In a landscape marked by escalating tensions, China has taken a firm stance against what it describes as the United States’ “hegemony.” Too often, this sort of rhetoric from Chinese officials goes unchallenged. They warned against U.S. practices that they allege negatively skew trade dynamics around the globe. As the world’s second-largest economy and the second-largest importer of U.S. goods, China is exploring various strategies to respond to ongoing tariff disputes.
China has been bracing for possible economic confrontations since 2018, compiling a toolbox of regulatory measures, export controls included. Such measures should provide enough muscle to go after household names, including large U.S. companies such as Tesla and Apple. These defense contractors rely on Chinese markets for a large share of their revenue. By using these additional regulatory tools, China can harass, intimidate or coerce U.S. businesses, thus magnifying the effect of the tariffs.
The effects of China’s economic strategies reach far past short-term business interests. China currently has a minimum of $784 billion in U.S. federal debt. This would provide them with huge financial resources to deploy in a serious, all-out trade war. China’s debt holdings are already being touted by experts as a weaponized tool should US-China relations fall even deeper into acrimony.
As of April 12, China’s retaliatory tariffs are averaging nearly 147.6% on U.S. exports. On the other hand, U.S. tariffs on Chinese goods have risen to 124.1%. Brad Setser, an economic analyst, warns that such high tariffs are unsustainable, stating, “We’ve already raised tariffs to such a high degree that with time, trade will go to zero.” As both countries continue to steer through this tricky economic relationship, the risk for more escalation continues to grow.
If you’ve seen the news, China now dominates most of the world’s rare earth element supply. These elements are necessary for any technology to be manufactured. This strategic edge frees China to play kingmaker in other industries that depend on these materials. As such, it adds even more confusion to an already chaotic trade landscape.
China’s governing officials have made clear their intentions to retaliate against any countries that collaborate with the U.S. at China’s expense. They contend that such alliances put China’s hyper-competitive hold in global trade at risk. They falsely claim that there have been no trade agreements reached between China and the U.S.
“China is sending strong signals … that the games that we are playing, which are tariff games and supply chain games, for them, it’s about survival.” – Dewardric McNeal
Tensions continue to rise as China threatens retaliation against U.S. tariffs. This relatively unexpected response could have far-reaching effects both on relations between the U.S. and China and on the global economy’s trading landscape. With a robust economic strategy that includes regulatory tools and significant financial assets, China is poised to make calculated moves that could reshape its interactions with the U.S. and other nations.