China Injects $82 Billion Into Financial System to Cushion Tariff Shock and Boost Liquidity

China–U.S. Trade War

Economic

Summary:

China’s central bank has injected over $82 billion into its financial system via one-year medium-term lending facilities (MLF) to stabilize liquidity amid intensifying U.S. tariff pressure and increased government bond issuance....

A surprise move to counter growing external and fiscal pressures

On April 25, the People's Bank of China (PBOC) announced an unexpected liquidity injection of 600 billion yuan (approximately $82.3 billion) into the banking system using its one-year Medium-Term Lending Facility (MLF). This represents one of the largest net monthly infusions since December 2023, pushing April's total net injection to 500 billion yuan.

The move signals a shift toward more proactive monetary support in response to mounting economic pressures stemming from heightened U.S. tariffs—some of which have reached up to 145% on Chinese exports. According to PBOC officials and policy analysts, the injection is intended to both ease short-term liquidity strains and accommodate the issuance of newly approved special government bonds.

Monetary strategy amidst trade turbulence

Chief strategist Wang Qing of Golden Credit Rating emphasized that the liquidity boost is a clear policy signal. With trade tensions escalating and export demand weakening, China's economic planners are leaning on monetary instruments to stabilize the financial system and preserve market confidence. The timing, just ahead of the early May holiday season and the launch of a major special bond issuance program, further underlines the urgency to keep funding conditions fluid.

This liquidity infusion reflects a causal response mechanism: external trade shocks—such as retaliatory tariffs—have increased the demand for monetary easing to prevent credit tightening and investment slowdown. By expanding MLF operations, the PBOC aims to bridge both structural funding needs and cyclical volatility.

MLF as a dual-purpose liquidity and policy tool

Although the role of MLF has been diminishing in recent years with the emergence of other policy instruments, it remains a vital tool for mid-to-long-term liquidity management. Chief economist Ming Ming of Citic Securities pointed out that the expanded MLF operation not only meets surging liquidity demands but also alleviates near-term pressures from expiring reverse repos, which could otherwise trigger instability in interbank funding markets.

Moreover, the sizable MLF injection may delay the need to cut banks’ reserve requirement ratio (RRR), preserving other policy levers for future use. This approach suggests a preference for fine-tuning liquidity rather than deploying broader stimulus measures—at least for now.

Monetary flexibility aligned with fiscal expansion

The liquidity injection is also closely tied to China’s ramped-up fiscal efforts. The government has recently begun issuing a large batch of special sovereign bonds aimed at supporting infrastructure investment, technological upgrades, and consumption stimulation. Ensuring liquidity is sufficient to absorb these issuances is essential to avoid yield spikes that could destabilize broader financial markets.

This alignment between monetary and fiscal tools demonstrates a coordinated macro policy response to complex external shocks. The parallel use of MLF and special bond issuance underscores Beijing’s determination to balance short-term stability with long-term developmental goals, even as global trade dynamics remain volatile.

A calibrated response to a complex external landscape

China’s $82 billion liquidity injection via MLF marks a decisive, though targeted, policy action to preserve economic momentum amid a difficult external environment. It reflects both the urgency created by U.S. trade barriers and the necessity to ensure smooth execution of domestic fiscal initiatives.

While not a dramatic stimulus pivot, the move signals the PBOC’s readiness to act swiftly in support of financial system stability. Going forward, the interplay between liquidity tools, trade shocks, and sovereign financing will continue to shape China’s monetary posture—balancing caution with adaptability in an increasingly fragmented global economy.

Source: Bloomberg

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Glendon

Economic

Forex

Stocks

Emerging Asia shares rallied on Friday, led by indexes in Manila and Taipei, on a potential de-escalation in trade tensions between the world's two largest economies, while currencies in the region struggled for direction.

Equities in Taiwan jumped more than 2%, tracking a tech-led rally on Wall Street after strong earnings reports from Google-parent Alphabet and AI major ServiceNow.

Taiwan hosts some of the world's largest chip manufacturers, such as TSMC, which gained 2.8%, boosting the broader index.

Stocks in Kuala Lumpur, Bangkok and South Korea rose 0.1%, 0.9% and 1%, respectively.

The Philippines share market touched its highest since March 21, reflecting the limited impact of US President Donald Trump's tariff policies. The benchmark was also set for its best week since early March.

Analysts at JPMorgan Chase upgraded Manila stocks to an "overweight" rating earlier this week and called them a relative winner through the global upheaval triggered by Trump's tariffs.

