WSJ What’s News - China Readies Its Trade-War Arsenal

Episode Date: April 10, 2025

A.M. Edition for April 10. Relief sweeps through global markets after President Trump blinked on reciprocal tariffs yesterday, even as the U.S. and China hurtle toward an all-out trade showdown. China bureau chief Jonathan Cheng explains Beijing’s options as it prepares to hit the U.S. where it hurts. Plus, the U.S. and Russia complete a prisoner swap. And Kyiv claims more than 150 Chinese citizens are fighting alongside Russian troops in Ukraine. Luke Vargas hosts.  Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Relief for global markets after President Trump blinks on tariffs, though for China, it's full steam ahead toward a trade war. 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 U.S. reciprocally, but beyond the tit for tat tariffs, there's so much that China can do. Plus the U.S. and Russia complete a prisoner swap and our Ukraine editor shares an exclusive 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 in equities, bonds, and the dollar. that followed what had been simultaneous declines in 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.

Perhaps the biggest gainer among major indexes is in Japan. The NEC is up over 9 percent. 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 the US. 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 pairing back. Perhaps things 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. 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 U.S., 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? 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. Yeah, no movement. And as our colleague Ling Ling Wei 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.

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 pain 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. And so what could China do there? Well, it doesn't take much imagination to think that there are levers that they can pull here. Yeah, the line from Lingling'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. Yeah, and 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 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. All right, so China may be 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. 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. 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 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. I actually have been talking to some

foreign investors who want to continue keeping their supply chain in Vietnam. to the US and to others. 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. 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 U.S. in spite of these tariffs via other countries like Vietnam? 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. Got it. And then 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. That's not settled, but if we're talking about exporting for final purchase, actually it's only the U.S. 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 are 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 U.S., 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. Jonathan Cheng is The Wall Street Journal's China Bureau Chief in Beijing. John, thank you so much. Thanks for having me. Coming up, Russia and the U.S. complete another prisoner swap.

We've got that story and the rest of the day's news after the break. We are exclusively reporting that Russia and the U.S. 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 Kislyenia 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 charity. In exchange, the U.S. freed Arthur Petrov, a dual German-Russian citizen who the U.S.

accused of exporting controlled microelectronics from U.S. companies and shipping them to a company that supplies Russia's military. While 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 Kiev said were fighting 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. One of them had photographs and passports of 13 Chinese citizens who appeared 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. 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.

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 U.S. inflation figures are expected at 8.30 a.m. Eastern. Economists polled by the journal expect March inflation to slow to 2.6 percent from 2.8 percent 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 Bulevent. Our supervising producer was Christina Rocca. I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.