ASEAN’S DEFA Won’T Plug the Gender Gap in Entrepreneurship

Political

Economic

Summary:

ASEAN’s Digital Economy Framework Agreement (DEFA) aims to boost the region’s digital economy and enhance connectivity.

But ASEAN’s women entrepreneurs face distinct challenges, including limited access to markets, funding and training. DEFA’s provisions on e-commerce, cross-border trade and digital talent mobility hold promise, but a gender-sensitive approach is essential. Addressing biases and providing targeted support for women in digital literacy, financial education and mentorship will be crucial to ensuring that DEFA fosters truly inclusive growth.

With robust digital penetration and a growing tech-savvy population, ASEAN is set to become one of the world’s leading digital economies. Recognising this opportunity, member states have embarked on an ambitious path towards negotiating ASEAN’s first regional digital economy agreement, the ASEAN Digital Economy Framework Agreement (DEFA).

This initiative aims to double the region’s digital economy from US$1 trillion to US$2 trillion by 2030 through nine core elements focusing on growth acceleration, interoperability, responsible growth and enhanced cooperation among nations. But the ASEAN DEFA must adopt a gender-sensitive approach to achieve the envisioned inclusive growth, especially for women entrepreneurs in the region.

Over 70 million micro-, small- and medium-sized enterprises (MSMEs) contribute 85 per cent of employment, 44.8 per cent of GDP and 18 per cent of national exports across ASEAN. The ASEAN DEFA agreement is positioned to support MSMEs as the backbone of the region’s economy. It has the potential to drive member states to improve the digital prerequisites — including infrastructure, regulatory frameworks and talent — necessary for inclusive and equitable access to digital solutions.

As digital penetration increases and the e-commerce market expands, low-tech MSMEs gradually develop technological literacy, adopt digital technologies and can connect with distant markets, partners, knowledge and resources. Fostering interoperability among member states’ digital markets further enhances talent mobility, facilitating knowledge transfer, fair competition policies and cross-border operations.

Women entrepreneurs highly value the convenience of digital access as it reduces entry barriers, increases efficiency and levels the playing field. Over the past decade, women’s entrepreneurship in ASEAN has grown, with more than 60 million women managing MSMEs. But the ASEAN DEFA’s potential for women entrepreneurs requires a more careful approach as they face systemic challenges that their male counterparts do not.

Key challenges to women’s entrepreneurship include limited access to markets and funding, lack of skills and knowledge and discouraging gender norms and biases. In Southeast Asia, staggering gender gaps in business ownership and the concentration of women’s enterprises in informal and less productive sectors at the microenterprise level exacerbate the issue. These enterprises are less resilient to shocks and less likely to scale up. The potential role of the ASEAN DEFA in supporting women’s entrepreneurship must align with addressing these issues.

Provisions on digital trade, financing facilitation and cross-border e-commerce might offer the biggest potential to address women’s limited access to markets and funding. They seek to simplify trade procedures, ensure interoperability and create safe and reliable payment systems that can reduce trade barriers, increase funding alternatives and expand outreach. E-commerce initiatives are particularly crucial considering women’s concentrated participation in this sector. These provisions are expected to facilitate women-led businesses in scaling up and competing on a global scale.

The agreement also includes provisions on digital talent mobility and cooperation to encourage knowledge transfer and human resources development. While increasing foreign digital talent may not directly address women entrepreneurs’ skills gaps, it can help accelerate the creation of supportive ecosystems that promote digital literacy, financial education and entrepreneurial competencies. Greater ASEAN cooperation could also provide immediate and tangible benefits for women entrepreneurs by facilitating the development of accessible digital learning platforms, tailored training programs and mentorship opportunities.

But if ASEAN DEFA’s vision of inclusivity is limited to simply increasing digital penetration and adoption rates, its impact on women’s entrepreneurship is bound to be constrained. Access is not the only issue — unaddressed gender biases and norms prove to be equally, if not more, challenging.

