China on Tuesday, February 4, announced a broad package of economic measures against the United States as part of retaliatory actions, which were decided by Beijing after US President Donald Trump imposed 10% tariffs on goods imported from the Asian country.
It is not yet known for certain what the condition of the relationship between the world’s largest economic systems will be in 2025. However, the mutual measures taken by Beijing and Washington indicate that the dynamic of interaction between the two world capitals is already on a trajectory of progressive deterioration. It is worth noting that the vector of the corresponding process, the content of which is the gradual narrowing of the partnership space between the two largest geopolitical players and the expansion of the territory of rivalry between China and the United States, is not something new and does not signal what can be described as a kind of change in the status quo in the relationship between the US and the Asian country. Mutual restrictions between the world’s biggest economies were a fact of legal and economic reality even before the inauguration of Donald Trump. For example, the United States limited the export of advanced chips and equipment for the production of microcircuits of the corresponding category to China. As part of the retaliatory measures, the Asian country has banned the shipments of several minerals to the US. The consistent deterioration of the condition of the relationship between Beijing and Washington carries the risk that at some point a kind of critical line will be crossed, beyond which a fundamental degradation of the declining but still existing system of interaction between China and the United States will begin. It is also worth noting separately that the increasing confrontation between the world’s largest economic systems is a factor of a negative impact on the entire geopolitical space. Against this background, there is a risk of significant deterioration or even structural degradation of the international partnership system in all its aspects and dimensions. The potential realization of a negative scenario may provoke something like large-scale fragmentation in the world as a space of human civilization, in the framework of which a kind of blocky political and economic reality will emerge. This configuration of the geopolitical environment means that groups of countries will be formed that are in a position of either radical confrontation or moderate rivalry with each other. Washington and Beijing may become the political centers of a segmented world since the corresponding respective status is largely determined directly by economic potential. At the same time, such a scenario of a negative transformation of the situation in the geopolitical space is hypothetical, but not inevitable. It is possible that over time, Washington and Beijing will reach certain agreements aimed at decreasing the level of confrontation. At the same time, the corresponding probability is definitely not the maximum, since China announced retaliatory measures as soon as possible against the background of levies from the United States. It is also worth mentioning that Donald Trump has suspended tariffs on goods imported from Canada and Mexico, and has reached certain agreements with the mentioned countries. Moreover, many experts have repeatedly stated that Mr. Trump can use the tariff threat as a negotiating tool on favorable terms. However, in the context of the relationship between Beijing and Washington, the situation is more complicated in terms of opportunities for a positive outcome. Obviously, in this case, something like a tariff clinch between the world’s largest economies is getting worse. The probability of a positive scenario in the appropriate context is rather a theoretical opportunity that does not correspond to practical realities as much as possible, but not something that the current situation can transform into without much difficulty and the need to overcome massive barriers. Beijing is demonstrating its readiness for economic confrontation. Further aggravation of the current state of affairs will have large-scale and profound consequences for the global trade area.
New duties against the United States have been announced by the Chinese Ministry of Finance. In this case, a 15% tax is provided for certain types of coal and liquefied natural gas. China also announced a 10% tariff on crude oil, agricultural machinery, large-displacement cars, and pickup trucks. These measures will come into force on February 10. It is possible that some agreement on economic cooperation will be reached between Beijing and Washington before the mentioned date. At the same time, the Asian country is unlikely to demonstrate the same degree of commitment to resolving the situation that was typical for Mexico and Canada. In this case, China has a different motivation.
It is worth noting that, in general, the practice of mutual restrictions or barriers in the economic space rarely contributes to the growth and prosperity of any of the parties to the relevant process. This state of affairs can transform into something like a struggle for survival, the winners of which will be the strongest, with the greatest margin of safety and what can be called a long will, but still, it can’t do without losses.
The Ministry of Commerce and China’s customs administration also announced new export control measures that immediately take effect for more than two dozen metal products and related technologies. These restrictions apply to tungsten, a very important mineral used in industry and defense. The new export control measures also affect tellurium. This rare semi-metal is used to make solar cells.
