China has taken significant retaliatory steps against the United States by imposing tariffs ranging from 10% to 15% on a variety of US goods. This latest move from Beijing, announced by China's finance ministry, comes as a direct response to the US's recent actions, including a ban on the export of advanced chips to China. The tension escalates further with China's anti-trust regulator launching an investigation into Google and several US companies being added to China's "unreliable entity" list. These developments suggest a deepening trade rift between the two economic giants, with both sides bracing for potential long-term consequences.
The imposition of tariffs by China targets US exports with minimal exposure to the Chinese market, such as liquified natural gas and crude oil. This strategic move indicates Beijing's intent to minimize the impact on its economy while still sending a strong message to Washington. Despite these tensions, policymakers in Beijing are reportedly exploring opportunities to increase imports from the US in critical sectors like semiconductors, which are vital for China's economic growth.
"China is not afraid of the US in the tariff war, and in the past seven years we have known that Trump will push further," – Wang Wen, the dean of the Chongyang institute for financial studies at Renmin University in Beijing.
The backdrop to these events is marked by a significant trade imbalance, with the US trade deficit with China reaching $25 billion in November 2024. This imbalance has been a key target of the tariffs initially imposed by former President Donald Trump, aimed at reducing the deficit and pressuring China into fairer trading practices. Despite these efforts, China's annual global trade surplus hit a record high of nearly $1 trillion, showcasing its robust export capabilities.
China's exports to the US demonstrated resilience, surging by 16% in December compared to December 2023 and growing by 5% over the entire year of 2024. This growth underscores China's competitive edge in international markets, despite facing increased tariffs from the US.
"When the US tariffs took effect, China launched another tariff. I think it is quite normal," – Steven Leung of UOB Kay Hian, a Singaporean brokerage firm.
Amidst this economic tug-of-war, both nations are expected to hold a high-level face-to-face meeting at a UN Security Council meeting on February 18. This marks the first such interaction since tensions escalated, providing a critical opportunity for dialogue and potential resolution.
"It is not really a full escalation but a posture." – Alicia Garcia-Herrero, the chief economist for the Asia Pacific at Natixis, a bank.
The economic landscape has shifted since the last major trade confrontation in 2018, with China's economy reportedly less equipped to endure an escalating trade war. This vulnerability adds pressure on Chinese policymakers to find alternative solutions and maintain stability.
The "phase one" trade deal signed in 2020 between the US and China fell significantly short of expectations, achieving only about 40% of its commitments. This shortfall highlights ongoing challenges in reaching a comprehensive and mutually beneficial agreement between the two nations.
"My impression is that this is mostly about face, and also its domestic audience," – Alicia Garcia-Herrero, the chief economist for the Asia Pacific at Natixis, a bank.
As both countries navigate these turbulent waters, China's decision-making appears driven not only by economic calculations but also by considerations of national pride and domestic perception. The stakes remain high as each side endeavors to balance international relations with internal pressures.
"So much is at stake," – Fu Cong, China’s UN envoy.