How strongly will China react to Trump's tariff policy?

Immediately after Washington's announcement, despite the extended Lunar New Year holiday, Chinese officials still had quite strong reactions. China's Ministry of Commerce announced that it would file a complaint with the World Trade Organization (WTO) and apply "corresponding countermeasures" but did not specify the specific form. In an official announcement, Beijing criticized the current US administration's new tariffs as "severely violating WTO regulations" and affirmed that it would "resolutely defend its rights".

However, China's response has been seen as more cautious than that of Canada and Mexico, which immediately announced retaliatory tariffs on the US. The 10% tariff on China is also significantly lower than the 25% rate Washington imposed on Mexico and most goods from Canada.

US-China relations in President Trump's second term

President Trump's move comes amid complicated developments in US-China relations. Beijing has had a more favorable start than expected in Trump's new term. A phone call between Chinese President Xi Jinping and the US President was described by Trump as "very good". Furthermore, Vice President Han Zheng - China's top leader - was sent to attend President Trump's inauguration, showing Beijing's efforts to maintain diplomatic relations with the new US administration.

President Trump has also signaled his willingness to negotiate with Beijing, stressing his desire to work together to resolve the Russia-Ukraine war. In an interview with Fox News, he also hinted at the possibility of reaching a trade deal with China.

However, during his previous election campaign, Mr. Trump pledged to “win the economic competition with China” and appointed many officials with a tough stance on Beijing. Therefore, China may be assessing that it is not worth escalating tensions at this time.

Is there still room for negotiation?

The 10% tariff is still well below the 60% rate that Mr. Trump proposed during his campaign. Notably, he has largely linked the tariffs to the role of Chinese suppliers in the trade of fentanyl, a widely abused opioid in the United States, rather than focusing on the trade deficit between the two countries.

Observers say President Trump may be awaiting the results of a major investigation into US-China trade relations, which he ordered through an executive order signed on his first day in office.

According to an analysis posted on the website of the Fudan Development Institute (Shanghai, China), Mr. Trump could take advantage of the investigation results to impose or expand tariffs, put pressure on Beijing and wait for concessions.

The Trump-ordered review is expected to be released on April 1, giving China the opportunity to build a relationship with the U.S. government or seek a trade deal to avoid further economic sanctions.

How will Beijing respond?

The message from China’s leadership has been largely conciliatory. Chinese Vice Premier Ding Xuexiang told the World Economic Forum in Davos that Beijing wanted to “promote balanced trade.” Meanwhile, President Xi Jinping called for a “new beginning” in US-China relations.

Beijing also stressed that its WTO complaint was a way to demonstrate its adherence to global rules, while the Trump administration was portrayed as a “rule-breaker.” China also rejected the US accusations regarding fentanyl, insisting that the opioid crisis was an “internal US matter.”

But observers are waiting to see whether China will announce further trade retaliation in the coming days. An editorial on state broadcaster CCTV on February 2 condemned the “wrong” tariffs and called for greater bilateral cooperation.

Consider coping strategies

Chinese experts say the 10% tariff is not as big of an impact as the trade war was in 2018. At that time, Mr. Trump imposed tariffs on hundreds of billions of dollars worth of Chinese goods, causing Beijing to retaliate with tariffs worth $185 billion on US goods.

Under President Joe Biden, Washington has not lifted the old tariffs but instead adopted a “small yard, high fence” strategy to limit China’s access to high technology, especially in the military field. In response, Beijing has also strengthened export controls on important minerals and technologies in retaliation for the US.

In the coming weeks, China could continue to use export restrictions or retaliatory tariffs to pressure the United States, especially if Mr. Trump pushes for tougher measures.

Beijing has also been preparing for the impact of President Trump’s tariffs. Chinese state media cited figures showing that exports to the US accounted for just 3% of GDP and less than 15% of total exports, reflecting a shift in China’s trade to other partners to reduce its dependence on the US.

China waits for opportunity to negotiate

Keyu Jin, an associate professor of economics at the London School of Economics, said in Davos that China has long been preparing to reduce its dependence on the US, diversifying its trading partners and financial system. “Tariffs will hurt both countries. But you have seen a gradual diversion of trade to other countries,” Jin said.

Notably, she also said that China sees President Trump as "a person who can negotiate" and still leaves open the possibility of reaching a mutually beneficial agreement.

With the moves underway, observers will be closely watching the next steps of Washington and Beijing, as trade tensions continue to be one of the most important issues in the foreign policies of the world's two leading economic powers.