Tariffs and Tensions: The Economic Crossfire Between the U.S. and China

China and Hong Kong stocks declined as new U.S. tariffs on Chinese imports set to take effect. The tough approach, spearheaded by President Trump, aims to penalize Beijing over fentanyl shipment issues. Beijing pledged retaliation at a critical time – during its National People's Congress, where economic strategies are discussed.

On Tuesday, China and Hong Kong stocks saw a decline as investors responded to the upcoming U.S. tariffs on Chinese imports while keeping an eye on China's annual parliamentary sessions to assess potential policy shifts. President Trump's reiteration of a tariff hike to 20% looms large over trade relations.

The blue-chip CSI300 Index dipped by 0.3% by midday, maintaining the Shanghai Composite Index nearly unchanged. Meanwhile, Hong Kong's Hang Seng Index fell by 0.5%. The tariff increase, announced to combat China's fentanyl shipments, was set for implementation upon the opening of Asian markets on Tuesday.

China has previously responded to U.S. trade measures with mild retaliatory tariffs. However, currency strategist Moh Siong Sim warns this approach might evolve with new tariffs. With the advent of China's National People's Congress, Beijing's defense shares rallied, demonstrating a proactive stance as it braces for economic challenges ahead.

(With inputs from agencies.)