Women have a lesser chance of securing resources even with increased access to markets or credit through digital platforms. This is because women are frequently perceived as less capable and are burdened by deeply entrenched cultural roles like motherhood and domestic responsibilities. 80 per cent of women-owned small businesses are either unserved or underserved, with a US$1.7 trillion financial gap. These biases also devalue women’s education relative to men’s, leading to lower levels of digital literacy and skills. This means women receive less support and are less confident in using digital tools.

This raises the critical issue of how women can effectively utilise the ASEAN DEFA’s sophisticated provisions and tap into the region’s burgeoning digital economy without the necessary foundational digital readiness.

The prescription is not new but is often overlooked. ASEAN DEFA must adopt a gender-sensitive approach from the beginning, rather than treating it as an afterthought. The use of gender-disaggregated data and a comprehensive analysis of the gender impacts of the digital economy is paramount.

Equally important are synergised efforts among key stakeholders — not only to develop a holistic policy framework that addresses women entrepreneurs’ nuanced challenges, but also to tackle persisting gender biases and norms. Capacity-building initiatives can play a pivotal role by engaging women in programs that challenge traditional roles, offering mentorship to counter stereotypes and providing digital literacy programs to build confidence and skills.

Without properly considering these circumstances, ASEAN DEFA risks widening existing gaps and further marginalising groups with limited digital access, including women.

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Warren Takunda

Economic

The Euro to Dollar exchange rate (EURUSD) is clawing its way back into a short-term recovery sequence that could bring with it a test of 1.0418 before too long, although the unpredictability of U.S. President Donald Trump will act as a limiting factor.

The pair dropped to a low of 1.0209 on Monday amidst fears the U.S. would proceed with tariffs on Mexico and Canada, but the eventual agreement struck by the three nations confirmed President Donald Trump is open to negotiating away from the most market-unfriendly outcomes.

This offers the European Union some hope that it can do similar, removing severe downside tail risks for the Euro and helping it into a short-term rebound.

The daily chart shows the recovery from Monday's low takes EURUSD back above the descending trend line that defines the October-January selloff. Climbing above here is a first step taken towards stabilising the selloff and forming a firmer base from which to stage a more meaningful recovery.

1.0418 is the first target (the 23.6% Fibonacci retracement of the October-January selloff, ahead of a retest of the January high at 1.0532.

Euro to Dollar Extends Short-term Rebound, EU Prepares Tariff Insulation_1

Above: EUR/USD at daily intervals.

Beyond the near term (in the coming days and 1-2 weeks), the bigger picture remains a challenging one for the Euro, and a move to parity remains a possibility.

"ECB pricing is far too hawkish. We have long argued that the secondary trade diversion effects of a trade war are the ones that concern us the most in Europe," says George Saravelos, FX strategist at Deutsche Bank. "An ECB repricing down to 1.50% (with the Fed unchanged) would take EUR/USD further down to 0.98-0.99 based on current betas."

EU Readies Its Position Ahead of Tariffs

The extent of upcoming EUR weakness will depend on how deft the EU proves at watering down any tariffs Trump proposes.

The European Commission is reportedly preparing an offer to improve bilateral relations with the U.S. that would include more liquefied natural gas imports, fertilisers and weapons.

This is an acknowledgement of the transactional approach Trump takes when considering tariffs and shows the bloc has listened to Trump's numerous demands that the EU should be buying more U.S. gas and oil.

It is reported that other areas for potential collaboration include closer alignment with the U.S. on Chinese export controls, investment screenings and working together to tackle China's overcapacity, particularly in the steel sector.

The EU has dealt with Trump before and it is believed the bloc will follow a similar strategy to that adopted in 2018.

Trump said at the weekend that the U.S. would definitely be imposing tariffs as the EU treated the U.S. "very badly" on trade.

The EU is readying a retaliatory package of counter-tariffs, but the details are being closely guarded. In 2018, the EU retaliated to Trump's tariffs by placing duties on companies such as Harley-Davidson motorcycles and Levi Strauss jeans.

In 2021 the EU and U.S. partly removed some tariffs temporarily, but this suspension is due to come to an end in March. The EU can extend that suspension past the March deadline if it thinks it can bolster its position with Trump.

