China braces for Trump's tariff threat with strategic economic arsenal

[WORLD] As the specter of a renewed U.S.-China trade war looms, analysts underscore Beijing’s calculated readiness to counter potential 60% tariffs proposed by former President Donald Trump. Unlike the 2018 trade skirmish, China now combines retaliatory measures, economic safeguards, and strategic global realignments to mitigate impacts. This multifaceted approach reflects lessons from past confrontations and an evolving playbook for 2025’s geopolitical chessboard.

The 2018-2020 U.S.-China trade war saw tit-for-tat tariffs disrupt $550 billion in bilateral trade, but China’s response was often reactive. Fast-forward to 2024: the Biden administration imposed targeted tariffs on $18 billion of Chinese goods, including EVs and semiconductors. While these were framed as “national security” measures, Trump’s campaign rhetoric threatens broader, more aggressive tariffs—up to 60%—on all Chinese imports.

Beijing’s immediate countermeasures to Biden’s tariffs included anti-dumping probes on U.S. chemicals and polyoxymethylene copolymer, signaling a willingness to retaliate proportionally. However, Trump’s proposed blanket tariffs represent a systemic challenge, prompting China to leverage tools beyond reciprocal duties.

China’s Preparedness Measures: Building Economic Resilience

1. Legislative and Regulatory Safeguards

In April 2024, China’s National People’s Congress passed a new Tariff Law, effective December 1, to streamline retaliatory measures and reduce dependency on U.S. markets. This law formalizes Beijing’s ability to impose export controls, tariffs, and quotas swiftly, mirroring the U.S. Section 301 framework.

2. Domestic Stimulus and Deflation Mitigation

With GDP growth slowing to 4.7% in Q2 2024 and deflationary pressures mounting, China’s policymakers prioritize stability. UBS economists note that aggressive stimulus could cushion a 1.5–2.5% GDP drag from U.S. tariffs, sustaining growth near 3% in 2025. Measures include liquidity injections for manufacturers and tax rebates for strategic sectors like EVs and semiconductors.

3. Export Controls and Supply Chain Diversification

China has weaponized its dominance in critical minerals, restricting gallium and germanium exports in 2023 and targeting rare earths in 2024. Simultaneously, companies are relocating production to Southeast Asia and Mexico to bypass U.S. tariffs. As Stanley Lah of Deloitte notes, “Acquiring local firms or forming joint ventures helps Chinese companies penetrate new markets faster than greenfield investments”.

Retaliatory Strategies: Precision Over Proportionality

Targeted Tariffs on U.S. Exports

China’s Ministry of Commerce (MOFCOM) has identified $18 billion in U.S. goods vulnerable to retaliation, mirroring Biden’s May 2024 tariffs. Likely targets include:

Agricultural Products: Soybeans, pork, and dairy (previously hit with 25–35% tariffs in 2018).

Aircraft and Pharmaceuticals: Boeing and Pfizer face renewed scrutiny amid slowing Chinese demand.

Luxury Goods: High-end automobiles and cosmetics, which saw sales slump during prior trade tensions.

Currency Adjustments

A weaker yuan (CNY) could offset tariff impacts by making Chinese exports cheaper. Reuters reports Beijing is considering devaluing the yuan to 7.5–7.8 per dollar in 2025, a 6–10% drop from 2024 levels.

Asymmetric Measures: Beyond Tariffs

Investment Restrictions: Scrutiny of U.S. private equity firms in tech and infrastructure.

Regulatory Slowdowns: Delayed approvals for mergers, licenses, and patents.

Global Diplomacy: Strengthening ties with the EU, ASEAN, and Global South to isolate U.S. trade policies.

Global Implications: Collateral Damage and Opportunities

Third-Country Spillover

EU: Caught between U.S. pressure and reliance on Chinese EV components, Europe faces “unavoidable collateral damage,” per Control Risks.

Mexico and Vietnam: Emerging as alternative manufacturing hubs, with FDI inflows surging 22% and 18% YoY in 2024.

Supply Chain Realignments

Multinationals are adopting “China+N” strategies, splitting production between China and tariff-exempt nations. For example, Apple now makes 25% of iPhones in India, up from 5% in 2022.

Expert Insights: A Calculated Balancing Act

Anne Stevenson-Yang (J Capital Research):

“China’s weak consumer demand and policy inconsistencies limit its capacity for all-out retaliation. Instead, Beijing will opt for surgical strikes—like export controls—to maximize pain for the U.S. with minimal self-harm”.

UBS Economists:

“A 60% U.S. tariff could slice 2.5% off China’s GDP, but stimulus and production relocations might halve that impact. The bigger risk is deflation, with core CPI stagnating near 0%”.

Scott Kennedy (CSIS):

“The U.S. and China are locked in a ‘clash of systems.’ Tariffs alone won’t resolve structural issues like overcapacity, but they accelerate decoupling”.

China enters this trade war iteration with sharper tools and strategic patience. By blending retaliatory tariffs, currency adjustments, and global supply chain pivots, Beijing aims to buffer its economy while testing U.S. resolve. Yet, as both nations escalate, the world economy braces for turbulence—with no clear winners in sight.