"We think the market is pricing in the Philippines’ resilient narrative amid limited impact of Trump 2.0 policies on economy and earnings," said Estella Dhel Villamiel, head of institutional equity research at First Metro Securities.

Currencies in Asian nations were mixed, while the dollar gained, with investors taking a cautious stance amid the Trump administration's mixed signals on trade negotiations and comments on the Federal Reserve Chair.

During the week, the US shifted its tone on tariff deal with China by saying the situation was unsustainable and that Beijing was considering exempting some US imports from its 125% tariffs.

"A case of de-escalation narrative persisting for awhile more should not be ruled out and this can aid US dollar short covering, following the over 10% decline (at one point) since January peak," said Christopher Wong, currency strategist at OCBC.

Wong, however, added that a broad bounce back in the US dollar may also see some Asian currencies, excluding Japan, come under pressure in the interim despite a conciliatory tone towards the trade deal.

The Indonesian rupiah jumped as much as 0.3% to 16,815 per US dollar and was set for its strongest session since April 10. Jakarta equities rallied 0.8%.

Bank Indonesia, earlier in the week, held interest rates steady in a bid to limit the depreciation of the currency.

Fakhrul Fulvian, an analyst with Trimegah Securities, attributed the rupiah's gain to the "loosening of trade war tensions".

Among other currencies, the Singapore dollar and South Korean won dropped around 0.3% each while the Philippine peso added 0.2%.

Source: Theedgemarkets

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Gerik

China–U.S. Trade War

Economic

Asia’s economic outlook dims amid global trade disruptions

In its latest regional outlook released on April 24, the International Monetary Fund (IMF) downgraded Asia-Pacific’s economic growth forecast to 3.9% for 2025 and 4.0% for 2026, marking a sharp decline from 4.6% in 2024. The downgrade reflects the mounting toll of escalating trade tensions, particularly following the April 2 tariff hike announcement by U.S. President Donald Trump, which imposed broad import duties on goods from nearly all major economies.

The IMF notes that policy uncertainty since January 2025 has rapidly eroded short-term prospects for many Asian economies. Krishna Srinivasan, Director of the IMF’s Asia-Pacific Department, emphasized that the region’s strong exposure to global trade and its central role in supply chains have made it especially vulnerable to external shocks triggered by aggressive U.S. protectionism.

Price stability gives Asia room to maneuver

Despite the deteriorating external environment, the IMF sees a silver lining: subdued inflation across much of Asia. Srinivasan explained that because inflation in many economies remains at or below target, central banks still have room to cut interest rates without risking price instability.

This correlation between low inflation and policy space provides an important strategic lever. While the region faces elevated risks, the IMF asserts that monetary easing remains a viable tool to soften the blow from weakened exports, financial volatility, and disrupted capital flows. The causal link is clear—as external shocks depress trade and investment, accommodative monetary policy can act as a buffer for domestic demand and liquidity.

Monetary and exchange rate tools in focus

Srinivasan also highlighted the potential role of flexible exchange rates in absorbing external shocks, a position consistent with IMF recommendations in past crisis scenarios. However, in instances of sharp capital outflows or excessive market volatility, he argued that direct monetary policy responses—such as rate cuts or liquidity injections—may be necessary to restore financial stability.

In this context, central banks across Asia are expected to closely monitor bond yields, currency trends, and capital movements. Countries with sufficient monetary autonomy and fiscal discipline may be better positioned to respond swiftly to shocks without jeopardizing long-term macroeconomic credibility.

A fragile trade model faces structural headwinds

The IMF reiterates that Asia’s longstanding growth model—centered on export-driven expansion and deep integration into global value chains—is under pressure. The dual challenge of global trade fragmentation and policy unpredictability from major economies like the U.S. has exposed structural vulnerabilities, especially in highly open economies like South Korea, Taiwan, and Singapore.

Moreover, the destabilizing impact of financial market turbulence, coupled with slowing investment, threatens to dampen regional recovery prospects. The combination of weaker external demand and volatile capital flows may further restrict fiscal space, increasing the burden on monetary policy to do the heavy lifting.

Monetary flexibility key to regional resilience

Amid slowing growth and persistent external shocks, the IMF’s message is cautiously optimistic: Asia still has tools at its disposal. With inflation largely under control, many countries in the region can and should act to loosen monetary conditions, ensuring liquidity, supporting investment, and stabilizing consumption.

