China Stays Firm Amid Trump’s Tariff War: What’s Next?

The ongoing trade dispute between the foremost global economies is far from abating, as Beijing asserts its resolve to “fight to the end” mere hours after US President Donald Trump threatened to nearly double tariffs on Chinese imports.

If enacted, most goods imported from China could be subjected to an astonishing 104% tax—an alarming escalation in tensions.

Products such as smartphones, computers, lithium-ion batteries, toys, and video game consoles constitute a significant portion of Chinese exports to the US, but various other items are also included, from screws to boilers.

With a tight deadline approaching in Washington and Trump’s warning of new tariffs starting Wednesday, the question remains: who will make the first move?

“It’s misguided to expect that China will retreat and remove tariffs unilaterally,” explains Alfredo Montufar-Helu, a senior advisor at the China Center of The Conference Board think tank.

“Doing so would portray China as weak and would empower the US to demand more concessions. This stalemate likely heralds long-term economic distress.”

Global markets have plummeted since last week as Trump’s tariffs, targeting nearly every nation, came into play. Monday saw Asian stocks endure their worst decline in decades, with a slight recovery on Tuesday.

In retaliation, Beijing has implemented countermeasures, imposing levies of 34%, while Trump cautioned of an additional 50% tariff should China fail to relent.

Uncertainty looms large as more tariffs, some exceeding 40%, are scheduled to take effect Wednesday, particularly affecting Asian markets—a 54% increase for China, and 46% and 49% increases for Vietnam and Cambodia, respectively.

Experts express concern regarding the rapid pace of these developments, which offer scant time for governments, businesses, and investors to adapt to a radically altered global economy.

In response to the initial round of Trump tariffs, China imposed retaliatory measures, including tariffs on specific US imports, export restrictions on rare metals, and an investigation into monopolistic practices by US companies, such as Google.

This time, while announcing retaliatory tariffs again, China seems prepared for adverse effects with more robust initiatives. The yuan has been allowed to weaken, enhancing the attractiveness of Chinese exports. Additionally, state-affiliated enterprises are purchasing stocks in a bid to stabilize the market.

Speculation about negotiations between the US and Japan buoyed investors trying to recover from recent losses.

Nevertheless, the conflict involving China and the US—the leading exporter and its primary market—remains a significant concern.

Mary Lovely, a US-China trade expert at the Peterson Institute in Washington DC, remarked, “We are witnessing a contest of endurance rather than an exchange of gains.”

Despite the slowdown of its economy, China may be “prepared to endure hardship to resist what it views as US aggression,” she added.

Amid a protracted property market crisis and rising unemployment, domestic consumption in China has declined. Local governments burdened with debt are also struggling to escalate investments or expand the social safety net.

“The tariffs worsen this issue,” stated Andrew Collier, Senior Fellow at the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School.

A blow to China’s exports would impede a vital revenue stream, as exports have long been central to its impressive economic growth. While the country is attempting to diversify toward high-tech manufacturing and enhancing domestic consumption, exports still play a crucial role.

Although it is difficult to predict the precise moment the tariffs “will take effect,” Mr. Collier suggests it could be imminent, noting that “[President Xi] faces severe challenges arising from a slowing economy and diminishing resources.”

However, the impact will not be limited to China.

As per the US Trade Representative’s office, the US imported $438 billion (£342 billion) of goods from China in 2024, while US exports to China stood at $143 billion, resulting in a trade deficit of $295 billion.

It remains unclear how the US plans to replace supplies of Chinese goods on such short notice.

Aside from tariffs on tangible goods, both nations are deeply intertwined economically—there is significant investment and vast digital trade and data flows, as noted by Deborah Elms, Head of Trade Policy at the Hinrich Foundation in Singapore.

“You can impose tariffs for a limited duration, but both countries have alternative strategies to counter each other’s moves. While one might think it can’t worsen, there are numerous avenues for further escalation.

The global community is observing closely to discern the new destinations for Chinese exports that will be shut out of the US market.

They are likely to enter other markets, particularly in Southeast Asia, as Ms. Elms explains, which are also grappling with their tariffs and seeking new avenues for their own products.

“Thus, we find ourselves in a markedly different and uncertain environment.”

In contrast to the earlier trade wars with China during Trump’s presidency, which revolved around negotiation tactics, “the motivations behind these tariffs are ambiguous, making future outcomes exceedingly difficult to predict,” remarks Roland Rajah, lead economist at the Lowy Institute.

China possesses a diverse array of retaliatory measures at its disposal, including further currency devaluation or restrictions on US firms.

“The pressing question is how restrained their response will be. There’s a difference between saving face and fully mobilizing their resources. Whether China follows that route remains uncertain, but it is certainly a possibility.”

Some analysts predict that private discussions may occur between the US and China. Trump has not communicated with Xi since his return to the White House, although Beijing has conveyed a consistent openness to dialogue.

Yet, others express skepticism.

“I believe the US is miscalibrating its position,” asserts Ms. Elms, doubting Trump’s assumption that the US market’s significance will compel China, or any country, to relent.

“How this situation will resolve is uncertain,” she emphasizes. “My concerns revolve around the swift progression and escalation. The future appears increasingly daunting, with immensely high risks.”