US-China Trade War: China Gains Leverage as US GDP Contracts and Trade Tensions Mount

China Takes Upper Hand as US Economy Stumbles

This week’s crucial economic indicators from China and the US suggested China may hold an advantage in trade negotiations. On Wednesday, April 30, US GDP data showed a 0.3% quarter-on-quarter contraction in Q1 2025 after expanding 2.4% in Q4 2024. Economists had expected the economy to grow by 0.3%.

CN Wire attributed the downturn to a surge in pre-tariff imports and a decline in consumer spending. It noted:

“The U.S. economy contracted in the first quarter for the first time since 2022, reflecting the early impact of President Donald Trump’s trade policies. A sharp increase in imports ahead of anticipated tariffs and weakening consumer demand contributed to the downturn.”

Notably, Trump’s tariff policies have led to a material slowdown in spending. CN Wire stated:

“Consumer spending — which makes up roughly two-thirds of economic activity — grew at an annualized rate of 1.8%, marking its slowest pace since mid-2023.”

In contrast, China’s data presented a mixed but more resilient picture. China’s Caixin Manufacturing PMI dropped from 51.2 in March to 50.4 in April. While lower, the PMI held above the crucial 50 neutral level, signaling continued sector expansion. Notably, firms remained optimistic about hopes for government policy support.

As East Asia Econ put it, “China – not so bad…yet,” pointing to ongoing challenges but a relative sense of stability.

Economists See China Gaining Ground in the Trade War

The latest economic indicators have strengthened the view that Beijing may have gained the upper hand.

Robin Brooks, Senior Fellow at the Brookings Institute, commented:

“The US spent this week negotiating with itself on China tariffs, calling them unsustainable & saying they’ll come down. Meanwhile, China holds the Yuan steady, portraying itself as stable and predictable. China exploits erratic US policy to the max. It’s winning the trade war…”

China Pressures BRICS to Resist US Trade Outreach

For China to keep the upper hand, US progress in reaching trade agreements poses a risk to China’s negotiating position. If Washington and US trading partners reach trade agreements favoring the US, China could lose its footing and risk becoming isolated in global trade.

This week, Beijing urged BRICS nations not to rush into trade agreements with the US. CN Wire reported:

“At a BRICS meeting, Chinese Foreign Minister Wang Yi warned countries against yielding to U.S. tariff threats, saying appeasement would only embolden the “bully,” and urged emerging-market nations to resist U.S. levies. His stern remarks signaled China’s intention to resist pressure for trade talks even as U.S. Treasury Secretary Scott Bessent suggested Washington might ban certain exports to China for leverage.”

US Markets Narrow the Gap as Beijing Stays Silent on Stimulus

Mainland China’s equity markets closed April in negative territory, reflecting market disappointment over Beijing’s silence on stimulus. The CSI 300 fell 3%, while the Shanghai Composite Index declined 1.7%. Hong Kong’s Hang Seng Index came under selling pressure, sliding 4.33%.

By comparison, the Nasdaq Composite Index ended April with a modest 0.85% gain, narrowing its 2025 performance gap with Chinese markets. Year-to-date, the Nasdaq Composite Index has fallen 9.65%, while the CSI 300 has dropped 4.18%. Despite the month’s pullback, the Hang Seng Index ended April up 10.27%, underscoring optimism that Beijing will deliver stimulus if needed.

Outlook

Developments in the US-China trade war remain central to market sentiment. Renewed trade talks could lift risk sentiment. Conversely, stalled negotiations may weigh on Mainland China and Hong Kong’s equity markets.

Meanwhile, stalled US-China talks may pressure Beijing to roll out fresh stimulus measures to help mitigate tariff risks. Fresh stimulus could fuel demand for Mainland China and Hong Kong-listed stocks.

Currency movements will also require monitoring. A sharp Yuan devaluation could escalate tensions, potentially triggering a flight to safety. Beijing has pledged Yuan stability, with the USD/CNY pair ending April at $7.2701, up 0.19% but still below April’s high of $7.3504.

Stay with us for continued updates on China’s economic outlook, trade developments, and global market reactions.