Source: Poundsterlinglive

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Cohen

Economic

Deputy Minister of Economy Datuk Hanifah Hajar Taib said an additional RM300 million has been set aside for the Payung Rahmah initiative, while RM700 million has been allocated for price control programmes through partnerships with various stakeholders.

“For the Price Standardisation Programme in Sabah, Sarawak, and Labuan, RM40 million has been allocated,” she said during the question-and-answer session in the Dewan Rakyat on Wednesday.

She was responding to a question from Wong Chen (PH-Subang) regarding recommendations by the Department of Statistics Malaysia (DOSM) on combating rising living costs as outlined in the Cost of Living Indicator Report.

Hanifah Hajar added that the 2023 Cost of Living Indicator Report, launched last year, includes the Basic Expenditure of Decent Living (PAKW) and Cost of Living (KSH) Index to better assess living costs.

To assist the public, Hanifah Hajar said the government has introduced a calculator tool to help families plan their expenses. The MyPAKW application, accessible via mypakw.dosm.gov.my, serves as a financial management guide.

She added that the National Action Council on Cost of Living (NACCOL) is actively working to address the issue of rising living costs, focusing on seven priority areas: housing, education, transportation, utilities, healthcare, food, and income.

Hanifah Hajar also highlighted the Central Database Hub (PADU), which contains profiles of 30.1 million Malaysian citizens and permanent residents, allowing for effective monitoring and evaluation to support those struggling with costs of living.

Source: Theedgemarkets

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Alex

Economic

Markets

Now, markets are eyeing a convenient rebound as investors let out a collective sigh of relief that the draconian tariff threat—which had sent stocks tumbling and currencies scrambling for cover—has been put on ice, at least for now. Equities are roaring back, and FX markets are retracing much of the pre-tariff D-day hedging-driven chaos from Friday and Monday.

This latest twist suggests that Trump’s tariff threats are more bark than bite, likely used as leverage to extract concessions rather than outright economic punishment. But let’s be honest—we’ve already completed one full round-trip on this trade war roller coaster, and you have to wonder how many more times we can strap in before the market gets motion sickness.

With Trump’s unpredictability still looming, traders should stay nimble—because while the carrot is dangling today, the big stick could swing again tomorrow.

But if there’s one thing we know about Trump’s playbook, it’s that "The Art of the Deal" still holds weight. And let’s not forget—he keeps one eye firmly on U.S. stocks.

So, deal or no deal? That’s the million-dollar question markets will grapple with in the coming days. If a long-term agreement starts taking shape, expect risk-on momentum to accelerate, with stocks surging, the dollar recalibrating, and trade-sensitive currencies unwinding the trade war premium ( ~2 % on DXY)

But if this delay is just another head-fake, markets could experience another gut-wrenching whiplash, with volatility dialled up again. As always with Trump-era trade negotiations, the only certainty is uncertainty, and traders better stay light on their feet.

Asia markets

All the "Let’s Make a Deal" negotiations happening Stateside should inject some much-needed calm into Asian markets on Tuesday. After Monday’s brutal selloff, traders might finally get a chance to dust off their relief rally hats—assuming that Trump doesn’t drop another market-rattling bombshell in the next few hours.

With tariff tensions temporarily dialled down, we could see bargain hunters step in, fueling a solid bounce across equities and FX. But let’s not get too comfortable—Trump’s trade war twists are anything but predictable. A single tweet or policy shift could send the market back into risk-off chaos, proving once again that relief rallies come with an expiration date in this environment.

Still, given the longstanding correlation that rarely fails, when U.S. markets rally and the dollar softens, the wrecking ball effect on Asia’s risk markets eases—and that’s when the risk-on engines fire up.

The playbook is familiar: A weaker dollar relieves pressure on emerging market currencies, boosts commodity-linked assets, and gives Asian equities the green light to run. If this correlation holds, we should see a broad-based recovery across Asia’s risk spectrum, especially in high-beta plays like tech, commodities, and cyclicals.

