The last time Donald Trump and Chinese President Xi Jinping spoke was just before the January 20 inauguration.The last time Donald Trump and Chinese President Xi Jinping spoke was just before the January 20 inauguration.
This report is from this week’s edition of CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. Each week, we’ll explore the biggest business stories in China, give a lowdown on market moves and help you set up for the week ahead. Like what you see? You can subscribe here.
The big story
The last time Donald Trump and Chinese President Xi Jinping spoke was just before the January 20 U.S. presidential inauguration.
Less than two weeks after becoming president for a second time, Trump added 10% tariffs on Chinese goods, and said he would talk to Xi in the next 24 hours.
“We called the White House. ‘How did the call go?'” a senior U.S. business executive who wished to remain unnamed told me last week. The White House said, “‘The Chinese didn’t call.'”
“What’s just been patently clear from the beginning, the administration dramatically overestimates how much leverage tariffs give them on China,” the executive said
The U.S. jacked up new tariffs on Chinese goods last week, effectively taking them to 145%.
After retaliating with a 125% increase in tariffs on U.S. goods, Beijing went into the weekend by calling the tariffs a “numbers game” that they planned to ignore. That’s according to a CNBC translation of the Chinese text.
So far, both sides have publicly indicated little intent to take any tangible first step to resolve the impasse and limit the global economic fallout from tit-for-tat measures.
Xi, who is now in an unprecedented third term as China’s president, has also shown he is committed to defying any perception that he is giving up leverage to the U.S. — even if it means short-term pain for the economy. On the 70th anniversary of China’s Communist Party rule, Xi proclaimed that “no force can stop the Chinese people and the Chinese nation.”
Trump, on the other hand, has backtracked on even some of the latest tariff plans, while stating his end goal is to build up the U.S.
A confluence of economic and cultural differences have led to the standoff, with China’s global positioning changing significantly in the last several years.
“I think people in the U.S., both investors and policymakers, their mindset [on China] is still something similar to 10 years back,” Bruce Liu, CEO of asset manager Esoterica Capital, said Monday. He splits his time between New York and China.
China’s economic situation in 2018 meant the country had to make a deal with Trump after bilateral tensions escalated during his first term, but Beijing has less reason to this time around, Liu said. “They are not in a rush to have a conversation, or initiate a conversation with the U.S. side at this moment.”
Beijing’s official stance has reinforced that thinking, with spokespeople stressing that any talks must be conducted on the basis of “mutual respect.” DeepSeek’s AI breakthrough in late January has also fueled a belief in China that the country can withstand U.S. restrictions.
Per capita disposable income in China has climbed by 38% since 2018. When I moved to the country that summer, Starbucks was by far the best option for coffee and most cars were gasoline-powered. Nearly seven years later, artisanal coffee shops are the norm and even smartphone company Xiaomi has electric cars on the streets.
That’s not to say everything has been rosy.
Unfinished apartment buildings stand scattered on the outskirts of large cities. It’s been tough for businesses trying to navigate the Covid-19 restrictions and the subsequent economic slowdown. The frenetic growth I witnessed before the pandemic is largely gone.
Major Wall Street investment firms have reacted to the escalation in U.S.-China trade tensions by cutting their forecasts for Chinese economic expansion this year, with UBS slashing expectations to just 3.4% growth this year. For now, Beijing has maintained its target of around 5% growth for the year, and indicated it could ramp up stimulus to support the economy.
But in pockets of the economy, a persistence remains, to keep trying despite the circumstances.
Xi’s first overseas trip of the year
China’s global connections have also changed.
The country’s exports to the U.S. climbed by 10% between 2018 and 2024, but China’s exports to the European Union rose by 26% during that time while those to Southeast Asia surged by 84%, according to CNBC analysis of official data. Southeast Asia is now China’s largest trading partner, followed by the EU and then the U.S.
Part of that is the re-routing of trade to the U.S., but part of it also reflects a growing overseas market for Chinese goods, albeit with the risk of hurting local businesses and jobs.
