The U.S. is preparing to impose tariffs of 10% on an additional USD200 billion worth of Chinese import products after first imposing 25% tariffs on USD34 billion to be followed in about a week by tariffs on a further USD16 billion, bringing the total to USD250 billion. The U.S. is preparing the escalation because China retaliated to the first imposition of U.S. tariffs by imposing its own tariffs on U.S. imports of the same amount of USD34 billion. The publication of the USD200 billion list starts a weeks-long process that includes a public-comment period and hearings ending on August 30. If all of the proposed U.S. duties come into play, the combined value of Chinese goods affected would be about half the total it sold to the U.S. in 2017.

“China is shocked by the U.S. behavior. In order to safeguard the core interests of the country and the people, China will have to fight back as usual,” China’s Ministry of Commerce said in a statement. Assistant Minister Li Chenggang said that the latest action proposed by the U.S. interfered with the globalization of the world economy and that China’s support for a multilateral trade system would not change.

China is preparing several actions to circumvent the U.S. tariffs. On the border with Vietnam in the Guangxi region, local authorities plan to establish seven bonded zones in which Chinese manufacturers could produce goods to be labelled “Originating in Vietnam”, which would not be subject to U.S. tariffs. Vietnam has so far been cautious about the zones. While it has agreed to the plans, work on building the zones and necessary infrastructure has been lagging, and the two sides still need to work out the details of the cooperation. At present, there is not much industrial capacity in the area. Moreover, there is some opposition to the cross-border zones on the Vietnamese side, which is concerned about the growing number of Chinese investments in the country.

China’s Ministry of Commerce (MOFCOM) has said it might help companies find alternatives to the United States for key imports such as soybean and cars, as it looks to offset the effects of punitive trade war tariffs. MOFCOM is also considering ways to use the extra revenue from its tariffs on U.S. goods to mitigate the cost borne by business and workers. Other possible remedial action included a faster roll-out of various economic and investment incentives and ongoing assessments of the trade war’s impact on a range of sectors.

China may take the edge off tariff sanctions by easing its monetary policies, but policymakers will not seek to weaponize the yuan by a sharp depreciation, even as the trade war with the U.S. gathers pace, according to Citibank. China is expected to cushion the impact from the punitive tariffs by implementing a 50 basis point cut in its reserve ratio in the second half. The People’s Bank of China (PBOC) announced a half percentage point cut in the reserve requirement ratio on June 24, which took effect on July 5, unlocking more than CNY700 billion into the economy. Citibank forecasts 6.5% year-on-year annualized growth for the Chinese economy during the second half.

Chicago Mayor Rahm Emanuel, on a mission to salvage business deals threatened by the tariff war, said that Chinese officials expressed confidence they could survive the spiraling dispute with Washington. The Mayor met Chinese Vice President Wang Qishan and China’s Commerce Minister last week in an effort to lock in a USD1.3 billion deal for a Chinese company to assemble railcars in Chicago.

China’s foreign trade surged by 7.9% year-on-year to CNY14.12 trillion in the first half of the year. The country’s exports grew by 4.9% year-on-year to CNY7.51 trillion, while its imports increased 11.5% to CNY6.61 trillion. As for China-U.S. trade during the period, the volume grew by 5.2% year-on-year to CNY1.93 trillion, accounting for 13.7% of China’s total foreign trade. Despite external challenges, China’s foreign trade is expected to keep its momentum this year.

Meanwhile, 20 different government agencies said that they would take measures to facilitate imports of goods and services in several areas, including daily consumer goods, high-tech equipment, and agricultural and natural resources. The announcement is partly aimed at telling the U.S. that China is ready to balance trade but will not give into threats and blackmail. Unremitting efforts in relaxing trade in both goods and services will hold the key to keeping the Chinese economy largely unaffected by the ongoing trade hostilities triggered by Washington, said Zhang Naigen, Vice Chairman of the WTO Law Research Society and Professor at Fudan University. Efforts to lower tariffs on a variety of consumer products and introducing shorter foreign investment “negative lists” are among a number of actions to open up the economy, he said.