap between Russia and the US, and emerging intelligence regarding Chinese involvement in the Ukraine conflict. The episode offers comprehensive insights into how these developments are shaping global markets and geopolitical dynamics.

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Global Market Relief Amid Tariff Pauses

Timestamp [00:55] – [03:01]

The episode opens with a discussion on the immediate impact of President Trump's recent policy shift regarding tariffs. After initiating a 90-day pause on reciprocal tariffs imposed on various countries, including maintaining a significantly higher tariff rate of 125% on Chinese goods, global investors experienced a brief sense of relief. Market editor Katie Barnado provides an analysis of the current market trends:

• Japanese Nikkei Index: Increased by over 9%.
• South Korean Kospi: Rose more than 6%.
• German Dax: Up by 6%.

Barnado notes, "Perhaps things are more interesting if you look into some other assets," highlighting that despite the rally in international stock exchanges, U.S. Treasury yields remain high at around 4.3%, suggesting underlying market anxieties. Additionally, the US dollar is weakening against other currencies, contrary to typical expectations under such circumstances.

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China's Preparedness for a Trade War

Timestamp [03:01] – [09:12]

The core of the discussion centers on the intensifying trade war between the US and China. Luke Vargas converses with Jonathan Cheng, the Wall Street Journal's China Bureau Chief in Beijing, about China's strategic positioning and potential responses to the US's tariff tactics.

Cheng elaborates on China's readiness, stating, "China comes into this pretty well prepared psychologically. They have thought about all the bits of leverage that they have." He emphasizes that beyond retaliatory tariffs, China possesses various strategies to counteract US pressures, such as:

• Access Hindrance for American Companies: Making it more difficult for US businesses like Apple and Tesla, which are heavily reliant on Chinese manufacturing bases, to operate within China.

• Intellectual Property Pressures: Chen discusses the historical context of IP transfer through joint ventures, noting that increased coercion might compel Western companies to relinquish more proprietary information in exchange for market access.

• Market Diversification: Although tariffs on China's exports could disadvantage their competitiveness, Cheng points out that China still has approximately 200 countries as potential markets, mitigating the impact of US-specific trade barriers.

Furthermore, Cheng highlights the limited effect of the tariff increase from 104% to 125%, explaining, "After a certain level, call it 60% or higher, it really doesn't matter what the tariff level is because it will bring trade on that tranche of products basically to a standstill." This suggests that the aggressive tariff rates may effectively halt certain trade segments regardless of incremental increases.

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Supply Chain Adjustments and Vietnam's Role

Timestamp [07:05] – [09:16]

The conversation shifts to the potential rerouting of supply chains amidst the trade tensions. Reporter Stu Wu provides insights from Vietnam, a country that was initially slated to face 46% reciprocal tariffs but has since seen these tariffs put on hold.

Wu notes, "It's still cheaper than China, which has an even higher tariff," indicating that despite the high tariffs, Vietnam remains an attractive destination for foreign investors due to its low labor costs and established infrastructure. However, these temporary tariff pauses offer China a brief respite, though Cheng cautions that a 90-day pause is minimal in the grand scheme, requiring long-term strategic adjustments.

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Russia-US Prisoner Swap and Chinese Involvement in Ukraine

Timestamp [09:28] – [12:22]

Aside from trade issues, the episode covers the recent completion of a prisoner swap between Russia and the US. The exchange, conducted in Abu Dhabi, involved the release of Russian dual national Kisenya Karolina in return for Arthur Petrov, a dual German-Russian citizen accused by the US of exporting controlled microelectronics to support Russia's military efforts.

Moreover, intelligence reports reveal that over 150 Chinese citizens have joined Russian troops in the Ukraine conflict. Ukrainian intelligence, as reported by James Marson, uncovers detailed lists of Chinese nationals involved, raising concerns about:

• Skill Transfer: Some Chinese fighters are designated as explosive drone operators, suggesting potential knowledge transfer of advanced military techniques back to China.

• Motivations: It remains unclear whether these individuals are mercenaries driven by financial incentives or have broader affiliations with the Chinese government.