Of course, this all depends on whether the U.S. equity rally has legs or is just another short-lived bounce in a tariff-fueled volatility cycle. But for now, the signal is clear: less dollar wrecking ball, more room for Asia to breathe.

Forex markets

Right now, the market is giving a standing ovation to any deal that helps dodge tariffs—and the price action says it all. The U.S. dollar is slipping, Treasury yields are climbing, and risk appetite is back on the menu. The playbook is simple: less trade war, more growth optimism.

But here’s the catch—don’t expect these correlations to hold forever. Markets are playing the hand they’re dealt, but in this high-stakes geopolitical poker game, the actual outcomes could flip the script in an instant. One minute we’re rallying, the next we’re spiraling—all it takes is a new twist from Washington.

For now, we’re back to square one, sitting on the edge of our seats, waiting for Trump’s next move. But tariffs aren’t the only game in town—it’s payrolls week. As we inch closer to Friday’s NFP report, the focus could shift fast, with traders forced to juggle trade war volatility and fresh U.S. labor market data.

Bottom line? The relief rally is on—but don’t get too comfortable. This market still has plenty of fireworks left.

The Euro

As the U.S., Mexico, and Canada inch toward a border deal, EUR/USD has ripped up to 1.0350, filling the technical gap we flagged in yesterday’s FX report. But before anyone gets too comfortable, the real question remains: Is the eurozone next in Trump’s trade war crosshairs?

For now, markets are adding fresh tariff risks to an already staggering list of eurozone growth concerns—from anemic economic momentum to a widening policy gap with the Fed. Upside catalysts? There are no upward catalysts in sight. The path of least resistance still leans lower, with traders increasingly shifting toward an ECB landing zone below 1.75% in the near term.

The euro will remain fragile without clarity on U.S. tariff threats against the EU. One wrong move in risk sentiment could send EUR/USD further lower before the dust settles.

The Yuan

No official word is expected from Beijing until Wednesday when it will reopen after the Lunar New Year holiday. But the first warning shots have been fired—China’s U.N. envoy Fu Cong hinted on Monday that Beijing could be forced to take retaliatory measures.

One widely anticipated countermove was a steep yuan devaluation, which would have neutralized much of the tariff impact by making Chinese exports cheaper. But here’s where things get interesting: The WSJ reports that yuan devaluation is off the table, signalling what looks like an olive branch to Washington.

This is a clear tell for seasoned interbank FX traders—Beijing is sending a message of restraint, mindful of its long-running reputation as a currency manipulator in U.S. eyes. The market reaction? Offshore yuan (USDCNH) has pulled back toward 7.30 as traders recalibrate expectations for China’s next move.

Beijing seems to be keeping its powder dry for now, but the market knows better than to rule out a strategic counterpunch once the holiday dust settles.

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Warren Takunda

Stocks

Asian shares were trading mixed Wednesday as markets mulled the impact of tariffs being imposed by the United States and China.

Japan’s benchmark Nikkei 225 recouped earlier losses and was little changed, up less than 0.1% in afternoon trading at 38,820.77. Australia’s S&P/ASX 200 rose 0.5% to 8,416.90. The Hang Seng dropped 1.2% to 20,543.93, while the Shanghai Composite lost 0.7% to 3,227.20. South Korea’s Kospi jumped 1.1% to 2,508.79, as investors found bargains after the recent price dips and found optimism from the overnight Wall Street rally.

Some analysts see tariffs on China as separate from Trump’s moves against other trading partners. Trump may be more likely to keep tariffs on China longer, as he did in his first presidential term, to separate the United States more from its geopolitical rival.

Trump is pressing ahead with a 10% tariff on U.S. companies importing things from China. And China retaliated on Tuesday by announcing its own tariffs on some U.S. products and an antitrust investigation into Google.

China’s 15% tariff on U.S. coal and liquefied natural gas products, as well as a 10% tariff on crude oil, agricultural machinery and large-engine cars imported from the United States won’t take effect until Monday. That leaves time for negotiations between Trump and Chinese President Xi Jinping.

