China digs in to insulate CCP from fallout of Trump tariffs

My Latest OpEd on Tariff War for Money Control

The White House’s recent statement that imports from China now face 245% tariffs was met with a scoffing dismissal in Beijing. “We will ignore these meaningless number games,” said a spokesperson for China’s Ministry of Commerce. After a week of tit-for-tat tariff exchanges following Donald Trump’s ‘liberation day’ announcement, China appears to have settled on a strategy to tackle the pressure it is facing. There are three broad elements of this approach: projecting political resolve and leadership, engaging in a multifaceted retaliation, and supporting domestic enterprises while seeking market diversification.

The narrative from Beijing following the tariffs was one of the US policy being a strategic mistake and of Beijing being unwilling to back down in the face of bullying. This was typified in the invocation of Mao Zedong’s remarks by the spokesperson of China’s foreign ministry, stating that “we don’t back down.”

Likewise, Chinese media has been focused on projecting strength and resolve. Acknowledging the challenges that a trade war with the US will bring to China, in early April, the People’s Daily assured that while there will be a shock, the “sky will not fall.” Its argument resided on the claim that over the years, China’s 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,” the paper said.

Another commentary earlier this week invoked the ancient Chinese myth of Nüwa mending the cracked sky to argue that while the US has delivered in “reckless tariff blows,” applied “extreme pressure”, and harbours “delusions of subduing China”, it is “in the face of crisis, the hero’s true character is fully revealed.” In other words, Beijing is projecting strength and resolve, along with signalling that its capacity and willingness to bear pain is far greater than that of the United States. In China, Trump’s 90-day reprieve to several countries and the subsequent announcement of exemptions for certain electronic and technology products have been perceived as a small climbdown by the US administration. Chinese officials are also likely keenly watching the American policy debate on bailing out farmers hit by the tariff war. At around $25 billion, China is the largest export destination for US agricultural products, accounting for nearly one-fifth of the total American agricultural exports.

At the same time, Beijing is also indicating that it is open to talks. Such dialogue, however, must be based on equal footing and process-based. While reports suggest that Trump is interested in direct dialogue with Xi Jinping, the Chinese preference is for appointed negotiators to flesh out the details that then allow for an outcome-based conversation between the leaders. Moreover, such dialogue need not simply be limited to trade issues, given that neither side seems to view the trade piece of their friction as distinct from broader Sino-US strategic competition.

In the meantime, the Chinese government has taken a myriad of retaliatory measures. It has hiked retaliatory tariffs against US imports to 125%. At those rates, Beijing argues that the competitiveness of US imports has already been eroded. Therefore, it no longer needs to engage in further hikes. Among other things, it has filed a suit under the WTO mechanism, placed American companies on China’s unreliable entities list and export control list, announced export control measures on certain items related to seven types of medium and heavy rare earths, and blocked purchases of Boeing jets.

These steps have been accompanied by an effort to build a diplomatic united front. Soon after the first announcement of tariffs, Commerce Minister Wang Wentao was working the lines, speaking to ministers from the EU, Malaysia, and Saudi Arabia, among others. In particular, China and the EU appear to be moving towards a formal negotiation process with regard to the vexed issue of Chinese EV subsidies. What’s on the table is likely the setting of a minimum price for Chinese-made EVs instead of tariffs imposed by the EU.

Xi Jinping, meanwhile, embarked on a three-nation tour of Vietnam, Malaysia and Cambodia to build common cause on maintaining smooth flow of industrial and supply chains. In his meetings, he has sought to project China as a defender of the international order and economic globalisation. Chinese diplomats and interlocutors have also been underscoring the self-serving and unstable nature of American policy under Trump to US allies and partners.

These efforts are critical from Beijing’s perspective, given the fear that Washington wants to use the tariff card with its partners to isolate China. However, Beijing’s biggest concern is fundamentally about the impact of US policy on China’s overall export sector and consequently employment. Last year, China’s exports accounted for 18.8% of the country’s GDP. Roughly 20 percent of the Chinese workforce—around 180 million people—is estimated to be engaged in export-oriented jobs. A significant loss of employment, particularly when the economy is already under significant strain, could result in social stability concerns. Consequently, Chinese leaders appear to be calling on foreign-trade enterprises to pivot towards international market diversification and domestic consumption. What tangible policy support will be provided to facilitate this, is still unclear.

Note: This piece was first published on MoneyControl on April 22, 2025.