China has officially maintained a stance of economic support for Russia while denying active military involvement. However, the presence of Chinese nationals in the conflict zone complicates this narrative and poses questions about China's future geopolitical strategies.

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Economic Indicators to Watch

Timestamp [12:22] – [End]

Looking ahead, the episode highlights key economic indicators, namely the upcoming US inflation figures expected to show a slight slowdown in March. Economists polled by The Wall Street Journal anticipate a drop in inflation from 2.8% to 2.6%, which could influence Federal Reserve policies and market movements.

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Conclusion

The April 10th episode of WSJ What’s News provides an in-depth analysis of the mounting trade tensions between the US and China, the strategic preparations by China for potential economic confrontations, and the broader geopolitical implications involving Russia and Ukraine. With expert insights from Jonathan Cheng and on-the-ground reporting by Stu Wu and James Marson, the episode equips listeners with a nuanced understanding of the complex interplay between global markets and international relations.

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Notable Quotes:

• Jonathan Cheng: "China comes into this pretty well prepared psychologically. They have thought about all the bits of leverage that they have." [03:36]

• Katie Barnado: "Perhaps things are more interesting if you look into some other assets." [01:44]

• James Marson: "There's a question here as to whether these men are pure mercenaries doing it for money, citizenship, or whether they're actually going to then transmit those skills, that information that they learn on the battlefield, back to the Chinese authorities." [11:17]

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Key Takeaways:

• Trade Dynamics: The US-China trade war remains a critical issue with China showcasing considerable preparedness and multiple strategies to counteract US tariffs.

• Market Reactions: Global markets experienced a temporary rally following the US's pause on reciprocal tariffs, though underlying economic indicators suggest persistent uncertainties.

• Geopolitical Tensions: The involvement of Chinese nationals in the Ukraine conflict and the recent Russia-US prisoner swap underline the intricate and multifaceted nature of current international relations.

• Economic Forecasts: Upcoming US inflation data will be pivotal in shaping future economic policies and market trends.

For more detailed analyses and updates, listeners are encouraged to follow future episodes of WSJ What’s News.

Transcript

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[Luke Vargas]

Relief for global markets after President Trump blinks on tariffs though for China it's full steam ahead toward a trade war.

[Jonathan Cheng]

China comes into this pretty well prepared psychologically. They have thought about all the bits of leverage that they have, so there is some pain that China can inflict on the US Reciprocally. But beyond the tit for tat tariffs, there's so much that China can do.

[Luke Vargas]

Plus the US And Russia complete a prisoner swap and our Ukraine editor shares an exclusive glimpse glimpse into Ukrainian intelligence on the extent of Beijing's involvement in the war. It's Thursday, April 10th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of what's news, the top headlines and business stories moving your world today. Investors around the world are breathing a sigh of relief after President Trump announced a 90 day pause on so called reciprocal tariffs yesterday, an abrupt change in direction that followed what had been simultaneous declines, equities, bonds and the dollar. Journal markets editor Katie Barnado says almost all international exchanges are rising today, though there's also an undertone of skepticism.

[Katie Barnado]

Perhaps the biggest gainer among major indexes is in Japan, the Nikkei is up over 9%. In South Korea, the Kospi is up well over 6%. We've got some big moves over in Europe as well. The German Dax is up 6%. The Wrinkle in the picture at the moment is over in stock futures are actually down in what would be quite a big move in more typical trading, pushing towards 2% down. But given the size of the rally yesterday, it could just be viewed as a gentle paring back. Perhaps things are more interesting if you look into some other assets. However, we've got 10 year treasury yields still hovering close to 4.3%. To put that in context, before the April 2nd tariff announcement they were actually below 4.2%. Treasuries are viewed as a haven asset, so that could be signaling something about people's level of anxiety over the markets. The other notable fact is the dollar is actually still weakening against other currencies you might expect in this circumstance, there would be a bit of vote of favor in terms of the dollar, but that doesn't seem to be happening at the moment.