The Ministry of Commerce also announced that it has added two US companies to its list of unreliable entities. This decision concerns biotech firm Illumina and fashion retailer PVH Group, owner of Calvin Klein and Tommy Hilfiger. The Ministry stated that the mentioned companies violated the normal principles of market trading.
A Ministry of Commerce spokesperson said on Tuesday that PHV discriminated against and interfered in the activities of Chinese firms. It is worth noting that in this case, the details of the mentioned practices were not provided.
PVH criticized the specified decision. The company has stated its intention to work with the Chinese authorities to resolve the prevailing situation.
A spokesperson for PVH said that this business giant is surprised and deeply disappointed by the decision of the Ministry of Commerce of the Asian country. In the relevant context, it was also noted that for 20 years of activity in China and proudly serving its consumers, the company maintains strict compliance with all relevant laws and regulations and operates in line with established industry standards and practices.
China’s State Administration for Market Regulation said in a separate statement that it will launch an investigation into Google. In this case, it was noted that the mentioned technology giant may be involved in carrying out activities within the framework of practices that violate antitrust laws. It is worth noting that Google’s Internet search engine is not available in China. The technology giant has minimal operations in the Asian country. Google stopped its Internet and search engine services in China in 2010. At the same time, after that, the technology giant continued some operations in the Asian country. Google helps Chinese businesses looking to advertise on company platforms abroad. It is possible that this investigation is also a kind of response to the tightening of Washington’s tariff policy. At the same time, there is a possibility that China’s actions regarding Google will only be demonstrative and will not lead to any consequences for the technology giant. The corresponding assumption envisages that in this case, Beijing, within the framework of symbolic moves, states its readiness for an intensifying confrontation with Washington. The probability that China is acting based on such motivation in this case is not the maximum.
It is worth noting that the measures announced by the Asian country are not of the same type in terms of the impact on the US economy in general and business in particular. For example, China is the world’s leading producer of tungsten concentrates. According to United States government estimates, the Asian country accounted for more than 80% of the corresponding global production as of 2020. At the same time, the share of tariffed goods has a relatively small proportion of the total trade volume between the US and China.
Julian Evans-Pritchard, head of China Economics at financial insight company Capital Economics, said in a research note published on Tuesday that Beijing’s announced measures are fairly modest, at least compared to Washington’s actions. According to the expert, the moves of the Asian country have clearly been calibrated to try to send a message to the US and domestic audiences without causing too much damage.
Chinese tariffs target at most $20 billion of the country’s annual imports from the United States, representing about 12% of the total. This was stated by Julian Evans-Pritchard. The expert noted that the mentioned figures are a far cry from the more than $450 billion of Chinese goods being targeted by the United States. It should be noted that the information about the mentioned indicators in the media varies.
The White House announced broad-based 10% tariffs on the Asian country imports on Saturday, February 1. The next day, Sunday, February 2, the Chinese authorities released a statement slamming the United States’ decision. The Asian country has declared its intention to resolutely defend its rights. Beijing also noted that as part of appropriate actions, it will use tools such as filing a complaint with the World Trade Organization (WTO) and taking appropriate countermeasures.
The statement, which was published on Tuesday by the Chinese Ministry of Commerce, contained information that the Asian country had brought the Donald Trump administration’s tariff measures into the WTO dispute settlement mechanism. The mentioned ministry also noted that the United States’ practices seriously undermine the rules-based multilateral trading system, undermine the foundation of economic and trade cooperation between Beijing and Washington, and disrupt the stability of the global industrial chain and supply chain.
The measures against the US, which China announced on the last day of the week-long Lunar New Year holidays in the Asian country, maybe the first stage of a new trade war between the world’s largest economies. In this case, the parties to the confrontation act on the principle of reciprocity. Beijing and Washington demonstrate their intention to follow the norm stipulated by the phraseologism an Eye for an Eye. Both China and the United States intend to impose measures equivalent to the opponent’s decisions.
Last week, the White House, announcing tariffs on Chinese, Canadian, and Mexican imports, noted that in this case, an attempt is being made to hold countries accountable for illegal immigration and the flow of fentanyl and other drugs into the United States.
