A busy shopping district in Shenzhen, China, on April 3.Getty Images/Getty Images
As countries around the globe grapple with the fact they are now in an involuntary trade war with the world’s largest economy, China is maintaining an approach of calm defiance to U.S. President Donald Trump’s continuing threats.
After Mr. Trump’s “Liberation Day” tariffs prompted Beijing to impose a reciprocal 34-per-cent levy on U.S. imports, leading Mr. Trump on Monday to threaten an additional 50-per-cent tariff unless it is reversed immediately, China held firm, vowing to “fight to the end” and denouncing U.S. “bullying.”
“The United States’ threat to escalate tariffs on China is a mistake on top of a mistake,” the country’s Ministry of Commerce said in a statement Tuesday, adding if Mr. Trump follows through, Beijing will “resolutely take countermeasures.”
During the 2024 election, Mr. Trump repeatedly threatened to impose tariffs of 60 per cent on Chinese goods. So, Beijing, unlike various U.S. allies and partners taken off guard by the levies imposed last week, has had months to prepare for an escalating trade war. And while Mr. Trump’s threatened additional 50-per-cent tariff would go well beyond this, Chinese policy-makers appear – publicly at least – confident they can weather the storm.
“If the tariffs keep going up and up, it becomes a battle of wills and principles rather than economics,” said Xu Tianchen, senior economist for China at the Economist Intelligence Unit. “Since China already faces a tariff rate in excess of 60 per cent, it doesn’t matter if it goes up by 50 per cent or 500.”
A global trade war touched off by U.S. President Donald Trump's sweeping tariffs escalated further on April 7, as Trump threatened to increase duties on China and the European Union proposed counter-tariffs of its own.
Reuters
In a front-page editorial Monday, the People’s Daily – official mouthpiece of the Chinese Communist Party – said “the sky won’t fall” as a result of the new tariffs, pointing to a general trend of lowering Chinese exports to the U.S. in the past decade, reducing Beijing’s dependency on that market.
“After eight years of trade war with the U.S., we’ve built up a wealth of experience in this struggle,” the paper added, noting China has a “strong capacity to withstand the pressure.”
Chinese state media reported Tuesday that if Mr. Trump follows through on his latest threat, Beijing may consider imposing new tariffs on U.S. agricultural and food products, stopping co-operation on fentanyl and banning Hollywood movies from China.
Already, Beijing has reportedly moved to block a potential deal, which Trump administration officials planned to announce this week, to save TikTok, and pressured a Hong Kong conglomerate not to sell ports on the Panama Canal, with the apparent intention of saving leverage for future trade talks.
With Chinese and Hong Kong stocks plummeting Monday, joining a global rout caused by Mr. Trump’s tariffs, China’s sovereign wealth fund and large state banks moved to shore up the markets, leading to a bump in trading Tuesday. Beijing has also lowered the official exchange rate of the yuan against the U.S. dollar, suggesting China will use depreciation to offset the cost of tariffs as it did during the first Trump term.
While that may have some effect in propping up exports to the U.S. in the short term, if Mr. Trump follows through on his latest threat, there is only so much depreciation can achieve, making a severe decline in trade inevitable.
Exports to the U.S. were about 15 per cent of China’s total exports last year, according to state media, which will be a major hit for a country already grappling with an economy that has struggled to recover from the COVID-19 pandemic and faces major structural issues around lacklustre domestic demand, local government debt and a growing demographic crisis.
A forced decoupling from the U.S. could accelerate long-needed reforms to boost domestic consumption, however, while Mr. Trump’s aggressive policies have also undermined a unified Western approach to China, which could make it easier for Beijing to expand exports elsewhere.
On Friday, Chinese President Xi Jinping will meet with Spanish Prime Minister Pedro Sanchez, the latest European official to visit Beijing at a time when Brussels is calibrating its own response to Mr. Trump’s tariffs.
During Mr. Trump’s first term, China came close to securing a major trade and investment pact with Europe, but this fell apart during the COVID-19 pandemic amid growing tensions between the West and China, and EU concerns about Chinese manufacturers flooding European markets with cheap goods.
In recent weeks, Chinese state media has been playing up the potential for greater co-operation and trade with Europe. The EU is the world’s second largest consumer market, and China third, and both have pledged to boost consumption, making them attractive counterweights to diminished U.S. demand.
European policy-makers have been stridently critical of China’s record on human rights in recent years and sought to protect their markets from Chinese goods, particularly electric vehicles and other high-tech products. But China’s Commerce Ministry said last week the EU had agreed to reopen negotiations on EVs following Mr. Trump’s tariffs, and both sides are preparing for a major joint summit later this year to mark 50 years of diplomatic ties.
Speaking this week, Ireland’s deputy prime minister Simon Harris said the bloc “should not close ourselves off to trading with China, quite the contrary.”
With files from Alexandra Li in Beijing and Reuters
Globe economics reporter Mark Rendell says Wednesday’s tariff announcement by President Donald Trump saw Canada not hit as hard as predicted, but that the trade war has now gone global.