When Donald Trump pulled again on his plan to impose eye-watering tariffs on buying and selling companions internationally, there was one key exception: China.

Whereas the remainder of the world could be given a 90-day reprieve on extra duties past the brand new 10% tariffs on all U.S. commerce companions, China would really feel the squeeze much more. On April 9, 2025, Trump raised the tariff on Chinese language items to 125%.

The transfer, in Trump’s telling, was prompted by Beijing’s “lack of respect for world markets.” However the U.S. president might properly have been smarting from Beijing’s obvious willingness to confront U.S. tariffs head on.

Whereas many international locations opted to not retaliate towards Trump’s now-delayed reciprocal tariff hikes, as an alternative favoring negotiation and dialogue, Beijing took a unique tack. It responded with swift and agency countermeasures. On April 11, China dismissed Trump’s strikes as a “joke” and raised its personal tariff towards the U.S. to 125%.

The 2 economies are actually locked in an all-out, high-intensity commerce standoff. And China is displaying no indicators of backing down.

And as an knowledgeable on U.S.-China relations, I wouldn’t count on China to. In contrast to the primary U.S.-China commerce conflict throughout Trump’s preliminary time period, when Beijing eagerly sought to barter with the U.S., China now holds way more leverage.

Certainly, Beijing believes it could actually inflict a minimum of as a lot injury on the U.S. as vice versa, whereas on the similar time increasing its world place.

A modified calculus for China

There’s little question that the implications of tariffs are extreme for China’s export-oriented producers – particularly these within the coastal areas producing furnishings, clothes, toys and residential home equipment for American shoppers.

However since Trump first launched a tariff enhance on China in 2018, quite a lot of underlying financial components have considerably shifted Beijing’s calculus.

Crucially, the significance of the U.S. market to China’s export-driven financial system has declined considerably. In 2018, at first of the primary commerce conflict, U.S.-bound exports accounted for 19.8% of China’s whole exports. In 2023, that determine had fallen to 12.8%. The tariffs might additional immediate China to speed up its “home demand enlargement” technique, unleashing the spending energy of its shoppers and strengthening its home financial system.

And whereas China entered the 2018 commerce conflict in a section of robust financial development, the present state of affairs is kind of completely different. Sluggish actual property markets, capital flight and Western “decoupling” have pushed the Chinese language financial system right into a interval of persistent slowdown.

Maybe counterintuitively, this extended downturn might have made the Chinese language financial system extra resilient to shocks. It has pushed companies and policymakers to come back to issue within the present harsh financial realities, even earlier than the influence of Trump’s tariffs.

Trump’s tariff coverage towards China may additionally enable Beijing a helpful exterior scapegoat, permitting it to rally public sentiment and shift blame for the financial slowdown onto U.S. aggression.

China additionally understands that the U.S. can’t simply exchange its dependency on Chinese language items, notably via its provide chains. Whereas direct U.S. imports from China have decreased, many items now imported from third international locations nonetheless depend on Chinese language-made elements or uncooked supplies.

By 2022, the U.S. relied on China for 532 key product classes – almost 4 instances the extent in 2000 – whereas China’s reliance on U.S. merchandise was reduce by half in the identical interval.

There’s a associated public opinion calculation: Rising tariffs are anticipated to drive up costs, one thing that might stir discontent amongst American shoppers, notably blue-collar voters. Certainly, Beijing believes Trump’s tariffs danger pushing the beforehand robust U.S. financial system towards a recession.

Potent instruments for retaliation

Alongside the modified financial environments, China additionally holds quite a lot of strategic instruments for retaliation towards the U.S.

It dominates the worldwide uncommon earth provide chain – crucial to navy and high-tech industries – supplying roughly 72% of U.S. uncommon earth imports, by some estimates. On March 4, China positioned 15 American entities on its export management listing, adopted by one other 12 on April 9. Many had been U.S. protection contractors or high-tech corporations reliant on uncommon earth components for his or her merchandise.