[Luke Vargas]

Well, while reciprocal tariffs for much of the world have been put on the back burner for now, Washington's trade war with Beijing is getting hotter by the day. And here with a look at China's options going forward, I'm joined by our China bureau chief, Jonathan Chang. John, we've reported that President Trump's decision to pause tariffs on dozens of countries while raising them to 125% on China could all be a part of an attempt to pressure Beijing into cutting some sort of deal with the US Though, at least for the time being. We've not seen any signs of a desire on Beijing's part to work this out, have we?

[Jonathan Cheng]

Yeah, that's right. I mean, China is either playing hard to get. That's one way to look at it. The other way is they're just not interested in talking. And if they're not interested in talking, it may just be that they feel comfortable. They feel like they're coming into this from a position of strength. So it's hard to know what exactly is the case. Obviously, we are trying to do our best to figure that out, but Beijing is a tough nut to crack, even for Washington. But certainly there hasn't been any movement that we're aware of on the negotiations front.

[Luke Vargas]

Yeah, no movement. And as our colleague Ling Lingwei reports, Beijing has actually been preparing for a trade war and has a whole arsenal of tactics at the ready. Walk us through some of those options.

[Jonathan Cheng]

Yeah, I mean, look, China comes into this pretty well prepared psychologically. They have thought about all the bits of leverage that they have. They can make it harder for American companies to sell into China. And yes, American companies do sell a lot to China. China is the third largest destination for US Exports. So there is some PA that China can inflict on the US Reciprocally. But beyond the tit for tat tariffs, there's so much that China can do. You have a lot of companies. The most obvious ones that come to mind, of course, are Apple and Tesla. Both of these companies rely on China as a manufacturing base. Tesla's largest factory in the world is in Shanghai. What could China do there? Well, it doesn't take much imagination to think that there are levers that they can pull here.

[Luke Vargas]

The line from Ling Ling's reporting that really jumped out to me was there might be ways to pressure American companies to give up their intellectual property in order to have access to the Chinese market. John, American companies are not going to be happy to hear that.

[Jonathan Cheng]

Yeah, actually, that's not something that's unfamiliar in the west because we've seen many industries make that allegation against China and they've been doing it for years in terms of, you name it, high speed rail, automotive, aerospace, all sorts of different industries where China permitted Western companies to access the market. But through joint ventures, and through these joint ventures, there was a transfer of knowledge, a transfer of IP in many cases that, in some cases the Western companies were aware that it was happening, but it was worth the trade off. And so what Lingling is describing here, it depends on how coercive it would be. But that may actually still be a trade that some companies would be willing to make.

[Luke Vargas]

So China maybe ready for the trade war to come. And yet yesterday's news that tariffs are, for now on hold for other countries has got to be a negative, right, making China's exports less competitive. And yet we're seeing Chinese equities moving higher today.

[Jonathan Cheng]

Well, I mean, the way to read it may be that you have somewhat of a relief rally because what it showed is that Trump can blink if that's the word you want to use, or be more pragmatic or respond to some of the pressures that he's feeling around him. It signals that Trump is not going to launch and persist with a destructive trade war even when everyone around him is telling him otherwise. On the other hand, the relief rally you see in the China linked markets is obviously not as much as you've seen in other markets, and that's because China remains the main target. Now, the fact that tariffs have gone up from 104% to 125%, I think most economists would tell you that that really doesn't matter. I mean, after a certain level, call it 60% or higher, it really doesn't matter what the tariff level is because it will bring trade on that tranche of products basically to a standstill in.

[Luke Vargas]

Terms of what this means for China's options going forward. We spoke to reporter Stu Wu this week. He's been traveling through Vietnam, a country that was poised to be hit with 46% reciprocal tariffs. Those are now on hold. But even before we knew that, Stu was telling us that there was kind of a narrative that even those tariffs might not have altered supply chains that see Chinese materials sent to Vietnam to be turned into finished goods and then exported to the US and to others. Let's play a clip of that.