“Trade tensions haven’t exploded yet, but they’re simmering dangerously close to a full boil, and anyone brushing them off does so at their own risk,” said Stephen Innes, managing partner at SPI Asset Management.

On Wall Street, calm returned, as tech stocks led U.S. indexes higher following a strong profit report from Palantir Technologies, a darling benefiting from the artificial-intelligence boom.

The S&P 500 rose 0.7% a day after swinging sharply on worries that President Donald Trump’s tariffs could spark a trade war that would hurt economies around the world, including the United States.

The Dow Jones Industrial Average added 134 points, or 0.3%, and the Nasdaq composite climbed 1.4%.

Trump on Monday agreed to delay his taxes on U.S. imports of Canadian and Mexican products for a month. That bolstered Wall Street’s longstanding hopes that Trump’s tough talk on tariffs may be just that, talk. The hope is that Trump sees tariffs as a stick he can use in negotiations with trading partners rather than as a long-term policy.

That hope is built in part on traders’ belief that Trump would likely be turned off by the damage Wall Street would take if a worst-case, long-term trade war were to occur. Trump has pointed in the past to the stock market as a real-time measure of his performance.

But a trade war is still possible, and some analysts say more swings may be coming because Trump’s threats should be taken both seriously and literally.

“Investors have suggested the equity market is the US administration’s scorecard and any policy changes that hurt risk assets will be quickly dialed back,” Bank of America strategists led by Mark Cabana wrote in a BofA Global Research report. “We advise caution.”

The stock price of Google’s parent company, Alphabet, rose 2.5% even with China’s antitrust investigation.

Pharmaceutical giant Merck tumbled 9.1% despite beating sales and profit forecasts for the latest quarter. It gave a forecast for upcoming revenue that fell short of analysts’ expectations, due partly to a pause in shipments of one of its top-selling products to China.

All told, the S&P 500 rose 43.31 points to 6,037.88. The Dow Jones Industrial Average added 134.13 to 44,556.04, and the Nasdaq composite gained 262.06 to 19,654.02.

In the bond market, Treasury yields eased after a report indicated the U.S. job market may be adding less upward pressure on inflation. U.S. employers advertised fewer job openings at the end of December than economists expected, suggesting a slowing but still healthy job market.

The yield on the 10-year Treasury fell to 4.51% from 4.56% late Monday. The two-year yield, which moves more closely with expectations for what the Federal Reserve will do with short-term interest rates, eased to 4.21% from 4.25%

In energy trading, benchmark U.S. crude fell 6 cents to $72.64 a barrel. Brent crude, the international standard, declined 16 cents to $76.04 a barrel.

In currency trading, the U.S. dollar slipped to 153.43 Japanese yen from 154.30 yen. The euro cost $1.0378, inching down from $1.0382.

Source: AP

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ING

Economic

Trump imposes new tariffs on Canada, Mexico, and China

Even though media reports in the last few days indicated that Trump would implement the tariffs this time, there was still uncertainty until the official announcement. On 1 February, President Trump followed through and declared a national emergency, using the powers granted by the International Emergency Economic Powers Act (IEEPA) to impose these additional tariffs for the first time since the law came into effect in 1977. After threatening to invoke IEEPA several times, such as against Mexico in 2019, Trump had to deliver on his threats, otherwise risking them being perceived as empty and ineffective.

What about the timing?

The new tariffs are set to come into effect at 12:01 a.m. Eastern Standard Time on 4 February 2025. This leaves a minimal negotiation period before the tariffs are enforced and gives the US authorities the opportunity to comply with the new regulations and also adhere to the legal requirements, such as the publication of the executive orders in the Federal Register. However, the timeline for fitting everything into the legal framework seems quite tight, which could lead to chaos unfolding at the border in the coming days.

However, since President Trump has not specified his exact demands from Canada, Mexico, and China regarding the fentanyl crisis, reaching an agreement before the deadline seems more challenging than during his first administration.

