The first shots of a potential trade war have been fired. What's next for Beijing?

Yahoo

10-02-2025

Editor's Note: Sign up for CNN's Meanwhile in China newsletter which explores what you need to know about the country's rise and how it impacts the world.
The first return volley in a new trade clash between China and the United States was fired on Monday as Beijing's tariffs on nearly $14 billion in US imports came into effect.
Those tariffs – which covered duties on crude oil, liquified natural gas and some machinery and vehicles – began less than a week after US President Donald Trump imposed blanket 10% duties on the hundreds of billions in goods that the US imports from China every year.
There were hopes that a phone call between Trump and Chinese leader Xi Jinping last week could have avoided an escalation in hostilities, which could lead to a broader trade war. But that conversation never materialized.
Now the question for both sides is what happens next. And how far each of the world's two largest economies is willing to strain their deeply integrated commercial and trade ties.
So far, even with the opening salvo discharged, both sides appear to be leaving breathing room for a potential deal.
'Beijing has been restrained in its response to the new Trump tariffs. Both because the impact on China is modest, and because Xi wants to leave room to negotiate with Trump,' said Andy Rothman, CEO of advisory group Sinology.
China's tariffs – a 15% tax on certain types of coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, and some vehicles – affect about $13.86 billion in goods, according to a CNN calculation based on China's 2024 customs data.
Altogether, that makes up less than 9% of China's overall imports from the US. China had over $524 billion in exports to the US last year and imported over $163 billion from the US, according to its customs data.
Beijing last week also announced export controls with immediate effect on some raw materials used in defense and green tech sectors, as well as measures targeting a few US companies.
Trump's newest tariffs, meanwhile, are mild compared with the upwards of 60% duties that he had threatened to place on China while on the campaign trail. They add to existing tariffs on hundreds of billions in Chinese imports.
The US president campaigned on evening the economic playing field with China and has said he's open to a deal. Last month, he told political and business elites gathered in Davos, Switzerland that he's 'always liked' Xi and looked forward to 'getting along with China.'
'Trump appears to be in dealmaking mode, using tariffs as a negotiating tool … It is not clear, however, what Trump wants from Xi, and what he is willing to offer in return,' Rothman said.
So far, observers of China's elite politics say Xi and his officials are likely to be relieved by the tenor of the Trump administration and the limited action so far.
'They were preparing for 60% tariffs and complete decoupling … nothing has happened that's even close to the worst case scenario,' said Suisheng Zhao, director of the Center for China-US Cooperation at the University of Denver.
But another deadline, April 1, hangs over those talks. That's the date by which Trump has ordered his officials to deliver a probe into US-China economies ties, which could trigger even more action.
Officials in Beijing will now be focused on carefully managing the messages they send to the Trump administration in their diplomacy and in trade measures, as they seek to avert a more pointed trade war.
They're also likely to be keen to seize on any opportunities to use personal rapport between Trump and Xi to persuade the US president from deepening penalties on the Chinese economy – which economists and analysts say would also deliver a heavy blow to the US economy.
That could mean Beijing is keen to welcome the American president for face-to-face meetings in Beijing, something sources told CNN last month that Trump was interested in doing.
'(Chinese leaders) don't want to see escalation … China's leverage is not as strong as the United States, so they must take all the opportunities they could to try to pacify Trump and to let Trump make enemies of other countries,' Zhao said.
Even as Beijing may be focused on how to avert a deepening trade war, there's no question that the country's officials have been carefully preparing contingencies – and weighing up potential penalties to impose and concessions to make if Trump escalates further.
'Trump's trade actions will force Beijing to respond, but with a more targeted touch this time around, rather than the sweeping tit-for-tat actions that we saw in 2018 to 2019 when the trade war first erupted,' said Nick Marro, principal economist for Asia at Economist Intelligence Unit.
Late last year, the country revamped its export control regulations, sharpening its ability to restrict so-called dual-use goods as well as raw materials and critical minerals, some of which the US sees as essential for economic or national security. Analysts have estimated that China controls 60% of world-wide production and 85% of processing capacity of critical minerals.
Beijing will be evaluating the pain versus gain of announcing further controls on such goods, as well as additional tariffs, observers say, alongside ways to protect its own economy, which suffers from slowing growth, persistent deflation and weak consumer demand.
China is also better prepared in some ways for trade frictions than it was during Trump's first term, analysts say. Chinese firms have worked to diversify export destinations, while Beijing has mounted a campaign to shore up or repair its relations with other trading partners – an opportunity that expands for Beijing whenever Trump raises frictions with US allies and partners.
But perhaps a thornier question is what China would or could concede in any substantive negotiations with the US on a trade deal.
Analysts say Beijing never fully implemented the phase one trade deal reached at the end of the first Trump administration, while US concerns extend further into China's industrial policy and economic model.
'Given the failure of past negotiations, the US's appetite for a sweeping deal – one that goes beyond micro-level discussions, like the future of TikTok – doesn't seem very strong these days,' said Marro, referring to the Chinese-owned app facing a US ban. 'That's going to minimize any potential off-ramp.'
CNN's Fred He and Joyce Jiang contributed to this report.