China’s vow to fight keeps investors on edge as prospects of a tariff showdown grow

Pledges by China to fight tariffs with the US ‘till the end’ have heightened the anxiety among investors of a prolonged trade war and recession.

Fears of a prolonged trade war and recession have put investors on alert after China vowed to “fight till the end” in a dramatic escalation of tariff tensions between the world’s two biggest economies.

Donald Trump threatened to increase tariffs on Chinese goods to more than 115 per cent with a new 50 per cent impost unless Beijing withdrew its retaliatory 34 per cent levy on US goods.

Australian superannuation pioneer Garry Weaven said the US President’s tariff move risked making the US uninvestable.

Mr Weaven, who chaired retirement investment giant IFM for more than 10 years, said the global market turmoil started by Mr Trump was the “death of profitable investment for everyone”.

“It’s clear whatever Trump thinks he’s doing he hasn’t got the faintest clue about the impact,” Mr Weaven said.

While the ASX 200 clawed back more than half Monday’s sharemarket bloodbath, rising 2.3 per cent on Tuesday, local fund managers said it remained highly uncertain if the trade spat would soften or deteriorate into a long-term standoff between the US and China.

“We are looking at a recession, potentially, if it stays, and also uncertainty,” Ox Capital chief investment officer Joseph Lai said. “Even if tariffs are walked back in the medium term, as a business person building factories and making investment decisions for three, five, 10 years, how certain can you be the tariffs will stay where they are.”

US President Donald Trump in the Oval Office at the White House in Washington on Tuesday. Picture: AP

The president of the Australia China Business Council, David Olsson, said the Albanese government must push for more trade diversification and step up its role in promoting a more resilient global trade order, in the wake of the Trump administration’s global tariff campaign.

Australia shouldn’t retaliate against US tariffs, but should “use this moment to reassert its strength as an open, strategic middle power”.

“Australia’s strength lies in building stable, rules-based partnerships and shaping future standards, not reacting in kind,” Mr Olsson said.

The imposition of tariffs by Mr Trump on countries around the world reinforced the need for Australia to adopt a “more resilient” trade strategy.

“The latest round of American tariffs has exposed the vulnerability of our trade relationships, forcing us to rethink how we engage in a world where protectionism is resurging,” Mr Olsson said.

“While the US tariffs aim to protect domestic industries, the consequences are far reaching.”

This would include pressure on key exports to the US such as meat, and disruption across the broader supply chains linking Australia to China, as its major trading partner, and the global economy.

“It underscores the urgent need for a more resilient and adaptive trade strategy,” Mr Olsson said.

“If we fail to respond strategically, Australia risks not only being sidelined in critical trade flows, but also missing the capital, technology and partnerships essential to our economic and energy transition.

“Inaction isn’t an option, but neither is escalation.”

Australia should use “quiet ­diplomacy” to reinforce its ties with the US while also accelerating its trade diversification.

With the EU indicating a willingness to strike a tariff negotiation, tariffs may not be in play over the long term, according to Platinum Asset Management’s portfolio manager for Asia strat­egies, Cameron Robertson.

“If you took them on face value, markets should be down very sharply. But if you look at the policies, they don’t look like they were formulated to actually survive. My assumption is this is not the end state,” Mr Robertson said. “The market looked at the headlines but there is a dawning realisation that isn’t where we are likely to be in three months time.”

Ox Capital’s Mr Lai said China may look to a form of stimulus to boost domestic consumption as a response to the trade war.

“I think the reaction is they will actually do more domestic stimulation or encourage domestic consumption. The reality is the Chinese economy has grown out of sight, but consumption as a proportion of gross domestic product has been falling for two decades,” Mr Lai said. “They will try to encourage that and they will try to stabilise the property market even more.”

Mr Weaven, who played a critical role in developing the industry super movement, said Australia’s superannuation sector could weather the Trump turmoil, saying the retirement savings pool was now so deep it would handily manage any liquidity needs.

He said almost 80 per cent of assets were liquid, and well managed funds would easily provide cash to anxious investors.

“Put it this way, I’d much rather be invested in one of the default funds of the major super funds than almost anything else,” he said. “You can’t protect yourself entirely from crazy world events as an investor.

“I feel sorry for anyone who’s chosen to be entirely invested in the sharemarket. I think that wouldn’t have been a very wise decision.” But Mr Weaven said he expected the sharemarket to bounce back over the medium to long term.

Mr Olsson said Australia also needed to play a role in “remaining a magnet for clean and future-focused investment, and leading in the creation of global trade and technology standards”.

“This is not just about defending exports, it’s about shaping the next era of economic engagement on our terms,” he said.

“These tariffs reinforce the need to diversify where and how we trade – Asia, Europe and India all matter more now.

“Australia must remain open to investment, especially in clean energy and critical tech. That’s how we future-proof our economy.

“We can’t control great power politics, but we can shape the rules. Australia should lead on fair trade, green standards and digital co-operation.

“Being squeezed between Washington and Beijing is not a strategy. Reasserting our place through smart alliances and open markets is.”