Trump's saber rattling about tariffs is unsettling China

• On Monday, Donald Trump threatened more tariffs on China, blaming Beijing for fentanyl.
• China criticized Trump's tariff threats, calling them ineffective and unjustified.
• Global markets have reacted cautiously, with companies adjusting strategies amid higher trade tensions.

Post-election, Donald Trump is amplifying his threats to slap higher tariffs on imports into the US — and China is unsettled.

On Monday, the president-elect took aim at Canada, Mexico, and China on his Truth Social platform, saying he was planning sweeping tariffs on imports from the three countries.

In particular, Trump doubled down on China, saying he'd sign an executive order on his first day in office to impose an additional 10% tariff on imports from China.

The tariffs, Trump said, are because China is to blame for "the massive amounts of drugs, in particular Fentanyl, being sent into the United States."

Beijing hits back

China has already been the target of Trump's tariff threats in his campaign trail. The presidential-elect previously said he planned to impose 60% tariffs on Chinese goods, so his Monday post against the East Asian nation elicited a familiar response.

"China's position against unilateral tariff increases is consistent," He Yadong, a spokesperson for China's commerce ministry, said at a scheduled news briefing on Thursday. "Imposing arbitrary tariffs on trading partners will not solve America's own problems."

China's foreign ministry did not address Trump's tariff threat, but Beijing took major issue with Trump's comments that it isn't doing enough to stop the flow of drugs to the US.

"China is one of the world's toughest countries on counternarcotics both in terms of policy and its implementation," China's foreign affairs ministry said in a Thursday statement.

China's state media rallied around Beijing's official position.

"The excuse the president-elect has given to justify his threat of additional tariffs on imports from China is farfetched," wrote China Daily in a Tuesday editorial.

Markets are muted as investors wait and see

Global markets were jolted following Trump's post on Truth Social on Monday, but the effects have been felt mostly in foreign exchange. The Chinese yuan — alongside the Canadian dollar and the Mexican peso — lost ground against the greenback.

China's equities markets came under some pressure on Tuesday following Trump's post. But they have largely recovered as investors take a wait-and-see stance while assessing if Trump's comments were simply bluster that he's using to extract concessions.

"The equity market reaction has so far been very benign, we would argue likely on the back of the transactional interpretation," George Saravelos, the global cohead of foreign-exchange research at Deutsche Bank, wrote on Tuesday.

US and Chinese companies are on edge

The business world isn't so relaxed.

Some US companies are already thinking ahead, front-loading imports to the US to avoid higher tariffs, economists from Goldman Sachs wrote in a Tuesday analysis of earnings calls and media reports.

The CEO of Shenzhen Lingke Technology, a Chinese lighting manufacturing that produces in several countries including China and Thailand, told Nikkei Asia on Wednesday that US importers have placed larger-than-usual orders since Trump's election victory.

"The thinking is that American clients want to lock in as many profits as possible before a new round of tariffs kick in," Wu Zhiqiang, the company's CEO, told the media outlet.

To be sure, global firms and Chinese manufacturers have already been diversifying their operations to manage concentration risks following Trump's first term and the COVID-19 pandemic.

Larger companies, like Taiwan's Foxconn — a key supplier to Apple — have moved some production work to other emerging countries like India and Vietnam, so they may have some breathing space.

"Clients may decide to shift production locations, but looking at Foxconn's global footprint, we are ahead. As a result, the impact on us is likely smaller compared to our competitors," Young Liu, the chairman of Foxconn, told reporters in Taipei on Wednesday.

However, some smaller companies reliant on Chinese manufacturing and plants in China are uncertain about the future of their businesses, Al Jazeera reported in early November.

It doesn't help that China's domestic consumption and overall economy have been struggling to recover following the pandemic.

Against the backdrop of economic gloom and a potential escalation of trade tensions with the world's top economy, China's homegrown firms are expanding overseas, particularly in emerging markets like Southeast Asia and Africa, and in China's Belt and Road partner countries.

Macquarie analysts wrote on Monday that they expect a wave of Chinese investment into Southeast Asia, focused on consumer goods, logistics, and technology.