Analysis: China is armed and ready for trade war 2.0 with Donald Trump

China’s Economic Strategy Amid Potential Tariff Threats #

In the summer of 2018, as the US launched a trade war with Beijing, China’s economy was booming, with projections that it might soon overtake the United States as the world’s largest. However, as a potential reescalation looms, China’s economic standing faces challenges including property market instability, debt, and deflation.

Despite these hurdles, China’s leadership is better positioned to counteract potential threats, such as significant tariffs on exports to the US. The Chinese economy has diversified its trade network, with only 30% of exports going to G7 countries last year, a decrease from 48% in 2000. Mexico recently surpassed China as the leading exporter to the US, highlighting Beijing’s reduced reliance on American trade.

China’s response to potential tariffs won’t likely include dramatic financial maneuvers, such as selling US Treasury bonds or significantly devaluing the yuan. Instead, China’s retaliatory measures may focus on targeted actions against US companies operating within its borders, taking advantage of an understanding of American business vulnerabilities.

Noteworthy developments include China’s investigation into fashion retailer PVH Corp for its sourcing practices, and raids on US firms Bain & Company and Capvision. These targeted actions aim to pressure foreign businesses while avoiding dramatic economic responses that could harm China’s own interests.

President Trump has proposed heightened tariffs on imports and specific industries, which economists suggest could halve China’s growth rate and financially strain US households. Despite the threats, China possesses a substantial domestic consumer market to mitigate adverse impacts, focusing on bolstering consumer confidence and innovating domestically.

Heading into 2024, China is also considering further stimulus measures to stabilize its economy. With GDP showing modest growth and consumption weakened partly by property market issues, economic strategies are aimed at solidifying internal growth. The outcome of upcoming tariff policies may trigger more decisive actions from Chinese policymakers, balancing between international pressures and domestic priorities.