Nevertheless, this monetary buffer must be used wisely. Long-term resilience will require not only cyclical support but also structural adjustments—diversifying export markets, strengthening domestic demand, and reducing overdependence on any single trade partner. In a world of rising economic fragmentation, Asia’s ability to adapt swiftly and maintain macroeconomic agility may be its greatest advantage.

Source: IMF

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China–U.S. Trade War

Economic

Tariff retaliation poses inflation risk for Britain, BoE cautions

On April 24, Bank of England Governor Andrew Bailey cautioned that imposing retaliatory tariffs in response to recent U.S. trade measures could accelerate inflation in the UK. Speaking to CNBC, Bailey underscored that although Britain had prepared a list of potential counter-tariff targets following U.S. President Donald Trump's announcement of reciprocal duties, such actions could have adverse economic side effects.

The U.S. has imposed a 10% tariff on most UK imports, along with 25% duties on aluminum, steel, and vehicles. While the UK still aims to negotiate a bilateral trade deal, the retaliatory path is fraught with macroeconomic consequences—most notably the risk of upward pressure on consumer prices.

Inflationary pressures already brewing from domestic sources

Bailey emphasized that UK inflation was already set to rise in April, largely due to domestic adjustments in energy and water pricing. He warned that layering tariffs onto this dynamic could worsen inflationary trends, especially by increasing the costs of imported goods and disrupting supply chains.

This illustrates a potential cause-effect pattern: retaliatory tariffs would directly raise input costs for businesses and retail prices for consumers, feeding into broader inflation metrics at a time when economic resilience remains delicate. Bailey's remarks suggest that monetary policy authorities are concerned about compounding pressures that could limit their policy flexibility.

Trade diversion may offer limited inflation relief

Interestingly, Bailey also pointed out that trade diversion—particularly shifting imports from China to lower-cost or less-tariff-exposed countries—could help moderate inflation. This reflects a broader global trend as companies reconfigure supply chains to mitigate U.S. and Chinese tariff barriers. For the UK, this adjustment could provide marginal relief in specific product categories but is unlikely to fully offset the inflationary impact of direct tariffs on high-value sectors like automotive and metals.

This dual-track scenario highlights a mixed correlation: while tariffs push inflation higher, strategic trade reorientation could exert a mild deflationary counterweight—though not strong enough to neutralize the overall impact.

UK–U.S. trade diplomacy: Seeking solutions through compromise

In parallel with central bank concerns, UK Chancellor Rachel Reeves recently floated the possibility of slashing the UK’s current 10% import tax on U.S. cars to 2.5% as part of a broader trade negotiation effort. This gesture is aimed at softening tensions and facilitating a bilateral agreement, particularly given the UK’s significant auto exports to the U.S., valued at over £6.4 billion annually. In contrast, U.S. vehicle exports to the UK remain modest at £1.1 billion.

These trade dynamics illustrate an asymmetric economic relationship that could provide London with negotiation leverage. However, the broader context of escalating global protectionism remains a challenging backdrop for crafting mutually beneficial trade terms.

Balancing retaliation with economic stability

Governor Bailey’s inflation warning highlights the policy dilemma facing the UK: whether to retaliate against U.S. tariffs to defend national trade interests or maintain restraint to protect macroeconomic stability. While political pressure may favor strong responses, economic logic urges caution—especially as the UK seeks to avoid importing stagflation through miscalculated tariff policies.

The UK’s next moves in trade negotiations and tariff management will be closely watched, not only for their bilateral impact with the U.S., but for their ripple effects across inflation, investment sentiment, and monetary policy space. In a fragmented global trade environment, economic strategy must now weigh national assertion against systemic risk.

Source: WSJ

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Catherine Richards

Economic

British retailers reported the best start to the year since 2021 in what may be a fleeting boost for the economy, with rising bills and the US trade war increasingly weighing on consumer morale.

Retail sales volumes rose by 0.4% in March alone, after downwardly revised growth of 0.7% in February, the Office for National Statistics said on Friday.

A Reuters poll of economists had pointed to a month-on-month fall of 0.4%.

For the first quarter as a whole, retail sales rose by 1.6% — the strongest reading in four years, and providing a 0.08 percentage point boost to overall economic output for the quarter.

That may prove to be a high watermark for Britain's consumer economy for the foreseeable future.

Earlier on Friday, a closely-watched gauge of British consumer confidence fell in April to its lowest level since late 2023. Market research firm GfK cited rising household energy bills and turbulent global financial markets as reasons for the drop.

