China’s trade war playbook has changed — here’s why

Less than two days after the Donald Trump administration announced reciprocal tariffs on the world, China hit back with a slew of retaliatory measures. These measures include imposing an extra 34% tariffs on all US goods, adding 11 US companies to the “unreliable entities” list, placing 16 US entities to its export control list, implementing export control measures on seven categories of medium and heavy rare earth-related items, suspending the import qualifications of six US agricultural companies, and initiating an anti-dumping investigation into imported medical CT tubes from the US.

Compared to previous responses to US tariff hikes, the speed and intensity of China’s counterattack this time are arguably the fastest and strongest since the outbreak of the China-US trade war in 2018. China is clearly prepared and willing to engage in direct confrontation with the US in the economic and trade arena — even risking decoupling and supply chain disruptions, rather than continuing to yield to American demands.

In fact, there are clear signs that hinted at China’s firm retaliation. Before Trump’s return to the White House, he had already floated plans to impose a 60% tariff on Chinese goods. After taking office in January this year, he raised tariffs by 20% on most Chinese goods. In response, China imposed tariffs on US energy imports and agricultural machinery, and tightened controls on the export of gallium, germanium, antimony, graphite, and superhard materials to the US. 

At the same time, China had anticipated that the Trump administration would not stop there. In early March, both the Chinese foreign ministry and Chinese embassy in the US asserted that if war is what the US wants — be it a tariff war, a trade war or any other type of war — China is ready to fight to the end.

Of course, the Trump administration is not overly concerned with China’s assertions. They believe that the trade and tech wars initiated against China after 2018 have not achieved desired results, and America’s massive global trade deficit has not improved either. The US believes that it must not only continue to impose substantial tariffs on China, but also prevent most other countries from continuing to take advantage of the US in trade. It believes that these measures are necessary to achieve a balance of payments, encourage the return of manufacturing to the US, and “Make America Great Again”. 

Thus, Trump initiated “Liberation Day” tariffs on 2 April, imposing additional tariffs on the vast majority of countries worldwide. Among them, China was hit with a 34% hike. Coupled with tariffs imposed on China before and after Trump took office, the total tariffs on Chinese exports to the US have reached a whopping 67%.  

In 2024, China’s exports to the US reached US$524.7 billion, marking a 4.9% year-on-year increase. On the other hand, China’s imports from the US were US$163.624 billion, a year-on-year decrease of 0.1%. In 2024, China’s trade surplus with the US reached US$361 billion, accounting for 2% of China’s GDP.

Clearly, both the absolute scale of China’s exports to the US — and the proportion of the trade surplus relative to China’s GDP — are significant. If China and the US cannot negotiate a reduction in US tariffs on Chinese goods in the near future, these tariffs will have a considerable impact on China’s exports and GDP this year. According to a Huachuang Securities report, Trump’s tariffs on China could impact China’s overall exports by 7% to 11%, while the impact on China’s real GDP could range from -0.25% to -0.9%. At the same time, the tariffs could also disrupt the pace of China’s economic recovery and undermine recently restored market confidence.

The US would undoubtedly also incur significant losses. The recent plunge in the US stock market is evidence that Trump’s tariffs have already severely impacted global market confidence. On top of that, the global imposition of tariffs by the US will likely trigger numerous trade disputes, amplifying the negative impact on both the US and global economies.

Given Trump’s self-proclaimed dealmaking prowess, his heavy imposition of tariffs on China and the world appears to be a negotiation strategy, in which he opens discussions with exorbitant demands in anticipation of subsequent bargaining by other countries as they attempt to bring down the asking price. This time around, however, China has taken the lead in countering Trump’s tariffs, demonstrating a defiant stance and seemingly indicating that it does not intend to play along with Trump’s negotiation tactics. 

Firstly, this is because China believes it cannot retreat any further. After Trump initiated the trade war against China in 2018, China had once hoped to maintain normal relations with the US through negotiation and compromise. However, the US thinks that China’s gradual rise was the result of China taking advantage of the US-led international economic and political order. The US considered China’s growth as a major strategic threat that must be contained, and was therefore no longer willing to maintain normal relations with China. 

After Trump’s first term ended, the Democratic Joe Biden administration continued this policy of suppression, with no signs of improvement in China-US relations. When Trump returned to office at the start of the year, his stance of viewing China as a strategic competitor remained unchanged, although he did not unite allies to contain China like the Biden administration did. Instead, Trump has now gone on to impose a further 34% tariff. Naturally, China is unwilling to compromise any further.

Moreover, after years of comprehensive competition with the US, China’s political and social stability have remained largely unaffected. Although China’s economic growth has slowed, it has not suffered a fundamental setback. In fact, China has made significant progress in economic structural adjustments, further enhancing economic resilience and continuously strengthening its technological capabilities.

Statistics indicated that when the China-US trade war broke out in 2018, China faced 35 critical technological bottlenecks, of which 21 have since been overcome. The rest are currently being addressed. Since the end of last year, China has also made impressive advancements in areas such as sixth-generation fighter jets, artificial intelligence and semiconductor equipment.

Furthermore, China’s industrial and supply chain autonomy and market substitution capabilities have significantly improved in recent years. Even if US goods exit the Chinese market due to high tariffs, China can still meet its basic needs through domestic or alternative international sources.

On the other hand, China’s swift and forceful retaliation against Trump’s tariffs is also due to the Trump administration’s overly aggressive approach in wielding the tariff stick against the entire world. While most countries might not openly support China’s retaliation, they likely harbour private hopes that Trump will moderate his coercive tariff policies in response to unyielding resistance from China.

Of course, China’s confidence in countering Trump’s tariffs does not mean it will close the door when it comes to negotiations with the Trump administration. In fact, China’s strong retaliation could actually strengthen its bargaining position in future China-US negotiations.

This article was first published in Lianhe Zaobao as “中国为何加码反击特朗普关税”.

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