[Stu Wu]

I actually have been talking to Some foreign investors who want to continue keeping their supply chain in Vietnam, they're saying, you know what, 46%, that's not great. But it's still cheaper than going anywhere else. It's still cheaper than China, which has an even higher tariff. I talked to a garment worker who average wage was $2 per hour. Right. And 46% tariff, let's say that's roughly $3 an hour. That's still cheaper than a lot of the places, even in Asia, definitely in the United States. So it's still attractive as a destination because the economics at the end of the day favor Vietnam because of those low labor costs and the infrastructure that they already have here.

[Luke Vargas]

John, if that trade continues, does this 90 day pause then not represent a loophole of sorts that would allow China to keep exporting to the US in spite of these tariffs via other countries like Vietnam?

[Jonathan Cheng]

Maybe so, but if it's only for 90 days, then it's not much of a reprieve because you need to figure out where you want to be not just for the next 90 days, but for the foreseeable future.

[Luke Vargas]

Got it. And it's safe to say this sort of existential question for China about where it can find export markets willing to take its goods. That. That's not settled.

[Jonathan Cheng]

That's not settled. But if we're talking about exporting for final purchase, actually it's only the US that has become more difficult to sell to China for the time being, presumably. I mean, it depends again on where the Trump tariffs land. But there's still 200 other countries that China can sell its goods to. Now, if Chinese goods start flooding other countries because these products can't go to the US Then yes, of course those countries may then put up their own barriers. But I think that's another problem for another day for a lot of people. Let's find out first what happens with the Trump tariffs. And only after that can we even begin to think what the next order questions are.

[Luke Vargas]

Jonathan Cheng is the Wall Street Journal's China Bureau Chief in Beijing. John, thank you so much.

[Jonathan Cheng]

Thanks for having me.

[Luke Vargas]

Coming up, Russia and the US Complete another prisoner swap. We've got that story and the rest of the day's news after the break.

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[Luke Vargas]

See full terms at mintmob. We are exclusively reporting that Russia and the US Carried out a prisoner swap early this morning in Abu Dhabi. Another sign of confidence building as Washington and Moscow pursue a deal to end the war in Ukraine. Russia released U. S Russian dual national Kisenya Karolina who was sentenced to 12 years in a penal colony last year after being found guilty of treason for donating less than $100 to a U S based Ukrainian char. In exchange, the US Freed Arthur Petrov, a dual German Russian citizen who the US Accused of exporting controlled microelectronics from US Companies and shipping them to a company that supplies Russia's military. Well, speaking of Russia's military, we exclusively report that more than 150 Chinese citizens have joined Moscow's troops in the fight against Ukraine. That's according to Ukrainian intelligence reports viewed by the Journal and comes after two Chinese citizens who Kyiv said were fighting on on behalf of Moscow were captured in Ukraine earlier this week. A Chinese Foreign Ministry spokesman yesterday denied the Ukrainians claim that more Chinese had joined Russian forces. But Journal Ukraine bureau chief James Marson says the intelligence reports indicate otherwise.

[James Marson]

One of them had photographs and passports of 13 Chinese citizens who appear to have been recruited to a unit of the Russian army. And then there was another list which had 168 names that had birth dates, dates that they signed contracts, the names of units they're assigned to. Now Western officials say this looks more like mercenaries than a large scale, officially sanctioned contingent like the North Koreans for example. But I think there's another question here which is whether the Chinese authorities knew that these men were here. They've said that they tried to stop it, that they discouraged their citizens from taking part in foreign wars. Some of the men listed in the documents were listed as explosive drone operators, which indicates that they're learning new skills on the battlefield. So there's a question here as to whether these men are pure mercenaries doing it for money, citizenship, or whether they're actually going to then transmit those skills, that information that they learn on the battlefield, back to the Chinese authorities.

[Luke Vargas]

China has supported Russia economically throughout the war but has professed itself neutral, stopping short of providing military equipment or troops and in markets. Action to look out for today. Fresh US inflation figures are expected at 8:30am Eastern economists polled by the Journal expect March inflation to slow to 2.6% from 2.8% the previous month. And that's it for what's news for this Thursday morning. Today's show was produced by Daniel Bach and Kate Bullivant. Our supervising producer was Christina Rocca. And I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.