Retaliation is on: Canada, Mexico, and China respond to US tariffs

Following the announcement, Canada and Mexico declared their intentions to retaliate against the tariffs, while China pledged to challenge them legally at the WTO. Although all three countries would prefer negotiations over retaliatory measures, their respective governments stated that the US stance necessitates a firm response, with Canada already having its masterplan ready.

Canada: On Tuesday, 4 February, US imports entering Canada will face tariffs of 25% on goods worth $20 billion (C$30 billion). Then, in 21 days, additional tariffs for goods worth $86 billion (C$125 billion) will come into effect, including beverages such as beer, wine and bourbon, agricultural products such as fruits and orange juices, as well as clothing, or household appliances. In a public statement, Canadian prime minister Justin Trudeau also called upon Canadian citizens to ‘buy Canadian’.

Mexico: Mexico’s government stated that they would prepare similar tariffs on US goods, although a detailed list has not been published yet. Mexican President Claudia Sheinbaum instructed her economy minister to apply tariff and non-tariff measures in defence, potentially ranging from 5% to 20%, on agricultural products as well as manufactured steel and aluminium, according to media sources.

China: Next to China filing a complaint with the World Trade Organization, which often takes over a year though, China's commerce ministry announced that it would take unspecified countermeasures. But unlike Mexico and Canada, no immediate tariffs were announced, although this might be due to the fact that some policymakers could still be on holiday during the Chinese New Year break.

Seeing that the tariff hike is with an additional 10%, which is relatively small – don’t forget that tariffs against Chinese goods entering the US have been in place for the last 7 years – we expect that the initial retaliation from China's side is likely to be mild. Despite the tough talk, we are still of the opinion that the fentanyl issue is one where China and the US could find it relatively easier to find room for cooperation, so this will be an important early barometer on how relations will develop. We do feel that if pushed into a corner, China's retaliation could be stronger than what most expect, but at this stage we haven't reached that point yet. Overall, the path to avoid a more destructive US-China trade war is a narrow one.

Potential economic impact

With more than 15% of all US imports coming from Mexico, 13.7% from Canada, and 13.9% from China in 2023, almost half of everything the US imports will be affected by higher tariffs, potentially disrupting supply chains and impacting the US, Canadian, and Mexican economies significantly. Industries like automotive and manufacturing, which are deeply integrated with US supply chains, will face increased costs and disruptions, since many parts cross the border multiple times before becoming final product. The total output of US manufacturing was $2.85 trillion in 2023 according to the GDP figures – less than the $3.1 trillion of goods imports that year. As such the US manufacturing sector would need to more than double in size to allow full substitution and that is unfeasible in the near term.

Additionally, agricultural products, food and beverages, and wood could see significant price hikes this year.

President Trump Announces Tariffs on Canada, Mexico and China and the World Holds Its Breath_1

In the short term, the additional tariffs may slightly boost spending as awareness spreads and consumers accelerate purchases to avoid the tariffs. However, the squeeze on household incomes, particularly for lower-income families, will become noticeable in the following months as we’ve discussed in length here. While price increases for non-perishable foods such as cucumbers, lettuce, or meat might be felt almost immediately, the impact on durable goods may be delayed.

For example, in 2018, it took about three months for washing machine prices to rise as retailers depleted their pre-tariff inventory. Subsequently, consumer prices for laundry equipment increased by 12%, leaving consumers to bear the brunt of the tariff hikes. Additionally, domestic manufacturers raised their prices, further impacting consumers, until supply chain adjustments and increased competition eventually lowered prices again.

Furthermore, with the announced retaliations, American exporters will get hurt, particularly in industries like agriculture and manufacturing. 17% of US goods exports go to Canada, 16% go to Mexico and 7% go to China. When the US imposed tariffs on Chinese goods during Trump’s first term, China responded with tariffs on American agricultural products, such as soybeans and pork, hurting American farmers and leading to reduced sales and financial strain. To offset lost US sales to China from the trade war, the US administration had to step in with generous subsidies.