Donald Trump agreed to immediately pause tariffs on Mexico and Canada. Mr. Trump made the appropriate decision after telephone conversations with the leaders of the mentioned countries last Monday, February 3, the day before the relevant measures were supposed to take effect. The leaders of Mexico and Canada agreed to strengthen security along their borders during a telephone conversation with Donald Trump.
On Monday, Mr. Trump said he expects to have an opportunity to speak with the President of the People’s Republic of China Xi Jinping in the next 24 hours. There were no statements from Beijing regarding the communication between the leaders of the two countries. A White House spokesperson said the call could take place in the next couple of days.
Currently, Washington and Beijing are, in a certain sense, forming a paradigm and formulating the basic principles of interaction after the inauguration of Donald Trump. In a certain sense, nowadays both capitals are looking for a tone of communication with each other. So far, the rhetoric of Beijing and Washington does not contain friendly statements. Amid the growing confrontation, the United States and China are also seeking to resolve their issues, including a gaping trade deficit, technological and military rivalry, and the fentanyl trade.
US law enforcement agencies believe that several companies based in the Asian country are supplying precursor chemicals that can be used to produce finished fentanyl in laboratories operated by drug cartels in the United States and Mexico. Canada accounts for just 0.2% of fentanyl seizures at the US border.
Beijing has defended its efforts to control the export of precursor chemicals used to produce fentanyl. Also in the relevant context, the authorities of the Asian country noted that the latest US tariffs erode the foundation of trust and cooperation between China and the United States in the area of drug control.
The Shanghai stock index was closed Tuesday for the Lunar New Year holiday. At the same time, stock markets in other Asian countries closed higher amid China’s decision to retaliate against US tariffs. Hong Kong’s Hang Seng index increased by 2.8%. Japan’s Nikkei index demonstrated growth of 0.7%. South Korea’s KOSPI increased by 1.1%. US stock futures actually showed no changes.
It is worth noting that during the election campaign, Donald Trump repeatedly stated his intention to impose 60% tariffs on goods imported from China. It is obvious that the 10% duties are not at all the scale of Washington’s tightening of trade policy towards Beijing, which was originally announced by Mr. Trump. It is possible that the tariffs that have already been imposed are a kind of initial stage of measures targeting Chinese imports. The media suggests that Donald Trump will still try to conclude the deal with China. If the corresponding goal is not achieved, Mr. Trump will raise tariffs on goods imported from the Asian country. According to media reports, the mentioned potential deal will include not only the settlement of issues of economic cooperation between China and the United States, and will address a wider range of topics for discussion.
During the election campaign, Donald Trump paid a lot of attention to the rivalry with the Asian country. In the relevant context, the main narrative was Washington’s victory in the economic competition with Beijing. On his first day as President of the United States, Mr. Trump ordered a review of the economic relationship between the two countries, which is due on April 1. The results of the relevant review can become a kind of factological platform for additional duties on goods imported from China. This decision could address the gaping trade imbalance between the two countries. At the same time, Donald Trump has specifically linked 10% tariffs to the fentanyl trade.
Mr. Trump expressed the hope that the United States and China will be able to conclude a trade deal and work together on other issues, including those related to the geopolitical situation and various forms of its existence in different regions of the world.
It is also worth noting that Donald Trump has paused the enforcement of a law requiring to ban of the social media app TikTok if its Chinese parent company did not divest business in the US. The issue is expected to be discussed during the expected talks between the United States and China in the coming weeks or months.
Beijing, despite decisive or relatively decisive actions, has stated its intention to avoid an escalation of a trade war similar to the one that took place during Donald Trump’s first presidential term, which lasted from 2017 to 2021. At that time, the White House imposed tariffs on hundreds of billions of US imports from China. Beijing retaliated. Since then, China has diversified its economy and trading partners. At the same time, Beijing will not be able to completely avoid the negative consequences of Washington’s tightening trade policy. Currently, China’s economic system is going through a difficult period. Beijing is facing challenges such as a protracted crisis in the real estate sector, sluggish domestic consumer demand, and falling investor confidence. Against this background, exports are actually the main driving force behind China’s economic growth. In the relevant case, tariffs will definitely become a source of sensitive negative consequences. It is also worth noting that it is very difficult and probably impossible for China to abandon trade cooperation with the United States without losses. In this context, the factor determining the mentioned prospects is that the US economic system as a space of financial opportunities surpasses the corresponding systems of other countries of the world.
