China's Ministry of Commerce issued a stern response on Tuesday to the United States' threat to increase tariffs, warning of potential retaliation if Washington follows through on its plan, further intensifying the trade conflict between the world's two largest economies.

The ministry stated, "The U.S. threat to raise tariffs on China is a mistake upon a mistake, once again highlighting the extortive nature of the U.S." and declared, "If the U.S. insists on following its own path, China will fight to the end."

As the rhetoric heats up, experts such as Michelle Lam, an economist at Societe Generale SA, noted, "If Trump does not back down, investors should prepare for a potential decoupling of trade between the two powers."

Chinese authorities have reinforced their commitment to market stability.

The People's Bank of China has relaxed controls on the yuan to enhance the competitiveness of its exports, with state-backed investment vehicles known as "national funds" intervening in the market by purchasing assets.

Additionally, the government has announced loan measures to bolster the market and is assessing potential economic stimulus.

On Tuesday, the yuan fell to its lowest level since September 2023 in the onshore market, while in the offshore market, it reached its weakest valuation in two months.

Conversely, the Hang Seng China Enterprises Index saw a rebound of up to 3.7%, recovering from its worst drop since the financial crisis in the previous session.

The new tariffs proposed by President Trump would add to the existing 34% that is set to take effect on April 9, along with a 20% increase implemented earlier this year, elevating the total tax burden to 104%, according to a White House official.

This escalated tariff regime would more than double the cost of Chinese imports in the U.S.

Despite the growing tensions, the Chinese Ministry of Commerce has called for dialogue to resolve trade disputes.

However, Trump has warned that all talks with Beijing would be suspended unless China takes concrete actions, although he did not specify what those actions should be.

The increasing strain on relations diminishes the likelihood of immediate communication between the leaders of both nations.

Notably, Trump has not spoken with Chinese President Xi Jinping since returning to the White House, marking the longest pause in communication between U.S. and Chinese leaders in the past 20 years.

According to economic analysts from Bloomberg Economics, the risk of a negative impact on economic growth accelerates the need for monetary and fiscal stimulus in China.

"We expect these measures to arrive sooner than anticipated," noted economists Chang Shu, David Qu, and Eric Zhu.

The Communist Party has signaled its stance in a recent editorial, indicating that Beijing has abandoned the "illusions" of reaching a deal and is now focused on protecting its economy.

Xi has pledged to boost domestic consumption in anticipation of a decline in exports, which accounted for a third of the country's economic growth in 2023.

In a bid to stabilize the market, a group of state-backed exchange-traded funds recorded a net inflow of 42 billion yuan (approximately $5.7 billion) on Monday.

Meanwhile, the depreciation of the yuan may mitigate the impact of the U.S. tariffs.

The latest fixing by the People's Bank of China, which exceeded the threshold of 7.20 yuan per dollar, suggests a greater tolerance for devaluation.

Concurrently, expectations of monetary stimulus have driven demand for Chinese bonds, with the yield on 10-year sovereign bonds approaching its historical low from February.

In response to the latest tariff threat, the Chinese embassy in Washington criticized the U.S. stance, deeming it "erroneous." Spokesperson Liu Pengyu stated, "The hegemonic maneuver of the U.S. under the guise of reciprocity serves its own interests at the expense of the legitimate rights of other countries, placing 'America first' above international norms."