"Retailers face an uphill battle to protect margins, sustain investment, and navigate an increasingly complex trading environment," said Nicholas Found, head of commercial content at consultancy Retail Economics.

"The outlook is clouded further by uncertainty around US trade tariffs, which has the potential to disrupt shipments if orders are cancelled and routes impacted."

On Thursday Bank of England governor Andrew Bailey said he was focused on an expected shock to growth from US President Donald Trump's import tariffs and retaliatory measures by other countries.

Some of Bailey's BOE colleagues say the trade war could prove to be disinflationary.

Clothing and outdoor retail chains said good weather helped sales last month, although supermarkets struggled, the ONS said.

The outlook for the rest of the year looks tougher, with household energy bills on the rise and financial markets in turmoil because of the trade war.

Outlook statements this month from major British retailers have been downbeat. Tesco and Sainsbury's, the country's two biggest food retailers, warned profit growth was unlikely this year amid a potential price war.

Sportswear retailer JD Sports forecast little or no growth even before any potential impact from US tariffs.

Source: Theedgemarkets

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Gerik

China–U.S. Trade War

Economic

Turning point in global policy: U.S. tariffs disrupt fragile recovery

Just as the global economy began to show early signs of stabilization, the announcement of sweeping new U.S. tariffs in April 2025—reaching as high as 145% in some cases—has reignited uncertainty and deepened the fragility of international markets. The latest Brookings-FT TIGER index update captures this tension: while macroeconomic indicators still reflect a healthy outlook, financial conditions have deteriorated, and private sector confidence has collapsed, revealing a growing disconnect.

The primary catalyst behind this downturn is the reintensification of U.S. protectionism. President Trump’s "reciprocal" trade policies have thrown global supply chains into turmoil, overshadowing earlier positive signals such as strong Q1 output and job growth in the U.S. Even temporary tariff suspensions and exemptions have failed to restore market stability, as policy unpredictability itself now acts as a growth deterrent.

Monetary constraints and policy uncertainty limit response capacity

In the United States, the inflationary effects of import tariffs—now increasingly borne by consumers—are narrowing the Federal Reserve’s room to maneuver. Rising prices combined with slowing momentum risk pushing the U.S. economy into stagnation. Moreover, the Fed’s policy tools may prove insufficient in the face of such externally induced volatility, particularly as fiscal policy remains unpredictable and reactive rather than preemptive.

Across the eurozone, performance is diverging. Core economies like France, Germany, and Austria are underperforming, burdened by both rising political risk and tightening credit conditions, while southern economies such as Greece and Spain are temporarily more resilient. Yet overall, the zone is vulnerable to external shocks, especially from deteriorating trade flows and higher borrowing costs.

China and India diverge under trade pressures

China, which had begun showing signs of economic stabilization, now faces renewed headwinds as trade with the U.S. deteriorates further. Its industrial capacity is misaligned with weakening domestic demand, and retaliatory tariffs threaten to magnify this mismatch. Meanwhile, India has emerged as a relative outlier, benefiting from robust rural consumption and a vibrant services sector, while positioning itself as a supply chain alternative for multinationals shifting out of China.

The differing responses of these two Asian giants illustrate a correlation—if not outright causation—between domestic demand resilience and exposure to global trade frictions. China’s dependence on manufacturing exports leaves it more vulnerable, while India’s internal demand buffers it, at least in the near term.

Emerging markets at the epicenter of global fragmentation

Other major emerging economies are facing increasingly complex challenges. Brazil’s consumer-driven rebound is being undercut by inflationary pressures tied to loose fiscal policy, weakening real growth prospects. South Africa remains constrained by energy shortages and currency instability. In both cases, declining investor and consumer sentiment risks turning temporary slowdowns into more persistent stagnation.

Elsewhere, the fallout from the U.S.–China tariff standoff is exacerbating structural vulnerabilities in Southeast Asia and Africa. Many low- and middle-income countries that rely on exports are being hit by weaker global demand, rising debt burdens, and dwindling foreign aid. For these regions, the compounded effects of trade disruption and capital withdrawal are especially dangerous, limiting their ability to mount effective countercyclical responses.

The end of global trade as we knew it

Trump’s aggressive tariff strategy has not only disrupted specific bilateral relationships but also catalyzed a broader shift toward protectionism. While a full retreat from globalization is unlikely, the once-prevailing model of open, rules-based trade is being replaced by fragmented, politicized supply chains. Even if tariffs are eventually scaled back, the damage to institutional trust and business planning horizons may prove lasting.