It is worth noting that the measures taken by Beijing and Washington definitely contribute to the escalation of tension between the capitals, but at the same time, there is a certain restraint in these decisions. As mentioned above, the United States imposed 10% tariffs on goods imported from China, although Donald Trump stated during the election campaign that the corresponding figure would be 60%. Moreover, Beijing’s measures are not the maximum in terms of the corresponding capabilities of the Asian country. It is possible that China and the United States are following what can be called a gradual action strategy independently of each other at the level of behind-the-scenes decisions. The reason for such a concept may be either the desire not to nullify any possibility of interaction in the hope of reaching agreements, or something like probing the ground to initially understand the degree of vulnerability of the opponent and then target the weakest points. It is also possible that in this case, Beijing and Washington are trying to act carefully so as not to harm themselves or minimize the likely negative consequences of their own decisions in the opposite direction. It is worth noting that these are just assumptions, and not the official positions of the parties, declared at the level of public rhetoric.
The media, citing experts, claim that Beijing, apparently, has learned a lesson from the first trade war with Washington. At that time, China imposed tariffs comparable to or close to the US similar measures. This year, as some media reported, Beijing put $14 billion in levies on American goods worth. Other measures are intended to demonstrate China’s ability to inflict further pain on US companies if the corresponding need arises.
It is worth noting that the United States has put tariffs on $525 billion worth of goods imported from the Asian country. That’s how some media calculated it.
Larry Hu, head of China economics at Macquarie Group Ltd., said Beijing is acting with restraint because it has more to lose due to the huge trade imbalance with the US. The expert noted that a full-blown tariff war is not in the interests of the Asian country. According to Larry Hu, Beijing is likely to respond to levies mainly through domestic stimulus.
It is also worth noting that China’s restrained retaliatory measures have avoided unrest in the markets, which last week found themselves in a zone of turbulence due to Donald Trump’s tariff twists and turns. The offshore yuan did not show significant changes on Tuesday.
In potential negotiations, Beijing will have a weaker position than Washington. The corresponding state of affairs is related to objective indicators. Data from China’s Customs General Administration shows that the Asian country exports three times more goods to the United States than it buys. In the context of economic confrontation, this data means fewer opportunities. At the same time, this does not mean that Beijing cannot cause sensitive damage to US companies, nor does it mean that such actions will have minimal consequences. For example, Tesla and Apple are interested in their further presence in China. Despite the difficulties and various negative prospects, the Asian country continues to be one of the largest markets. The termination of interaction with this commercial space means significant financial losses for Western companies. Also, China still continues to be the main manufacturing center in Asia. The corresponding status remains, despite the intentions of many Western companies to diversify their production facilities in the mentioned region. India and Vietnam are currently being considered as alternative manufacturing centers. At the same time, full-scale diversification continues to be a likelihood, not a materialized reality.
Helen Qiao, chief economist for greater China for Bank of America Global Research, said the shape of any future deal will hinge on what concessions Beijing might agree to make. According to the expert, the Asian country’s options range from promising to buy more US oil and gas and keeping the yuan stable to delivering on the first phase of the deal. Helen Qiao suggests that China will opt for a combination of the mentioned measures.
It’s also worth mentioning that an Asian country has an impact on the Panama Canal. Here, the Hong Kong company owns two of the five ports adjacent to the waterway. It is not an exception to the assumption that Donald Trump will use this circumstance as a factor of pressure on Beijing. The Mr. Trump administration has already threatened to take back the canal if Panama does not reduce China’s sway.
Josef Gregory Mahoney, a professor of international relations at Shanghai’s East China Normal University, said Beijing is currently striking a balancing act between looking strong and at the same time not upping the ante. According to the expert, it is possible that the two giants are currently sizing each other up and testing each other’s resolve, while simultaneously playing to their domestic audience.
