No one, least of all consumers and workers, will win the ferocious trade war that Donald Trump has unleashed. This is “a game of who can bear more pain”, in the words of one analyst. And because trade is at the heart of US ties with its biggest tariff target, China, the rest of the bilateral relationship is likely to deteriorate. That too is concerning.
Yet China, despite the economic struggles of recent years, may see a longer-term opportunity in the current crisis. Beijing’s response to the initial US tariff announcements was measured. Now it vows to “fight to the end” and has imposed an additional 50% tariff on US goods – taking the total to 84% – in retaliation for tariffs that Mr Trump now says will hit 125%.
Do not expect it to falter first. Concessions would likely be taken as a sign of weakness, encouraging the US to turn up the pressure. Xi Jinping is also a strongman who has dialled up nationalism as economic growth has slowed. Backing down would be humiliating, especially when the US vice-president, JD Vance, speaks dismissively of “Chinese peasants”.
Beijing is already allowing the yuan to weaken, though a major devaluation is thought unlikely. And it has been preparing for this moment. The end of its demographic boom, Mr Xi’s vision for his nation, the impact of the pandemic, Mr Trump’s first term and the bipartisan US turn against China (for which Beijing itself deserves much of the blame) have all begun to reshape the economy. China has diversified agricultural imports and found new markets for its goods – though exports to the US still account for just under 3% of its GDP. Last month, it announced plans to “vigorously boost” domestic consumption, though previous action on that long-held ambition has not matched the rhetoric.
Mr Trump’s abrupt announcement on Wednesday that he is suspending punitive tariffs on other countries for 90 days highlights an apparent underlying intention to make them distance themselves from China and stop them being used as a conduit for its goods. But if he goes ahead, high rates risk pushing them towards Beijing instead. Mr Trump’s erratic policy may also reflect growing anxieties about the impact of these tariffs, not least among his own supporters. China is confident that Mr Trump will come under growing pressure to rethink from billionaire backers, ageing workers watching their retirement funds dive, farmers, employees fearing for their jobs and consumers contemplating costlier iPhones and groceries. A bilateral deal is not impossible.
Beijing does not like what lies ahead. But in the longer term, it has more confidence in its trajectory. It looks back to the 2008 financial crisis, when it “saved the world” with its massive stimulus package, and looks ahead with new self-assurance after January’s AI “Sputnik moment” with its DeepSeek platform.
Above all, Beijing believes that when this storm has passed, few will regard the US as a dependable economic or security guarantor, and China will appear a more predictable, if not more likable, partner. At February’s Munich security conference – where Mr Vance’s sneering attack on European allies made the headlines – China’s foreign minister, Wang Yi, pledged that China would be “a steadfast constructive force” and “factor of certainty in this multipolar system”. Some countries may feel forced to live with Beijing’s own trade and investment restrictions, and its use of economic coercion for political purposes. Others may simply drift from America’s orbit.
This is a transformational moment in the global order. China expects to suffer. But it will not be entirely unhappy as it watches the US advance its own decline.
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