Trump is threatening to raise tariffs again. Here’s how China plans to fight back

TAIPEI, Taiwan —  President-elect Donald Trump has threatened to impose new tariffs on Chinese imports when he takes office, a move that would deepen a trade war he started six years ago.

He has not offered many specifics, but China is already arming itself for economic battle.

“Six years of really intense, focused preparatory work has gotten the top leaders in Beijing ready to deal with whatever comes down the pike,” said Even Pay, an analyst with research firm Trivium China.

Here’s a look at how the showdown between the world’s two largest economies played out the last time Trump was in office and where things might be headed now.

What happened during Trump’s first term?

Trump kicked off a trade war in 2018 by imposing 25% tariffs on imports from China — including industrial machinery, cars, auto parts and television cameras. Those goods accounted for about $50 billion of the $540 billion the United States spent that year on Chinese-made products.

The aim was to spur U.S. manufacturing, reduce a trade imbalance and punish China for trade practices Trump said were unfair. China imported just $120 billion in U.S. goods in 2018.

China responded with its own 25% tariffs on about $50 billion of those goods.

Despite trade talks over the next year, each country continued to impose more tariffs. By 2020, tariffs had been applied to a total of $550 billion in Chinese goods and $185 billion in U.S. goods.

Experts said the trade war did little to mitigate the U.S. trade deficit or boost U.S. exports. Instead, they said it weighed on economic growth and cost jobs in both the U.S. and China.

In the final year of Trump’s term, the two nations agreed to a truce, signing a trade deal that scrapped some tariffs and reduced others. China also agreed to purchase an additional $200 billion in U.S. goods and services — a pledge it failed to fulfill.

Did things cool off after President Biden took office?

Not really. The rhetoric coming from the White House was less hostile, but getting tough on China had become a political necessity for whoever was president, and the trade war only intensified.

Biden kept the Trump-era tariffs and added some of his own, including a 100% tax on imports of electric cars from China, a 50% tax on solar panels and a 25% tax on lithium-ion batteries and steel and aluminum products.

Biden has also continued the first Trump administration’s use of export bans to curb China’s access to U.S. technology. Last week, the U.S. expanded restrictions on sales of semiconductors and related manufacturing equipment to China and added 140 Chinese entities to a blacklist that limits trade with U.S. businesses on national security concerns.

What might Trump do this time?

For months he has advocated for raising tariffs on imports from China by 60% or more. He said on social media last month that he would impose a 10% tariff, “above any additional tariffs,” on all products from China.

His motivations are not entirely based on leveling trade or boosting U.S. manufacturing. Trump has also talked about using the threat of tariffs to spur China — as well as Mexico — to do more to help curb the U.S. opioid crisis. The two countries are the top sources of fentanyl and the chemicals used to make it.

How is China preparing for more tariffs?

China has already taken numerous steps to protect itself.

The country, which typically buys corn, soybeans and sorghum from the U.S., has been diversifying its sources and stocking up. Brazil has been one of the big winners. The damage could be significant for U.S. farmers, who sell about 77% of their sorghum exports to China.

China, though, is more vulnerable than the United States when it comes to tariffs — for the simple reason that it exports so much more than it imports.

The current economic situation in China doesn’t help. Growth has stagnated as the country struggles with a real estate downturn, growing debt, rising youth unemployment and a slowdown in consumer spending.

Larry Hu, chief China economist at the Australian bank Macquarie Group, estimated that a 60% tariff hike from the U.S. would reduce Chinese exports by 8% and GDP by 2%. If the U.S. enacts tariffs on goods from other countries as well, that would exacerbate the effect on China, which has been able to circumvent some tariffs by exporting products destined for the U.S. through third-party nations.

How can China go on the offense?

Perhaps China’s biggest weapon in the trade war is its dominance in crucial materials that the U.S. needs to make products such as semiconductors and missiles. After the latest round of tech trade restrictions last week, China retaliated by banning exports of the rare elements gallium, germanium and antimony — cutting off at least half the U.S. supply, based on data from the U.S. Geological Survey.

The move was widely seen as a warning shot to the next administration of its ability to stall U.S. advancements in key strategic industries.

China can also fight back with monetary policy. During the last trade war, the country allowed the yuan to depreciate against the U.S. dollar, effectively making Chinese exports to the U.S. cheaper. The U.S. labeled China a currency manipulator, an accusation Beijing denied.

And after the U.S. began blacklisting Chinese companies during the first Trump administration, China launched its own list of entities deemed a threat to its national interests. This means the Chinese government can swiftly sanction U.S. individuals and businesses in retaliation for trade restrictions or other efforts to constrain development.

In September, China launched a probe into PVH Corp. — the parent company of apparel brands such as Calvin Klein and Tommy Hilfiger — which it said has unfairly boycotted Xinjiang cotton. The U.S. has accused China of genocide against Muslim ethnic groups there and prohibits companies from using products suspected of being made with forced labor.

And on Monday, China opened an antitrust investigation into U.S. semiconductor giant Nvidia, whose value has soared this year amid an AI boom and increasing demand for advanced microchips. The U.S. has barred Nvidia from selling some of its most powerful chips to China.

If the trade war intensifies, the scope of targeted companies could broaden and China might also try to inconvenience U.S. businesses with operations in China by banning staff, restricting sales or initiating onerous compliance inspections or audits.

What are the downsides for China?

China may have the power to inflict serious damage on the U.S. economy, but it has to be careful about using it.

Ja-Ian Chong, associate professor of political science at the National University of Singapore, said that punishing U.S. operations in China could chill foreign investment and accelerate plans to move to other countries at a time when China is trying to attract more international business.

And preventing all crucial materials from reaching the U.S. would be difficult to enforce, considering the complex global supply chain, and might alienate other trade partners such as Taiwan or South Korea in the process.

“Beijing has options, but these options are not cost-free,” Chong said. “It comes down to how far China is willing to go.”