Instead of talking to Trump, Xi this week is making his first overseas state visit of 2025 to Southeast Asia: Vietnam, Malaysia and then Cambodia. Chinese state media described the travels as “at the invitation” of the local government, echoing the stately language used when Xi last visited the U.S. in November 2023 to meet with U.S. President Joe Biden.
Xi also met with U.S., European, and Middle East business executives in Beijing in late March. He called on them to “uphold” the global order, just as he told Vietnam’s Communist Party General Secretary To Lam in a meeting Monday that the two countries should safeguard global supply chain stability and oppose “unilateral bullying.” That’s according to a CNBC translation of the Chinese readout, which did not name the U.S.
Trump this week called China’s meeting with Vietnam an effort to “screw” the U.S. He declined to share an update on any planned talks with Xi.
Vietnam this month was slapped with one of the highest U.S. “reciprocal” tariffs — even more than China initially — in response to which the Southeast Asian country’s prime minister, Pham Minh Chinh, offered to buy more U.S. defense products while asking for a 45-day delay in the tariffs as the two countries negotiated.
Trump then temporarily lowered the tariffs on Vietnam and other countries with a 90-day negotiation period. China was not included.
“If you are kind to me I’m going to be twice kind to you. That’s [being] Chinese,” Liu said.
“But if you want to bully me, we’re not going to take that. We know this might cause hardship in our economy or our daily life, but we are ready for that,” he said, speaking of the typical Chinese mentality.
Top TV picks on CNBC
U.S. tariffs: Rebuilding global supply chains won’t be easy, says Milken Institute
Perry Wong, managing director of research at the Milken Institute, talked to CNBC’s “The China Connection” about e-commerce platform Shein’s plans to shift production outside of China in the face of U.S. tariffs.
JD.com VP: China’s domestic market is big enough to absorb some tariff impact
Jianguang Shen, Vice President and Chief Economist at JD.com, said on CNBC’s “The China Connection” that stimulating the domestic Chinese market is “the way to go” in response to U.S. tariffs, whereas currency depreciation could be disruptive to the financial market.
China’s 5% GDP growth target unlikely to change despite U.S. tariffs, professor says
David Li, an economics professor at Tsinghua University, said on CNBC’s “The China Connection” that boosting domestic consumption remains at the top of Beijing’s agenda.
Need to know
China reported first-quarter GDP of 5.4%. That figure beats analysts’ expectations of a 5.1% increase. Retail sales and industrial production figures for March also came in well above forecasts. The country’s latest loan data for March came in better than expected, mainly due to short-term corporate loan growth, according to Goldman Sachs.
Kling, an AI-powered video generator from Kuaishou, has gotten an upgrade. The Chinese short-video company announced the news in Beijing on Tuesday, and claims that the new version offers better control over visualizations of people, emotions and scenes to mimic real-world scenarios.
The U.S. is exempting China-made electronics from the highest tariffs. However, it’s unclear how long the reprieve will last. China and Vietnam signed agreements on railroad cooperation and protocols to expedite bilateral trade, according to the Southeast Asian country. China has also swapped out its commerce ministry trade negotiator from the last several years with a new face.
In the markets
Chinese and Hong Kong stocks were trading in the red on Wednesday even as China released better-than-expected GDP data. This comes as a growing number of investment banks cut the country’s annual growth outlook.
Mainland China’s CSI 300 was down 0.74% while Hong Kong’s Hang Seng Index — which encompasses several major Chinese companies — fell over 2% as of 10:42 a.m. local time.
The benchmark 10-year Chinese government bond yield was last at 1.639%.
The offshore-traded Chinese yuan is trading at 7.3276 against the greenback.
Coming up
April 18 – 26: Beijing International Film Festival kicks off
April 19: China hosts what it claims is the “world’s first humanoid robot half marathon” in Beijing
April 21: People’s Bank of China to issue its monthly decision on the benchmark loan prime rate
April 23 – May 2: Shanghai Auto Show