This shift reflects a broader geopolitical reality: even prior to the tariff war, international trade had begun to fragment under the weight of growing strategic rivalries. Because capital flows often follow trade patterns, this fragmentation is expected to weaken cross-border economic linkages, reducing global financial stability in the process.

Navigating the era of fractured globalization

The risks posed by U.S. trade policy shifts go far beyond temporary disruptions—they signal a structural transition in how global commerce functions. As protectionist policies ripple outward, countries are being forced to reassess their economic strategies. Policymakers must safeguard their remaining fiscal and monetary space, using it judiciously to shield their economies from external shocks.

The path forward requires enhancing domestic demand, building policy flexibility, and investing in economic resilience. In an era defined by volatility, uncertainty, and decoupling, adaptability will become the most critical asset for governments and corporations alike.

Source: Asia Times

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Gerik

Political

China–U.S. Trade War

Economic

Potential tariff relief reflects pragmatic recalibration

Amid escalating trade tensions, Beijing is reportedly reviewing the possibility of temporarily suspending its punitive 125% tariffs on select U.S. imports. According to sources close to internal policy discussions, exemptions may include high-tech medical equipment and critical industrial chemicals such as ethane, which remains an essential input for China’s petrochemical industry despite the country's status as the world’s largest plastics producer.

This policy shift suggests a strategic recalibration by China as trade conflict pressures begin to strain its own critical sectors. The causal relationship is apparent: steep tariffs imposed for geopolitical leverage are now threatening the operational viability of industries that depend on advanced foreign technology and specialized raw materials.

Echoes of U.S. flexibility signal tentative de-escalation

China’s move comes in the wake of a notable policy gesture by Washington, which recently exempted several categories of electronics from the 145% tariffs it had imposed on Chinese goods. This reciprocal easing signals mutual recognition of the economic damage that unrestrained protectionism could inflict on foundational sectors—from healthcare to aerospace to consumer electronics.

The synchronized nature of these tariff reconsiderations reveals a clear correlation between policy relaxation and shared industrial exposure. In industries such as aviation, where most Chinese airlines lease aircraft from international lessors, new tariffs would impose unsustainable financial burdens. The possible exemption of aircraft leasing fees from tariffs underscores the structural interconnectedness of both economies.

Implications for tech and semiconductor supply chains

Leaked documents and industry discussions suggest that China is also considering exemptions for semiconductors and essential chemicals used in chip manufacturing. While the details remain unconfirmed, insiders note that at least eight product categories related to semiconductor production may be removed from the tariff list. Notably, core memory chips—where U.S. firm Micron Technology is a key global player—are still excluded from consideration, revealing the selective and strategic nature of Beijing’s exemption list.

This tentative exclusion of memory chips may reflect a broader tactic: shielding industries with high domestic reliance on U.S. tech while keeping leverage in negotiations. The nuanced approach suggests that tariff suspension is not a wholesale retreat, but a carefully calibrated move aimed at preserving industrial stability without forfeiting diplomatic leverage.

Business community awaits clarity amid fragile outlook

Chinese authorities, including the Ministry of Finance and General Administration of Customs, have yet to comment publicly on the proposed exemptions. However, companies in affected industries have reportedly been asked to submit the tariff codes of products they wish to have exempted, indicating active policy preparation. For now, major corporations—particularly in sectors like aviation, electronics, and chemicals—are closely monitoring developments for operational clarity.

Despite these signs of partial flexibility, formal trade negotiations between the U.S. and China remain stalled. Beijing has reiterated its demand that Washington lift all unilateral tariffs before it returns to the negotiation table. Meanwhile, the business community is navigating uncertainty, hopeful that the dual signals of tariff easing could open the door to broader de-escalation talks.

Fragile detente amid industrial strain

As mutual tariff escalations threaten key sectors in both countries, China’s possible suspension of select 125% duties marks a critical, albeit cautious, step toward economic damage control. This measured concession—mirroring U.S. moves to exclude certain electronics—underscores the limits of prolonged economic confrontation when vital industrial ecosystems are at stake.

Yet, the selective nature of the exemptions also reflects enduring strategic rivalry. Rather than a full truce, both Washington and Beijing appear to be signaling temporary relief aimed at shielding essential sectors while preserving leverage for future bargaining. The coming weeks will test whether these moves evolve into meaningful dialogue—or remain isolated acts of economic self-preservation in an otherwise frozen conflict.