Yesterday I wrote about the brewing conflict between the US and China over tariffs. Trump's announcement of reciprocal tariffs last week was met by a degree of panic in countries around the world, with as many as 70 leaders calling the US to negotiate over bringing those tariffs down.
China, however, seems to be setting a different course. China immediately announced plans to raise their own tariffs by 35%, to make them comparable to the tariffs Trump had placed on China last week. But yesterday Trump warned that any reciprocal tariffs imposed by China would result in another 50% tariff added on top of the ones the US has already announced. That would bring the total tariff of goods coming in from China to 104% in many cases. The question was whether or not China would double-down in the face of that threat or back off.
Today it sounds like China might be doubling down.
...after the US president vowed to ratchet up tariffs again on Monday, Beijing once again vowed to hold the line. “The US threat to escalate tariffs on China is a mistake on top of a mistake,” its Commerce Ministry said a statement.
The threat “once again exposes the blackmailing nature of the US,” the statement said. “China will never accept it. If the US insists on its own way, China will fight to the end.”
On Sunday, China's People's Daily, which is a state media mouthpiece published a commentary arguing that China could survive the US pressure.
The abuse of tariffs by the United States will have an impact on China, but "the sky will not fall". The 34% tariff imposed by the US government on China, together with the previous tariffs, will seriously inhibit bilateral trade, inevitably have a negative impact on China's exports in the short term, and increase downward pressure on the economy.
However, we should see that China is a super-large economy. Facing the impact of US tariff bullying, we have strong pressure resistance. In recent years, we have actively built a diversified market, and our dependence on the US market has been declining. China's exports to the US have dropped from 19.2% in 2018 to 14.7% in 2024. The decline in exports to the US will not have a subversive impact on the overall economy...
Faced with the volatility and extreme pressure from the United States, we did not close the door to negotiations, but we would not take chances either. Instead, we made all kinds of preparations to deal with the impact. Those who share the same will will win, and those who stand together through thick and thin will prosper. With the strong leadership of the Party Central Committee and the institutional advantage of concentrating our efforts on major tasks, we will surely be able to turn crises into opportunities and move forward steadily. As General Secretary Xi Jinping pointed out, "The Chinese economy is an ocean, not a small pond."
It's hard to know whether they really believe that or are just refusing to bend because to do so would make Xi Jinping appear weak, something the Chinese will want to avoid at all cost. But beyond that, they may genuinely see this as the moment for China to become a more dominant player in the world.
“China is sending a significant message to the world: we cannot back down or tolerate US bullying, as tolerance ultimately leads to more bullying,” said Liu Zhiqin, senior researcher at Chongyang Institute for Finance Studies in Renmin University of China, told the broadcaster.
“China and the US are now direct rivals in reshaping the international trade order,” said another, Ju Jiandong, a professor at the People’s Bank of China School of Finance of Tsinghua University. “We’re willing to take on the challenge – we’re ready to compete with the US in redefining the new global trade system.”
There's more in the commentary I quoted from (above) about China's leading position in science, technology and AI, which sounds a bit like wishful thinking. China does not have the independent ability to manufacture cutting edge chips, AI, etc. without reliance on US and other foreign companies who lead those industries. What they can't innovate the buy and what they can't buy they steal. Their ability to truly compete with the US in these areas would be severely hampered if their access to US tech was cut off. China may feel it's ready to go it alone but they may be overestimating themselves a bit.
On the other hand, China has one big advantage that the US does not. They have no political parties and public disagreement with the government is very limited and carefully monitored. Even if the Chinese people suffer badly from a trade war with the US there will be nothing they can do about it. There is no rival party or rival leader who can challenge Xi Jinping with alternatives.
But here in the US, we have rival parties and elections and anything that is bad for US consumers will immediately be pounced upon by Democrats and the media (but I repeat myself) as a reason to abandon the path President Trump has set us on. In short, China can hold out for years if necessary on the order of one man while the US public could be convinced that tariffs are a terrible idea by the end of summer.
We've just seen a similar dynamic play out in Ukraine. We had one administration vow to fight Russia as long as necessary to win and now his successor (Trump) has taken a very different approach. Whether you agree with Trump or not is not the point. The point is that the same sort of reversal can happen with Trump's commitment to remake the US via tariffs and a trade war with China. That process has already started.
For Greg Mazza, the owner of a lighting company based in Danbury, Connecticut whose products are mainly sourced from China, those dynamics are posing difficult questions about how to guide his business forward.
So far, Mazza had only raised his prices by around 5%, instead of passing on the full cost of tariffs imposed by the Trump administration earlier this year to his customers.
But he thinks “the American consumer is not going to be able to absorb” the economic impact posed by the new broad-based tariffs, while suppliers and business owners that were planning to diversify supply chains elsewhere in Asia are going to struggle.
“People are going to rethink their approach and say, well, ‘I’m either going to deal with China or I’m going to try to start making things in America,’ which I don’t think is viable right now,” he said. “The economy as a whole may suffer enough to where that can’t even happen.”
In the long term, we would probably be better off making things here instead of making them there, brining manufacturing back means a stronger economy and more jobs for more Americans. That's pretty clearly the thinking which underlies Trump's approach to China. But it's also a long term goal which would take years to achieve. Trump probably doesn't have years though. If this approach damages the economy, we could have a new Congress in about 20 months and the whole situation could change.
But again we don't actually know that China can manage this trade war as well as they think they can. The outcome could be much worse for their economy than anticipated (or than they will admit) and while that wouldn't necessarily lead to the end of Xi Jinping, it might severely damage his reputation as a great leader. That's something he probably wants to avoid if possible. Even if he wants to negotiate at this point he may not be able to do so because he needs to avoid looking weak. We'll have to wait and see how long the tough talk lasts.
