Employees produce clothing at a garment factory which exports to Europe and the U.S., in Suqian, China, on Jan. 23.STR/AFP/Getty Images
Monday is the last day of China’s week-long Lunar New Year holiday, but few policy-makers will be feeling relaxed, after U.S. President Donald Trump slapped the country with an additional 10 per cent tariff on all goods, threatening the Chinese economy’s already unsteady post-COVID recovery.
Mr. Trump announced measures targeting China alongside new tariffs of 25 per cent on most goods coming from Canada and Mexico, fracturing a decades-long free trade consensus in North America and putting the U.S. on course for a trade war with its three most important economic partners.
In a statement over the weekend, China’s Ministry of Foreign Affairs said it “firmly deplores and opposes this move and will take necessary countermeasures to defend its legitimate rights and interests.” Beijing also pushed back against U.S. claims it is not doing enough to tackle fentanyl trafficking – pointing to years of co-operation on this issue – and threatened to file suit against Washington at the World Trade Organization.
Trade with China, and perceptions of unfairness in the relationship, was a key priority of Mr. Trump’s first term, as he vacillated between threatening Beijing with stringent tariffs and negotiating a sweeping new trade deal, the first phase of which was agreed upon but never fully implemented.
Speaking to 60 Minutes, Robert Lighthizer, one of the lead negotiators during that period, described China as “an existential threat to the United States.”
Mr. Lighthizer has long been a strong advocate of tariffs, and while he has not taken a position in the second Trump administration, his influence on the President’s economic policy is clear.
“I believe in strategic decoupling,” Mr. Lighthizer said on the Sunday broadcast. “I’m not saying no economic relationship with China. That’s not my position at all. I think you want balanced trade. And how do you get balanced trade? You’re gonna get balanced trade by having large tariffs on most of what they send to us.”
Since China joined the World Trade Organization in 2001 – a move encouraged by U.S. president Bill Clinton – it quickly became the largest and most important trading partner to the U.S., overtaking both Canada and Mexico, though the latter country edged ahead again in 2023 amid a COVID-19 pandemic-inspired drive toward “friendshoring” supply chains.
In 2023, U.S. exports to China were worth US$195.5 billion, while imports totalled US$447.7 billion, according to the U.S. Bureau of Economic Analysis, a trade deficit of US$252.1 billion.
Addressing that deficit, as Mr. Trump says he wants to do, will involve economic hardship on both sides. Posting to Truth Social on Sunday, the President wrote “ WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!).”
“The USA has major deficits with Canada, Mexico, and China (and almost all countries!), owes 36 Trillion Dollars, and we’re not going to be the “Stupid Country” any longer,” Mr. Trump wrote. “MAKE YOUR PRODUCT IN THE USA AND THERE ARE NO TARIFFS!”
He said critics of his tariff plan, “including the fake news Wall Street Journal, and hedge funds, is only against them because these people or entities are controlled by China, or other foreign or domestic companies.”
While China has yet to fully unveil what retaliation it will take against the U.S., both Canada and Mexico are planning measures that will hit U.S. consumers and businesses, particularly those in Republican areas of the country. Given the amount of goods the U.S. imports from China, consumers are sure to feel a pinch, especially in the near term.
“For U.S. manufacturers, when they import intermediate materials or products from China, the costs of those products will increase, and the price increase will be transmitted along the layers of the supply chain,” Zhou Mi, a researcher at the Chinese Academy of International Trade and Economic Cooperation, told the state-run China Daily. “U.S. consumers could face price inflation on certain products of over 10 per cent.”
The pain felt in China may be far more severe, however. The Chinese economy is heavily weighted toward exports, with the U.S. its largest market, and already dealing with a host of structural issues, among them an unsteady property market, poor domestic demand and local government debt.
Chinese factory activity grew at a slower pace in January, and staffing levels fell at the quickest pace in nearly five years due to trade war fears, a private-sector business survey showed Monday.
“Rising uncertainty in international policies could worsen China’s export environment, posing significant challenges for the economy,” said Wang Zhe, an economist at Caixin Insight Group, which commissioned the survey.
In a separate analysis, Morgan Stanley predicted the pressure of tariffs could result in the Chinese economy growing by less than 4 per cent this year, its lowest rate of expansion in decades, outside of the COVID-19 pandemic.
Craig Singleton, senior China fellow at the non-partisan Foundation for Defense of Democracies, said in an e-mail that Chinese President Xi Jinping will face a “delicate balancing act” responding to Mr. Trump’s tariffs.
“Xi’s strategy leans on endurance, leveraging state-owned enterprises and reserves to absorb tariff shocks while betting on U.S. businesses and consumers to resist prolonged economic battles. Expect incremental retaliation – like agricultural import bans or regulatory roadblocks – carefully calibrated to sting without sparking an all-out trade war,” Mr. Singleton said.
“Xi is unlikely to match Trump’s tariffs dollar for dollar, aware that China’s export-driven economy is more vulnerable. Xi might privately signal an openness to negotiation, using intermediaries or backchannels to seek a face-saving compromise. This approach allows him to appear reasonable while shifting blame for escalation onto Washington.”
Indeed, according to the Wall Street Journal, Beijing is already preparing for talks with Mr. Trump’s team, and hopes to get back to the grand bargaining of his first term, beginning by implementing the phase one agreement Mr. Trump once described as the “greatest deal” ever made.
With files from Reuters
China on Tuesday slapped tariffs on U.S. imports in a swift response to new U.S. duties on Chinese goods, renewing a trade war between the world's top two economies as U.S. President Donald Trump sought to punish China for not halting the flow of illicit drugs.
Reuters