Hong Kong CNN — President Donald Trump has fulfilled a campaign pledge by imposing tariffs on Chinese imports, announcing on Saturday a 10% duty on all goods from China entering the country as part of comprehensive trade measures that also affected Mexico and Canada.
Now the dilemma for Chinese leaders is how forcefully to respond. Following the announcement, Chinese officials—who were caught off guard by Trump’s decision during a week-long public holiday—promised to lodge a complaint with the World Trade Organization and “implement corresponding countermeasures,” though they did not detail what form these would take.
The introduction of a 10% tariff on Chinese imports to the United States “significantly breaches WTO regulations,” stated China’s Ministry of Commerce on Sunday, asserting that China will “firmly protect its rights.”
That reaction has, at least so far, been noticeably less specific than those from Mexico and Canada, which quickly announced plans for retaliatory tariffs. The recent announcement imposes a 10% tariff on Chinese products, rather than the 25% on all goods from Mexico and the majority from Canada—all of which are set to be implemented on Tuesday. Unlike the situation with China, where these new tariffs will be added to existing ones on a range of products, Canada and Mexico had previously enjoyed nearly tariff-free trade with the US.
However, there are additional factors beyond the percentage figure and China’s public holiday that might explain the relatively subdued reaction from the world’s second-largest economy.
Beijing has experienced an unexpectedly positive beginning to Trump’s second term – a fortunate scenario for Chinese leaders aiming to prevent an increase in trade and technology tensions while the export-driven nation’s economy decelerates.
Chinese leader Xi Jinping and Trump engaged in what the US president referred to as a “very good” phone conversation just days before Trump’s inauguration, and the event was graced by the highest-ranking Chinese official ever to attend.
The US president has also conveyed other indications that he is open to negotiating with Beijing – repeatedly expressing his desire to collaborate with Xi on addressing Russia’s invasion of Ukraine and indicating in a recent interview with Fox News that he believes Washington and Beijing could possibly achieve a trade agreement.
Although the president campaigned on the premise of winning the economic rivalry with China and filled his administration with a number of China hardliners, the recent tone may suggest to Beijing that it’s advisable not to escalate matters too much, at least for the time being.
Is there still an opportunity for a deal?
The 10% tariffs are significantly lower than the 60% tariffs that Trump indicated he might impose on Chinese imports during his campaign. In his statements, Trump has mainly associated these tariffs with the involvement of Chinese suppliers in the fentanyl trade, rather than the significant trade deficit that exists between the US and China.
Conversely, many in China believe that Trump might be waiting for the outcomes of a broader investigation into US-China economic and trade relations, which he initiated with an executive order on his first day in office.
“Trump could depend on the forthcoming findings from trade investigations to impose or increase tariffs on certain nations, gauging their tolerance and readiness to negotiate,” noted an analysis released on Sunday by the Shanghai-based Fudan Development Institute.
“The possibility of escalating into a ‘full-blown trade war’ is still a concern. Before taking any concrete actions, Trump may strategically use ambiguity to exert pressure on his opponents while awaiting meaningful concessions from them,” it added.
The review ordered by Trump, which is due on April 1, is anticipated to influence whether the White House decides to impose additional tariffs on China. In the meantime, Beijing has the opportunity to cultivate a relationship with Trump, host him in the Chinese capital, or seek a preemptive agreement to prevent more serious economic sanctions.
The signal from China’s highest political circles has been one of reconciliation. Last month, Chinese Vice-Premier Ding Xuexiang expressed at an elite gathering in Davos that Beijing aims to “encourage balanced trade” with the international community, while Xi spoke of a “new starting point” in relations between the US and China.
China’s choice to lodge a complaint with the WTO about the newly imposed tariffs highlights a crucial narrative from Chinese Communist Party propagandists: that China adheres to international norms, while the US does not. Additionally, Beijing has defended its actions in regulating exports of precursor chemicals used in fentanyl production, asserting that the opioid crisis is “America’s issue.”
It is uncertain whether China will introduce further trade countermeasures in the near future. However, its initial reaction to the 10% tariff and the communications from recent weeks imply that it may still be adopting a cautious approach before resorting to more extensive retaliatory actions.
An editorial published by state broadcaster CCTV on Sunday criticized the “incorrect” tariffs while also advocating for increased collaboration between the two nations.
Analyzing potential retaliation
Experts within the nation have minimized the significance of the 10% tariffs, as part of a broader discussion on whether China would benefit from escalating a trade conflict similar to that of the previous administration.
In 2018, Trump intensified or introduced tariffs on hundreds of billions of dollars’ worth of Chinese imports to the United States, while Beijing retaliated with what analysts estimate to be around $185 billion in tariffs on American products.
The Biden administration has mainly maintained those tariffs, while adopting its own “small yard, high fence” strategy regarding trade with China, which involves placing targeted export controls on Chinese access to advanced technology that may have military uses.
This led to Beijing implementing its own restrictions, limiting the export of essential minerals and associated technologies that various countries need to produce items ranging from military equipment to semiconductors. Towards the end of last year, China revised its export control regulations to enhance its capacity to restrict so-called dual-use items.
An increase in the enforcement of these controls, along with retaliatory tariffs, may be potential actions for Beijing in the upcoming weeks, particularly if Trump imposes higher tariffs in the near future.
At the same time, Beijing has already begun taking measures to shield itself from some of the tariff impacts, which Trump himself has acknowledged could cause “pain” for American consumers—an acknowledgment that follows worries from economists and congressional members regarding the financial burden on Americans due to these measures.
The United States imported goods worth $401 billion from China, resulting in a trade deficit exceeding $270 billion during the first 11 months of the prior year, according to data from the U.S. government. This positioned China as the second-largest source of goods imported to the U.S., following Mexico.
Chinese state media reported on Sunday that the nation’s exports to the U.S. represent only 3% of their GDP and account for less than 15% of China’s total exports.
“China has consistently been preparing for reduced dependence on the U.S., diversifying in various ways—not just concerning trading partners and investments, but also currencies and payment systems,” stated Keyu Jin, an associate professor of economics at the London School of Economics, during an interview with CNN’s Fareed Zakaria at the World Economic Forum in Davos last month.
“The tariffs will negatively impact both nations. Yet, we have already witnessed a gradual shift in trade towards other countries by Chinese businesses,” Jin noted.
China perceives “Trump as someone with whom they can negotiate, believing there is potential for discussion.”
