Asia-PacificAnalysis

China retaliates against US tariffs and shows it can turn trade war to its advantage

Beijing hopes US sectors will put pressure on Washington to negotiate rather than escalating a trade war

Denis Staunton's picture
Denis Staunton China Correspondent
Tue Feb 04 2025 - 10:36

China’s immediate response to Donald Trump’s imposition of a 10 per cent tariff was restrained and limited in its likely impact on the United States. But Beijing’s choice of measures sent a clear signal of its willingness to strike at politically sensitive targets and its capacity to turn a trade war with Washington to its diplomatic advantage.

Within minutes of the US tariff on all Chinese imports coming into force on Tuesday morning, Beijing announced tariffs of 10-15 per cent on a range of American imports. US coal and gas will be subject to a 15 per cent levy while petrol, agricultural equipment, high-emission vehicles and pick-up trucks face a 10 per cent tariff.

China’s commerce ministry also announced export controls on tungsten, tellurium, bismuth, molybdenum, and indium, key minerals used in manufacturing. Beijing announced a competition investigation into Google and added the group behind clothing brands Calvin Klein and Tommy Hilfiger to a national security blacklist.

The US measures will have only a modest impact on the Chinese economy, with the US accounting for just 1.7 per cent of the country’s oil imports and 5 per cent of its liquefied natural gas (LNG). And China can easily replace US energy imports with oil and gas from Russia, which already supplies almost half of its oil.

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The Wall Street Journal reported on Tuesday that the White House faced intense lobbying from the US auto industry before Trump paused planned tariffs against Canada and Mexico. Beijing will hope that sectors threatened by its tariffs will put pressure on Washington to negotiate rather than escalating a trade war triggered by Trump’s demand for more action from China to stop the export of the drug fentanyl.

[ China counters with tariffs on US products ]

The Chinese authorities have been preparing for a likely trade war with the US since long before Trump’s victory in last November’s presidential election. The government is expected to announce fresh stimulus measures to shore up its weak domestic economy against the impact of US tariffs.

The Chinese tariffs will not come into force until next Monday, offering a window for negotiations similar to those that Washington conducted with Mexico and Canada. Xi Jinping and Trump are expected to talk this week and China has long maintained that the two countries share a common interest in halting the production and distribution of fentanyl.

Announcing its retaliatory measures on Tuesday morning, Beijing said it would take legal action against the US at the World Trade Organisation (WTO). The WTO has lost much of its effectiveness since Washington abandoned the organisation during Trump’s first term in office.

By referring the dispute to the WTO, China is signalling to other trade partners, including the European Union, that it is a reliable partner committed to a rules-based trading system. As Trump’s actions become more capricious and unpredictable, America’s partners may be tempted to spread their risk by stepping up trade with the world’s second largest economy.