The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates in the first and second paragraph, and context news, to reflect U.S. tariffs on Chinese exports going into effect and China’s retaliatory measures.

By Hudson Lockett

HONG KONG, Feb 4 (Reuters Breakingviews) - After implementing 25% tariffs on North American trading partners, Donald Trump suspended them two days later and raised the possibility of a similar stay for the People's Republic. A hike of 10 percentage points on existing levies on Chinese exports took effect on Tuesday but the U.S. President also warns this is merely an "opening salvo". For policymakers in Beijing, it adds to their most-pressing headache: when to ramp up measures to boost weak domestic consumption.

The Chinese government hit back shortly after the tariffs deadline passed, announcing an antitrust investigation into Alphabet's Google GOOGL.O, as well as levies of up to 15% on coal, liquefied natural gas, agricultural equipment and oil from the U.S., among other moves. Overall, the retaliation looks soft, which shows good strategic sense. Should negotiations fail to deliver a reprieve, the hit to the sputtering Chinese economy should be manageable. Analysts at UBS estimate the 10% American tariff on Chinese goods could knock about half a percentage point off GDP growth.

Beijing's opening gambit for negotiations might be focused on “restoring a trade agreement” signed in 2020 with the United States. That so-called Phase One agreement, which eventually ended tit-for-tat tariff hikes, committed China to buying an extra $200 billion in American goods and services, which it did not. A hawkish White House is unlikely to give Chinese negotiators extra credit for belatedly honouring an old deal.

Trump’s team may seek more substantial concessions that could extend beyond trade to, for example, helping bring an end to Russia’s war in Ukraine. Such a move may also be in Beijing's self-interest because it would remove one obstacle to investments by Chinese companies in Europe.

If China balks at such demands, however, it should be prepared for escalating threats - Trump has warned of levies up to 100%. Beijing's chief channel of response will again come courtesy of the renminbi’s exchange rate: analysts at Capital Economics reckon a 1.4% depreciation of the currency in trade-weighted terms would be enough to offset a 10% tariff increase. But a big fall for the currency will limit the central bank’s capacity for more monetary easing, putting more pressure on the central government to rapidly ramp up fiscal stimulus instead.

That will require unusual agility from Chinese planners who like to plan, often for years in advance. Analysts expect further clarity on economic measures when a political summit in Beijing convenes next month, though a U.S. investigation into unfair trade practices is due to wrap up in April. Trump's tariff war may force Xi's hand but the waiting game will only hurt China.

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CONTEXT NEWS

U.S. President Donald Trump on Feb. 1 announced fresh 10% tariffs on imports from China, as well as 25% tariffs on imports from Mexico and most goods from Canada, all of which were slated to take effect from Feb. 4. The president subsequently announced 30-day pauses on the tariffs for Canada and Mexico in return for concessions on border and crime enforcement with both countries.

China responded on Tuesday by announcing an antitrust investigation into Alphabet’s Google, levies of 15% on coal and liquefied natural gas, and tariffs of 10% on agricultural equipment and oil from the U.S., which will take effect on February 10. Other measures included export controls on tungsten-related materials and the addition of Calvin Klein owner PVH Corp and biotech company Illumina to an unreliable entity list.

The Wall Street Journal on Monday reported, citing unnamed sources, that Chinese negotiators planned to approach the White House with a deal focused on “restoring a trade agreement” signed in 2020 with the United States that commits China to buying an additional $200 billion worth of American goods and services.

(Editing by Robyn Mak and Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on LOCKETT/ hudson.lockett@thomsonreuters.com))