As regards China, we are expecting a very modest impact on China's growth from this initial move. In 2024, China saw exports to the US grow by 4.9% YoY to $524bn and China’s trade surplus with the US totalled $360bn, with this data benefiting from some front loading of exports toward the end of the year. Another 10% tariff will further squeeze low margin exports to the US and likely will price out a portion of exports. The more vulnerable sectors will likely be those with easy replacements, such as textiles and certain electronics and machinery goods. However, given tariffs have been in place for the last 7 years, many of the more price sensitive and easily replaceable exports have already been redirected – many of the direct exports remaining often do not have an easy substitute. Given Mexico's tariffs were hiked by 25%, this will also impact one of China's main export rerouting channels. We could see exports redirected toward other countries with ASEAN and Latin American countries as likely targets if the tariffs to Mexico hold, or worse, see further escalation. China is likely to focus on boosting trade ties with other countries to help offset a more protectionist US.

What does this mean for Europe?

The European Union has not (yet) been subject of the US administration’s tariff announcements. However, President Donald Trump has regularly publicly criticised the EU for running trade surpluses with the US. In fact, looking at the US bilateral trade balances, the country runs the third largest bilateral trade deficit with Germany, after China and Mexico. Given the swiftness with which the Trump administration implements election promises, it is hard to see how the EU could escape the tariff dance. In fact, Donald Trump already initiated a comprehensive investigation into US trade relationships. A report of this investigation is due on 1 April 2025. A crucial moment for the EU.

However, it won’t take until April before the EU would feel the economic pain of US tariffs. Given that many European (car) manufacturers have production facilities for the US market in Mexico, as part of the near-shoring and derisking strategy of the last four years, US tariffs on Mexico will also harm Europe.

There is little known how the EU would react to US tariffs on European goods. During the last Trump administration, the EU first reacted with direct retaliation on US tariffs on European aluminium and steel and was later able to prevent a tariff escalation by threatening to impose tariffs on Levi’s jeans and Jack Daniels. Also, the EU promised the US administration to purchase more US LNG and soybeans. A similar strategy looks possible this time around. The EU could, for example, offer to buy more US LNG or military equipment. However, the overarching question remains how transactional president Trump’s approach to tariffs in his second term in office will really be.

Trade war is a lose-lose situation

The US administration’s first move on tariffs does not only stress the determination to use tariffs as a main instrument in foreign policy but it also marks a complete overhaul of trade as we know it, clearly breaching existing trade agreements like the United States-Mexico-Canada Agreement (USMCA) and World Trade Organization (WTO) rules. If really implemented, the announced tariffs are of a very different nature than the tariffs during Trump’s first term in office. Targeting three of the US most important trading partners, with the fourth to follow soon, at the same time is a very different beast. If Mexico, Canada and China push through with the announced retaliation, the global economy would see an unprecedented escalation of trade tensions. During Trump’s first term in office, tariffs and trade tensions brought attention to the more general topic of the advantages but also disadvantages of globalisation. Globalisation has not only seen winners but also losers. This time around, it is hard to see how an escalation of trade tensions can do any good, to anyone. At least over the longer run. Economically speaking, escalating trade tensions are a lose-lose situation for all countries involved.

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Adam

Economic

Political

China’s Initial Reaction: Cautious but Firm

Following President Donald Trump’s announcement of a 10% tariff on all Chinese imports, China swiftly responded despite being in the middle of its Lunar New Year holiday. The Ministry of Commerce condemned the move, stating that the tariffs "seriously violate WTO rules" and vowed to take "appropriate countermeasures." While Beijing has yet to specify its full response, it confirmed plans to file a formal complaint with the World Trade Organization (WTO) and warned of retaliatory actions.

Compared to Canada and Mexico, which immediately imposed counter-tariffs on U.S. goods, China’s response has been measured, reflecting a strategic approach rather than immediate escalation. Notably, Trump’s 10% tariff on Chinese goods is significantly lower than the 25% imposed on Mexico and most Canadian imports, which may have influenced Beijing’s reaction.

U.S.-China Relations Under Trump’s Second Term: A New Phase?