China additionally retains the power to focus on key U.S. agricultural export sectors equivalent to poultry and soybeans – industries closely depending on Chinese language demand and concentrated in Republican-leaning states. China accounts for about half of U.S. soybean exports and almost 10% of American poultry exports. On March 4, Beijing revoked import approvals for 3 main U.S. soybean exporters.

And on the tech facet, many U.S. corporations – equivalent to Apple and Tesla – stay deeply tied to Chinese language manufacturing. Tariffs threaten to shrink their revenue margins considerably, one thing Beijing believes can be utilized as a supply of leverage towards the Trump administration. Already, Beijing is reportedly planning to strike again via regulatory stress on U.S. corporations working in China.

In the meantime, the truth that Elon Musk, a senior Trump insider who has clashed with U.S. commerce adviser Peter Navarro towards tariffs, has main enterprise pursuits in China is a very robust wedge that Beijing might but exploit in an try and divide the Trump administration.

A strategic opening for China?

Whereas Beijing thinks it could actually climate Trump’s sweeping tariffs on a bilateral foundation, it additionally believes the U.S. broadside towards its personal buying and selling companions has created a generational strategic alternative to displace American hegemony.

Near dwelling, this shift might considerably reshape the geopolitical panorama of East Asia. Already on March 30 – after Trump had first raised tariffs on Beijing – China, Japan and South Korea hosted their first financial dialogue in 5 years and pledged to advance a trilateral free commerce settlement. The transfer was notably outstanding given how rigorously the U.S. had labored to domesticate its Japanese and South Korean allies in the course of the Biden administration as a part of its technique to counter Chinese language regional affect. From Beijing’s perspective, Trump’s actions supply a chance to instantly erode U.S. sway within the Indo-Pacific.

Equally, Trump’s steep tariffs on Southeast Asian international locations, which had been additionally a serious strategic regional precedence in the course of the Biden administration, might push these nations nearer to China. Chinese language state media introduced on April 11 that President Xi Jinping can pay state visits to Vietnam, Malaysia and Cambodia from April 14-18, aiming to deepen “all-round cooperation” with neighboring international locations. Notably, all three Southeast Asian nations had been focused with now-paused reciprocal tariffs by the Trump administration – 49% on Cambodian items, 46% on Vietnamese exports and 24% on merchandise from Malaysia.

Farther away from China lies an much more promising strategic alternative. Trump’s tariff technique has already prompted China and officers from the European Union to ponder strengthening their very own beforehand strained commerce ties, one thing that might weaken the transatlantic alliance that had sought to decouple from China.

On April 8, the president of the European Fee held a name with China’s premier, throughout which each side collectively condemned U.S. commerce protectionism and advocated at no cost and open commerce. Coincidentally, on April 9, the day China raised tariffs on U.S. items to 84%, the EU additionally introduced its first wave of retaliatory measures – imposing a 25% tariff on chosen U.S. imports price over €20 billion – however delayed implementation following Trump’s 90-day pause.

Now, EU and Chinese language officers are holding talks over present commerce limitations and contemplating a full-fledged summit in China in July.

Lastly, China sees in Trump’s tariff coverage a possible weakening of the worldwide standing of the U.S. greenback. Widespread tariffs imposed on a number of international locations have shaken investor confidence within the U.S. financial system, contributing to a decline within the greenback’s worth.

Historically, the greenback and U.S. Treasury bonds have been seen as haven belongings, however latest market turmoil has forged doubt on that standing. On the similar time, steep tariffs have raised considerations concerning the well being of the U.S. financial system and the sustainability of its debt, undermining belief in each the greenback and U.S. Treasurys.

Whereas Trump’s tariffs will inevitably damage components of the Chinese language financial system, Beijing seems to have way more playing cards to play this time round. It has the instruments to inflict significant injury on U.S. pursuits – and maybe extra importantly, Trump’s all-out tariff conflict is offering China with a uncommon and unprecedented strategic alternative.