China is not backing down from Trump's tariff war. What next?

How is China responding to the tariffs?

China had responded to the first round of Trump tariffs with tit-for-tat levies on certain US imports, export controls on rare metals and an anti-monopoly investigation into US firms, including Google.

This time too it has announced retaliatory tariffs, but it also appears to be bracing for pain with stronger measures. It has allowed its currency, the yuan, to weaken, which makes Chinese exports more attractive. And state-linked enterprises have been buying up stocks in what appears to be a move to stabilise the market.

The prospect of negotiations between the US and Japan seemed to buoy investors who were fighting to claw back some of the losses of recent days.

But the face-off between China and the US - the world's biggest exporter and its most important market - remains a major concern.

"What we are seeing is a game of who can bear more pain. We've stopped talking about any sense of gain," Mary Lovely, a US-China trade expert at the Peterson Institute in Washington DC, told the BBC's Newshour programme.

Despite its slowing economy, China may "very well be willing to endure the pain to avoid capitulating to what they believe is US aggression", she added.

Shaken by a prolonged property market crisis and rising unemployment, Chinese people are just not spending enough. Indebted local governments have also been struggling to increase investments or expand the social safety net.

"The tariffs exacerbate this problem," said Andrew Collier, Senior Fellow at the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School.

If China's exports take a hit, that hurts a crucial revenue stream. Exports have long been a key factor in China's explosive growth. And they remain a significant driver, although the country is trying to diversify its economy with high-end tech manufacturing and greater domestic consumption.

It's hard to say exactly when the tariffs "will bite but likely soon," Mr Collier says, adding that "[President Xi] faces an increasingly difficult choice due to a slowing economy and dwindling resources".