Trump tariffs: Beijing hits back – can China and US avoid trade war escalation? - Voice of Asia

Beijing has already made a decision. Previously, China had repeatedly warned that it would take countermeasures and urged Washington to negotiate, "to meet China halfway." Now, China has decided to strike back—or at least threaten retaliatory tariffs on a reciprocal basis.

China has announced that, starting February 10, it will impose a 15% tariff on coal and liquefied natural gas products imported from the United States, and a 10% tariff on crude oil, agricultural machinery, and large-displacement vehicles. This date is crucial, meaning the world's two largest economies still have time to avoid a trade war.

According to sources at the White House, the two leaders plan to speak by phone later this week. Despite China's statement today, there are signs that China is listening and opening the door to dialogue. First, compared to Donald Trump's move to impose a 10% tariff on all Chinese goods entering the US, China's countermeasures are limited in scope.

The United States is the world's largest exporter of liquefied natural gas, but China accounts for only about 2.3% of its exports, and China's main automobile imports come from Europe and Japan. This calculated and selectively targeted commodity approach may just be a probing action by Beijing, aimed at gaining some leverage and influence for future negotiations.

Chinese officials may be encouraged by the good start to Sino-US relations since Trump took office. The US President said that he had a "very good" phone call with President Xi Jinping a few days before the inauguration, and the highest-level officials sent by China also attended the inauguration. He also said he hoped to work with Xi Jinping to resolve Russia's war in Ukraine. President Xi Jinping may not want to quarrel with Trump now, as he is busy consolidating his own weakening economy.

This is also familiar territory for the two leaders—although they may be less willing to relive the past. During Trump's last term, US-China relations had a honeymoon period, but later deteriorated. Compared with Mexico and Canada, it will also be more difficult for Trump to reach an agreement with China—largely depending on what he wants to get from Beijing. Cutting off China from major supply chains has been a goal of the Trump administration.

If Trump's demands are too high, Xi Jinping may feel that he can withdraw from the negotiations, and there is a limit to how far he is willing to be pushed. China is now more confident than when Trump was last in office. Beijing has expanded its global influence and is now the main trading partner of more than 120 countries. Over the past two decades, China has also steadily reduced the importance of trade to its economy and increased domestic production. According to data from the US Council on Foreign Relations, imports and exports now account for about 37% of China's GDP, compared to more than 60% in the early 2000s.

A 10% tariff will have an impact, but Beijing may think it can withstand the blow at the moment. The concern is whether President Trump will seriously consider raising tariffs to the 60% he promised during the campaign, or whether he will continue to use tariff threats as a repeatedly used diplomatic tool to suppress Xi Jinping. If this happens, Beijing will want to be prepared, which means developing a clear strategy in case things escalate.

The last time the two leaders signed an agreement, it did not have good results. In 2018, the two countries imposed tit-for-tat tariffs on hundreds of billions of dollars worth of goods. This situation lasted for more than two years, until China finally agreed in 2020 to purchase an additional $200 billion (£161 billion) of US goods annually. Washington hoped the agreement would narrow the huge trade deficit between the US and China, but the plan was disrupted by the Covid-19 pandemic, and according to Chinese customs data, the current trade deficit is $361 billion.

China is considering multiple steps in any negotiation, so it also faces key challenges. China's sales of goods to the United States are still nearly four times its purchases—and during Trump's first term, China already had no more goods to target. Analysts believe that if the trade war escalates, China is now considering broader countermeasures than tariffs.

Time is running out. This is not yet a full-blown trade war. Businesses around the world will be watching closely to see if the two leaders can reach some kind of agreement later this week.