DeepSeek vs Trump tariffs: How will China’s markets react in the Year of the Snake?


Investors returning to mainland China’s markets on Wednesday after an eight-day Lunar New Year holiday have plenty to chew on – from Chinese artificial intelligence (AI) start-up DeepSeek taking the world by storm to the US slapping tariffs on Chinese goods.

While the market outlook remains cloudy because of the strained US-China ties, tech companies with a focus on AI are expected to jump on the back of developments from DeepSeek, according to analysts. Companies in export-oriented sectors such as textiles, home appliances, electronics and chemicals could take a beating, they added.

Investors may prefer to sit on the sidelines as they wait for the outcome of a call between US President Donald Trump and Chinese President Xi Jinping this week, as the world’s two largest economies seek to avert a full-blown trade war.

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“Technology firms will be greeted with fanfare by investors because of the emergence of DeepSeek, but a rally in tech stocks will not be enough to ensure a roaring start for the overall market after the holiday,” said Ivan Li, a fund manager at Loyal Wealth Management in Shanghai, on Tuesday.

Last month, the Hangzhou-based DeepSeek released two powerful new large language models built at a fraction of the cost and computing power used by American firms. Its performance proved to be on par with ChatGPT, the generative AI chatbot developed by global leader OpenAI.

After the Trump administration unveiled a 10 per cent tariff on Chinese exports over the weekend, Beijing retaliated on Tuesday, imposing tariffs of 15 per cent on US coal and liquefied natural gas, as well as 10 per cent on crude oil, agricultural machinery, high-emission cars and pickup trucks.

China also imposed export controls on critical minerals like tungsten and ruthenium, which are used for making weapons and semiconductors.

“Potential tariff hikes may negatively affect China’s exports to the US, necessitating more forceful measures from China’s policymakers to counter the impact,” Edith Qian, an analyst at CGS International, said in a recent research report. “Trump’s policies could contribute to inflationary pressures and lead the US Federal Reserve to adopt a more cautious approach to rate cuts.”

US tariffs and protectionist measures might impede global fund flows to emerging markets, Qian added.

The yuan-denominated A-share market has risen on the first day of trading after the Lunar New Year holiday over the past four years. However, the benchmark Shanghai Composite Index has lost momentum this year, falling 3 per cent up to January 27, before the break to usher in the Year of the Snake.

“Investors were bullish about corporate fundamentals and they were foreseeing a jump [in share prices] when trading resumed,” said Wang Feng, chairman of Ye Lang Capital, a Shanghai-based financial services group. “Their primary concern now is what will happen if the two countries cannot reach a common ground after the phone call.”

White House press secretary Karoline Leavitt said on Monday that Trump and Xi would discuss the trade issue by phone “in the next couple of days”.

On the same day, Trump warned he might substantially increase tariffs on Chinese exports if China did not stop the flow of fentanyl, a deadly synthetic opioid, to the US.

Arthur Kroeber, founding partner of Gavekal Dragonomics, a China-focused economic research firm, said in a research report that Trump would have a long list of potential trade weapons other than tariffs to punish Beijing and Chinese businesses, including an end to the “permanent normal trade relations” status.

On the campaign trail, Trump said he would impose tariffs of 60 per cent or more on Chinese goods, far higher than duties of 7.5 per cent to 25 per cent applied during his first term.

In mid-January, UBS strategist Meng Lei said corporate earnings for mainland-listed firms could grow by about 6 per cent in 2025, compared with 5 per cent a year earlier. Meng said the forecast was based on prospects of broader government stimulus to boost growth, which would offset higher tariffs from the US.

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