Trump’s latest move comes amid a complex phase in U.S.-China relations. China appeared to have had a better-than-expected start in dealing with Trump’s second administration. The Chinese government took early steps to maintain diplomatic ties, including sending Vice President Han Zheng to Trump’s inauguration. Furthermore, a phone call between Trump and Chinese President Xi Jinping was described by the U.S. leader as "very good," suggesting potential room for negotiation.

However, Trump has consistently framed his trade stance as a “fight to win against China”, appointing China hawks to key policy positions. Given his campaign rhetoric, Beijing likely understands that tensions may escalate but appears to be adopting a wait-and-see approach before taking more aggressive steps.

Is There Still Room for Negotiation?

The 10% tariff rate is notably lower than the 60% figure Trump floated during his campaign, indicating that Washington is leaving space for future adjustments or negotiations. Instead of focusing on trade imbalances, Trump’s administration has tied the tariffs to China’s alleged role in fentanyl trafficking, creating a non-traditional economic justification for the measures.

Some analysts believe Trump is holding back stronger tariff measures while awaiting the results of a broader investigation into U.S.-China trade practices. This review, ordered through an executive action signed on Trump’s first day back in office, is expected to conclude by April 1. Depending on its findings, Washington could expand or adjust tariffs, putting more pressure on Beijing to make concessions.

How Will China Retaliate?

For now, China’s leadership has struck a conciliatory tone, with Vice Premier Ding Xuexiang emphasizing Beijing’s commitment to "balanced trade" at the World Economic Forum in Davos. Xi Jinping has also called for a "new beginning" in U.S.-China relations, signaling that Beijing may prefer diplomatic solutions before escalating economic countermeasures.

China’s WTO complaint serves as a symbolic move to position itself as a defender of global trade rules, contrasting with Trump’s administration, which Beijing accuses of violating international norms. Additionally, Chinese officials have dismissed Washington’s fentanyl accusations, arguing that the U.S. opioid crisis is "America’s domestic issue."

Despite these restrained statements, many experts anticipate China will unveil further retaliatory measures in the coming days. State-run media outlets, including China Central Television (CCTV), have already criticized Trump’s policies as “misguided”, with editorials warning of potential economic consequences for U.S. industries.

China’s Strategic Considerations: Retaliation vs. Long-Term Stability

Economists suggest that the 10% tariff does not pose an immediate threat to China’s economy, especially when compared to the full-scale trade war of 2018, when Trump imposed tariffs on hundreds of billions of dollars in Chinese goods. During that period, Beijing retaliated with $185 billion in tariffs on U.S. exports, severely disrupting global supply chains.

Since then, China has been strategically reducing its dependence on the U.S. market. In 2024, Chinese exports to the U.S. accounted for less than 15% of its total exports, and trade with America contributed only about 3% to China’s GDP. Beijing has actively diversified its economic partnerships, particularly with Southeast Asia, Africa, and Europe, reducing the overall impact of U.S. economic actions.

In contrast to Biden’s administration, which maintained Trump-era tariffs while restricting China’s access to advanced technologies, Trump’s tariff-driven approach appears to focus more on economic pressure than technological decoupling. This shift might provide China with more flexibility in how it counters U.S. actions.

The Long-Term Outlook: Is a Trade Truce Possible?

Keyu Jin, an economics professor at the London School of Economics, believes that China has been preparing for years to minimize U.S. economic leverage. She notes that China’s trade diversification efforts and growing self-reliance in key sectors indicate that Beijing is in a stronger negotiating position than in 2018.

Despite tensions, she also argues that Trump is seen as someone China can negotiate with, unlike other U.S. politicians who favor indefinite economic restrictions on China. If Washington signals openness to a deal, Beijing may be willing to negotiate rather than escalate further.

In the coming weeks, analysts will closely watch whether China escalates its response or opts for a strategic waiting game, banking on potential diplomatic openings with Washington. While the risk of another full-scale trade war remains, both sides may seek off-ramps to avoid severe economic fallout.

Source: CNN

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Source: CNN

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