U.S.-China trade war set to worsen with no deal in sight

This report is from the inaugural edition of CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy.

This week, we look at how nascent hopes of a U.S.-China deal on trade are fading fast. We also have the latest on what China is signaling to businesses, a few tech developments and which macro data releases to watch for.

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China’s foreign ministry press hall in Beijing fell silent for close to half a minute on Monday afternoon.

I had just asked spokesperson Lin Jian whether Chinese President Xi Jinping and U.S. President Donald Trump would speak soon for trade negotiations, or whether it had become more challenging.

“We have stressed more than once that pressuring or threatening China is not a right way to engage with us,” Lin finally said, as per the official English translation of his statement in Mandarin. “China will firmly safeguard its legitimate rights and interests.”

As for negotiations, he deflected the question to “competent authorities.” He added Tuesday that the U.S. doesn’t seem to be serious about having talks right now, given its actions.

The past weekend saw a big shift in Beijing’s stance as it chose to hit back on the U.S.’ 34% tariff increase with reciprocal duties across the board, instead of levies targeting specific U.S. products.

Analysts now talk not just of a war over trade, but one that could spread beyond technology to investment and geopolitics.

“I was definitely surprised China went [with] the reciprocal tariffs right away,” Liqian Ren, leader of quantitative investment at WisdomTree, told me on Tuesday. “Risk of [Beijing taking] Taiwan is going to increase.”

“The speed of U.S. policy is also much faster than people were expecting,” she said.

It’s taken less than a week for tariffs on Chinese exports to the U.S. to soar above 100%. Stocks have plunged around the world over worries about the economic fallout, while China this week announced state support for its market.

A quick catch-up — Trump last Wednesday announced 34% tariffs on China, on top of the 20% in levies applied earlier this year. China responded Friday with 34% tariffs on U.S. goods. Trump on Monday threatened another 50% in tariffs on China if Beijing doesn’t back down.

So far, China’s answer is a clear no. Trump claimed talks with Beijing about “requested meetings” will be “terminated.” The White House confirmed to CNBC that 104% tariffs on China were set to be effective from Wednesday.

“China realized it makes little sense to restrain itself if the U.S.’ ultimate target is to restrain China,” Jianwei Xu, senior economist for Greater China, at Natixis, said in a webinar Monday. “That is very, very alarming for the Chinese government.”

He only expects a deal if the two countries find their domestic bases are getting hurt — and pointed out that China has been negotiating with the U.S. since 2018, much earlier than any other government now reeling from tariffs.

Hardening on both sides

Beyond some piecemeal limits on tariffs or Chinese exports, it’s not clear what a U.S.-China deal would look like.

During the Biden administration, China repeatedly asked the U.S. to remove its tech restrictions, only to be rebuffed. Trump has dangled ByteDance’s divestiture of TikTok’s U.S. operations as an option for lower tariffs – the company said Saturday that “differences on key issues remain,” while Trump yet again extended the deadline for a sale.

“At this point there is really no point of President Xi and President Trump meeting, unless something is worked out in the background,” Ren said. She is closely watching whether U.S. economic pressures force Trump to slow the process of decoupling from China.

She said the policy coming out of the two countries reflects how decisions are being made at the very top — and serves as a reminder to investors that U.S.-China competition is here to stay, even with other market narratives about DeepSeek AI or stimulus in China.

Commentary published Monday on the front page of the state-run People’s Daily newspaper underscored how China is focused on bolstering its own economy in the face of escalating trade tensions.

China’s policy has become more consistent and clearer around its aims, such as minimizing economic disruption, Yue Su, principal economist, China, at the Economist Intelligence Unit, said in an email Monday. As for the U.S., she expects Trump’s team to increasingly lean toward more hardline positions.

In her view, China’s response on Friday was “clearly a calculated decision,” not an impulsive one. Su said China’s president has tended to rely on advisers for trade-related decisions, while Xi himself usually focuses more on broad agendas such as anti-corruption, green development and “common prosperity” – an effort to crack down on surging income inequality.

Centralized decision making allows both sides to raise or roll back tariffs quickly, she said. “That said, it introduces more short-term volatility in both the financial market and the real economy.”

For Chinese stocks, there’s also questions about how Beijing will boost growth at home, and whether other companies will prove as innovative as DeepSeek.

Domestic stimulus “could come any day now,” Matt Wacher, chief investment officer, Asia-Pacific, at Morningstar Investment Management, said in an interview Monday. He is looking for opportunities to add to positions in China tech and consumer.

“We also think both sides potentially will want to come to a deal if there’s a deal available,” he said. “But there seems to be a kind of a bit intransigence at the moment.”

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Peter Navarro, senior trade and manufacturing adviser to President Trump, joined CNBC’s “Squawk Box” to discuss the fallout from Trump’s sweeping global tariffs announcement.

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Chinese and Hong Kong stocks were trading in negative territory Wednesday as investors braced themselves for 104% tariffs on Chinese exports to the U.S.

Mainland China’s CSI 300 was down 1.11% while Hong Kong’s Hang Seng Index — which includes several major Chinese companies — had dropped 3.22% as of 10:00 a.m. local time.

Both the indexes have declined since the start of the year, with the CSI 300 down 8.43% and the Hang Seng Index down 2.45%.

The benchmark 10-year Chinese government bond yield edged down slightly to 1.647%.

The offshore-traded Chinese yuan hit a record low against the U.S. dollar on Tuesday.

April 9: New U.S. tariffs of 84% on China take effect, BYD to launch newest version of its hit Han sedan in the evening local time

April 10: China’s added 34% retaliatory duties on U.S. goods take effect; China CPI, PPI for March due out in the morning local time

April 11: China loan data for March expected

April 14: China import and export data for March expected

April 16: China Q1 GDP, March retail sales, industrial production, fixed asset investment and home price index