China's strategic response to U.S. tariffs: A measured approach amidst economic rivalry

Monday 03 February 2025 - 15:04

Amidst escalating trade tensions, U.S. President Donald Trump imposed new tariffs on China, Canada, and Mexico. Canada and Mexico swiftly retaliated, enacting their own tariffs on U.S. products. However, China's reaction stood out as relatively restrained. China's Ministry of Commerce refrained from announcing specific tariffs, instead emphasizing "countermeasures" to protect its rights and interests. Additionally, China signaled its intent to challenge the tariffs at the World Trade Organization (WTO), a largely symbolic move due to the organization's ongoing deadlock over judicial appointments since 2019.

This measured response from China is notable as it follows a period of relatively positive relations between the U.S. and China under Trump’s administration. Despite earlier threats of aggressive tariffs, Trump appeared open to diplomacy, suggesting a potential for negotiation with Chinese President Xi Jinping.

Experts suggest that both Trump and Xi might see the value in a deal, not necessarily because of aligned broader goals, but due to a shared understanding of the leverage that tariffs can offer in a world where geopolitical dynamics often influence economic strategies more than traditional trade logic. China's historical approach to U.S. tariffs has been one of calculated, precise retaliation, avoiding unnecessary escalation while still asserting its stance.

The impact of the tariffs on the U.S., Canada, and Mexico is significant. While Trump’s tariffs on Canadian and Mexican goods, amounting to 25%, mark a substantial shift from the North American Free Trade Agreement (NAFTA), China's ongoing trade struggles began with Trump’s first term. However, the new tariff on Chinese imports is smaller than initially proposed, bringing the overall tariff rate on Chinese goods from around 20% to 30%.

China’s strategy includes appealing to the WTO, which plays a crucial role in defending global trade principles. Experts note that joining the WTO was a challenging yet strategic move for China, and now it seeks to leverage the organization’s platform to counter U.S. tariffs, framing the dispute as one over global trade norms rather than mere economic protectionism.

Additionally, China’s relatively stronger economic position compared to Canada and Mexico allows it more room for maneuver. Although China’s GDP is smaller than that of the U.S., it stands at around $19 trillion, providing more leverage in trade negotiations. Estimates suggest that tariffs on Mexico and Canada could have significant negative effects on the U.S. economy, while tariffs on China could lead to economic shrinkage in both nations.

Despite the complexities, analysts argue that China’s relatively cautious approach signals a long-term strategy to avoid overreaction and maintain economic stability. Beijing may also be waiting to assess further U.S. actions before escalating its response.

In the coming months, China might propose reviving a trade deal initiated in 2020, which was interrupted by the COVID-19 pandemic. The deal, which aimed for China to purchase $200 billion worth of U.S. goods, remains a potential foundation for future negotiations. While China did not fully meet its obligations under the deal, it remains a key point of reference in the broader U.S.-China trade relationship.