It’s similar to the restaurant menu strategy, which starts with outrageously priced entrees that make the (still expensive) main course look cheap. In marketing, this is called anchoring. Trump heaves the “anchor” a great distance, so the subsequent compromise seems reasonable even though it is well removed from the previous midpoint.
The specifics of Trump’s China policies are yet to be announced. China has had time to prepare for increased tariffs by building up trade relationships with small economies and moving supply chains to third countries.
But that’s not the main game. The US has already diversified its imports away from China for low-value-added goods such as bedding, mattresses and furniture. However, diversification is proving far harder for higher-value-added goods. This makes the China-US relationship far more fragile because it has significant vulnerable pinch points.
Chinese acupuncture uses tiny needles inserted at the correct meridian points to improve the body’s health and restore circulation. The points are also used to restore balance and encourage the body to heal itself. The Chinese response to Trump’s belligerence is designed to restore balance and help improve the health of the trade relationship by selecting those trade points which will have the largest, if silent, impact.
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As President Xi Jinping noted: “All things are interconnected and interdependent,” so “pulling one hair moves the whole body.”
Two examples illustrate the acupuncture trade response strategy. Late in 2024, China announced an immediate ban on exports of gallium, germanium and antimony to the US. Unlike lithium, few had heard of these minerals outside of the semiconductor industry. These are amongst the rarest of rare earths. China dominates the global mining and refining of those minerals. The US depends on imports from China for 54% of its germanium and gallium consumption and 63% of its antimony consumption.
The decision also required stricter reviews of graphite commodities shipped to the US. China produces the majority of the world’s graphite and the US is completely reliant on graphite imports. Gallium and germanium are crucial for manufacturing advanced technologies such as semiconductors. Germanium is also critical for infrared technology, fibre optic cables, solar cells and space exploration. Antimony is used in bullets and other weaponry, while graphite constitutes the largest component in electric vehicle batteries.
See also: Xi signals China may finally move to end deflationary price wars
Another pinch point is medicine. The US imports most of its medicines from other countries and China is the fourth-largest supplier. The suspension of these supplies would immediately disrupt the US health system.
These actions have been called a tit-for-tat response in reply to US tariffs and sanctions, but that analysis fails to understand the carefully designed response that has far wider impacts.
The Chinese acupuncture strategy opposes the blunt force trauma strategy favoured by Trump and his China hawks. The US may be able to replace these supply factors, but it will take time. This will allow China to forge even further ahead in these critical digital areas.
Technical outlook for the Shanghai market
The Shanghai Index has rebounded from support near 3,160 and developed a narrow uptrending channel, which confirms that this is a genuine support level that will act as a base for a new uptrend.
The balance is shifting to support the case for a new uptrend. It starts with the relationships shown in the Guppy Multiple Moving Average (GMMA) indicator. The long-term group of averages in the GMMA is compressing and has stopped moving down. There is no crossover in the long-term GMMA.
The most bullish outcome is for the market to continue this gently rising trend. Any sustainable uptrend has several resistance features to overcome.
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The first resistance feature is the projected value of the uptrend line, which currently stands at around 3,385. The second resistance feature for a longer-term uptrend is the historical resistance level, which is near 3,440.
Although these levels provide an easy-to-measure point for potential trend changes, the GMMA relationships help confirm the sustainability of any trend reaction. The key measure is the long-term average group because it indicates how investors think.
The key feature to watch is the way the long-term GMMA develops. This market is further complicated by the Lunar New Year, which often sees a sell-off as poorly performing stocks are sold in preparation for the new year. It appears that the bulk of this sell-off occurred around Jan 13, and now, there are only minor adjustments to portfolios as traders take positions in anticipation of a strong uptrend continuing after the Lunar New Year holiday.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a former national board member of the Australia-China Business Council. The writer owns China stock and index ETFs
