While Donald Trump’s tariff onslaught is a global trade war, its consequences are particularly severe for an already-fraught U.S.-China relationship. Yet, Trump’s strategic stance towards China remains unclear beyond trade and tariff issues. Senior U.S. officials like Secretary of State Marco Rubio and Secretary of Defence Pete Hegseth have spoken of the “imminent threat” posed by China, but Trump speaks highly of President Xi Jinping and seeks a “beautiful deal” with China. This article examines the evolution of these tariff measures, situating them within the broader strategic contest.
Tariffs: State of Play
China’s initial responses in February and March 2025 to Trump’s tariffs were measured but signalled the diverse toolkit at its command, including tariffs on specific U.S. imports, tightened export controls on critical minerals, the inclusion of U.S. companies on its Unreliable Entity List, and antitrust probes.
After Trump announced “Liberation Day” tariffs on 2 April, China opted for tit-for-tat measures. In a dramatic twist, concerns over bond and currency market turbulence prompted Trump on 10 April to grant a ninety-day reprieve on U.S. tariffs exceeding 10 per cent for most countries. However, the reprieve was not applied to China; instead, tariffs on Chinese imports were hiked to 145 per cent. In retaliation, China raised tariffs on U.S. goods to 125 per cent. Both countries felt the pain of enhanced tariffs and blinked in talks in Geneva on 12 May, with the U.S. blinking harder, and a ninety-day truce was reached with reduced tariffs. Yet, the U.S. tariffs on China remain at historically high levels. The Peterson Institute for International Economics estimates that average U.S. tariffs on Chinese exports now stand at 51.1 per cent, while China’s average tariffs on US exports are at 32.6 per cent.
China has arguably forged ahead in the game of escalation dominance. It has positioned itself as a responsible trade entity while deploying a full range of retaliatory measures. It is the only country to respond forcefully to Trump’s tariffs and received what The Economist termed as a “strangely good tariff deal.”
China appears better prepared to deal with the “Trump shock”; yet, it is also more vulnerable as its economy is in a difficult spot. Seven years of navigating tech restrictions and trade tensions have given Xi Jinping and his advisors a deeper understanding of the U.S. President’s playbook. In addition to retaliatory tariffs, it has developed an impressive arsenal of retaliatory measures, including the weaponisation of its rare earth elements (REEs) and critical minerals, sanctions and counter-sanctions and greater co-option of its private sector to subserve the interests of the party-state. Since the Trump tariffs of 2018, it has reduced its reliance on the U.S. by developing domestic technological capabilities (narrowing the gap with the West and indeed pulling ahead in several strategic sectors) and lowered dependence on the U.S. markets. China has also lessened its sourcing of important commodities from the U.S., such as soybeans. Such progress makes China less vulnerable to U.S. sanctions than in the past. The weakening of the U.S. alliance system has also helped China.
China’s exports to the U.S. still accounted for approximately 2.8 per cent of its GDP and 14.6 per cent of its global exports in 2024. However, China reckons that it has more capacity to absorb pain than the U.S. Xi Jinping often exhorts the Chinese people to be prepared for hardship (“Chiku” or “eat bitterness”). China is undoubtedly hurting due to impeded access to the U.S. market as its economy was already ailing from near deflation, high unemployment, weak domestic demand, debt overhang and a real estate crisis. It has an excessive dependence on exports as a driver of growth, with its global trade surplus at a record $1 trillion in 2024.
