TAIPEI, Taiwan — President-elect Donald Trump has threatened to impose new tariffs on Chinese imports when he takes office, a move that would intensify the trade war he started six years ago.
He didn't give many details, but China is already gearing up for economic battle.
“Six years of really intensive, targeted preparation work has prepared the leaders in Beijing to deal with whatever comes their way,” said Even Pay, an analyst at research firm Trivium China.
Here's a look at how the showdown between the world's two largest economies played out during Trump's final term and where things could be heading now.
What happened during Trump's first term?
Trump sparked a trade war in 2018 by imposing 25% tariffs on imports from China – including industrial machinery, cars, auto parts and television cameras. Those goods accounted for about $50 billion of the $540 billion the United States spent on Chinese-made products that year.
The aim was to boost U.S. production, reduce a trade imbalance and punish China for trade practices that Trump called unfair. China imported just $120 billion in US goods in 2018.
China responded with its own 25% tariffs on about $50 billion of those goods.
Despite trade talks over the next year, each country continued to impose higher tariffs. By 2020, tariffs had been imposed on a total of $550 billion worth of Chinese goods and $185 billion worth of US goods.
Experts said the trade war did little to ease the U.S. trade deficit or boost U.S. exports. Instead, they said it was stressful Economic growth and cost of jobs in both the US and China.
In the final year of Trump's term, the two nations agreed to a ceasefire and signed a trade deal that eliminated some tariffs and reduced others. China also agreed to buy an additional $200 billion in U.S. goods and services – a commitment it failed to keep.
Hank Wetzel speaks in the wine cellar of Alexander Valley Vineyards in Healdsburg, California, in 2019, when the company faced retaliatory tariffs on its exports to China.
(Josh Edelson / For The Times)
Has the situation cooled down since President Biden took office?
Not really. The rhetoric from the White House was less hostile, but tough measures against China had become a political necessity for every president, and the trade war only intensified.
Biden retained Trump-era tariffs and added some of his own, including a 100 percent tax on imports of electric cars from China, a 50 percent tax on solar panels and a 25 percent tax on lithium-ion batteries as well Steel and aluminum products.
Biden has also continued the first Trump administration's use of export bans to limit China's access to U.S. technology. Last week, the U.S. expanded restrictions on the sale of semiconductors and related manufacturing equipment to China and added 140 Chinese companies to a blacklist that restricts trade with U.S. companies on national security grounds.
What could Trump do this time?
For months he has advocated increasing tariffs on imports from China by 60% or more. Last month, he said on social media that he would impose a 10% tariff on all products from China, “above and beyond any additional tariffs.”
His motivations are not based solely on equalizing trade or boosting U.S. manufacturing. Trump has also talked about using the threat of tariffs to spur China – and Mexico – to do more to curb the opioid crisis in the US. The two countries are the main sources of fentanyl and the chemicals used to make it.
How is China preparing for further tariffs?
China has already taken numerous steps to protect itself.
The country, which normally buys corn, soybeans and sorghum from the U.S., has diversified its sources and built up supplies. Brazil was one of the big winners. The damage could be significant for U.S. farmers, who sell about 77% of their sorghum exports to China.
However, China is more vulnerable to tariffs than the United States – for the simple reason that it exports so much more than it imports.
The current economic situation in China is not helping. Growth is stagnating as the country grapples with a housing downturn, rising debt, rising youth unemployment and a slowdown in consumer spending.
Larry Hu, chief China economist at Australian bank Macquarie Group, estimated that a 60 percent U.S. tariff increase would reduce Chinese exports by 8 percent and GDP by 2 percent. If the U.S. also imposed tariffs on goods from other countries, it would exacerbate the impact on China, which has been able to avoid some tariffs by exporting products destined for the U.S. through third countries.
An employee works on the production line at Jiangsu Poppula Semiconductor Co. in Suqian, China, in October.
(Fang Dongxu/VCG via Associated Press)
How can China go on the offensive?
Perhaps China's biggest weapon in the trade war is its dominance in key materials the U.S. needs to make products like semiconductors and missiles. After the latest round of tech trade restrictions last week, China responded by banning exports of the rare elements gallium, germanium and antimony – cutting off at least half of U.S. supplies, according to U.S. Geological Survey data.
The move was widely seen as a warning signal to the next administration about its ability to halt U.S. progress in key strategic industries.
China can also defend itself with monetary policy. During the last trade war, the country allowed the yuan to depreciate against the US dollar, effectively making Chinese exports to the US cheaper. The U.S. called China a currency manipulator, an accusation Beijing rejected.
And after the U.S. began blacklisting Chinese companies during the first Trump administration, China introduced its own list of companies deemed threats to its national interests. This means that the Chinese government can quickly impose sanctions on U.S. individuals and companies in retaliation for trade restrictions or other efforts to restrict development.
In September, China opened an investigation into PVH Corp. a – the parent company of clothing brands such as Calvin Klein and Tommy Hilfiger – which has allegedly unfairly boycotted Xinjiang cotton. The US accuses China of genocide against Muslim communities there and bans companies from using products suspected of being made with forced labor.
And on Monday, China opened an antitrust investigation into U.S. semiconductor giant Nvidia, whose value has risen sharply this year due to an AI boom and rising demand for advanced microchips. The US has banned Nvidia from selling some of its most powerful chips to China.
As the trade war intensifies, the range of companies targeted could expand and China could also seek to harass U.S. companies with operations in China by laying off staff, restricting sales or launching burdensome compliance inspections or audits.
What are the disadvantages for China?
China may have the power to inflict serious damage on the U.S. economy, but it must be careful in using that power.
Ja Ian Chong, an associate professor of political science at the National University of Singapore, said penalizing U.S. operations in China could deter foreign investment and accelerate plans to move to other countries as China tries to attract more international companies.
And given the complex global supply chain, preventing all essential materials from entering the U.S. would be difficult and could upset other trading partners like Taiwan or South Korea in the process.
“Beijing has options, but those options are not free,” Chong said. “It depends on how far China is willing to go.”