China counters Trump's tariffs with measured opening move

Beijing has made its decision. After days of warning about potential countermeasures and urging Washington to engage in negotiations and "meet China halfway," China has chosen to respond—at least by threatening retaliation with its own tariffs.

China has announced it will impose a 15% tariff on coal and liquefied natural gas, as well as a 10% tariff on crude oil, agricultural machinery, and large-engine cars imported from the U.S., effective February 10.

The timing is significant, as it provides an opportunity for the two largest economies in the world to de-escalate and avoid a full-blown trade war.

The leaders of both nations are scheduled to have a call later this week, according to the White House, and despite today's tariff announcement, there are indications that China is still open to talks and willing to engage in further discussions.

China Responds to Trump's Tariffs with Measured Counteraction

Beijing has made its move. After days of warning about potential countermeasures and urging Washington to negotiate and "meet China halfway," China has decided to retaliate—at least by threatening its own tariffs.

China announced that starting February 10, it will implement a 15% tariff on coal and liquefied natural gas, as well as a 10% tariff on crude oil, agricultural machinery, and large-engine cars imported from the U.S.

The timing is significant, as it gives both countries an opportunity to step back from the edge of a full-blown trade war.

According to the White House, the two leaders are scheduled to have a call later this week. Despite today's tariff announcement, there are signs that China remains open to talks and may still be willing to engage diplomatically.

China’s countermeasures are relatively limited compared to Donald Trump's 10% levy on all Chinese goods imported to the U.S. Although the U.S. is the world's largest exporter of liquefied natural gas, China accounts for only about 2.3% of those exports, and its primary car imports come from Europe and Japan.

This selective targeting suggests that China may be making a calculated opening move, using these tariffs to gain leverage ahead of negotiations.

Officials in China may be buoyed by the relatively positive start to U.S.-China relations under Trump. The U.S. president described having a "very good" phone call with President Xi before his inauguration, and Xi’s attendance at the ceremony marked the highest-level Chinese official to ever participate in such an event. Trump has also indicated his desire to collaborate with Xi on resolving the war in Ukraine.

President Xi may be cautious about escalating tensions with Trump, as he focuses on stabilizing China’s struggling economy. This situation is not unfamiliar for both leaders. While their relationship was marked by a period of cordiality during Trump’s first term, tensions grew as time passed.

China Responds to Trump's Tariffs with Calculated Counteraction

Beijing has made its move. After days of warning countermeasures and urging Washington to negotiate and "meet China halfway," China has decided to respond—by threatening to impose its own tariffs.

Starting on February 10, China will introduce a 15% tariff on coal and liquefied natural gas, along with a 10% tariff on crude oil, agricultural machinery, and large-engine cars imported from the U.S.

The timing is crucial. It offers both nations an opportunity to step back from the brink of a full-scale trade war.

The two leaders have scheduled a call for later this week, according to the White House, and despite today's tariff announcement, there are signs that China remains open to discussions and is keeping the door to negotiations ajar.

China’s countermeasures are more limited compared to President Trump’s 10% tariff on all Chinese goods entering the U.S. While the U.S. is the largest exporter of liquefied natural gas globally, China accounts for only about 2.3% of these exports. Moreover, China primarily imports cars from Europe and Japan, not the U.S.

This selective approach suggests that Beijing may be making a calculated first move, potentially to gain leverage ahead of any upcoming talks.

China's officials might be encouraged by the relatively cordial beginning to U.S.-China relations since Trump took office. President Trump noted having a "very good" phone call with President Xi just before his inauguration, and Xi’s attendance at the ceremony marked the highest-level Chinese official to participate in such an event. Trump has also hinted at the desire to work with Xi to resolve the war in Ukraine.

However, President Xi may be hesitant to escalate tensions with Trump, especially as he focuses on stabilizing China's struggling economy. This situation is not unfamiliar to either leader. While their relationship initially had a honeymoon phase during Trump's first term, it eventually soured.

To Deal or Not to Deal

Striking a deal with China is likely to prove more challenging for Trump than negotiating with Mexico or Canada. Much will depend on what Trump demands from Beijing.

China is Washington’s primary economic rival, and severing ties with major supply chains has been a key objective for Trump’s administration. If Trump pushes too hard, Xi might decide to walk away, knowing there are limits to how far he can be pushed.

Additionally, China today is far more confident than it was during Trump’s earlier term. Beijing has expanded its global influence, becoming the leading trade partner for over 120 countries. Over the past two decades, China has also worked to reduce its reliance on trade, increasing its focus on domestic production. Now, imports and exports account for about 37% of China’s GDP, down from over 60% in the early 2000s, according to the Council on Foreign Relations.

The 10% tariff will hurt, but China may feel it can absorb the impact—for now.

The greater concern is whether President Trump will follow through on his campaign promise to escalate tariffs to 60% or continue using tariffs as a recurring diplomatic tool to pressure Xi.

If tensions rise, Beijing will want to be prepared and have a clear strategy in place for escalation.

Learning from the Past

The last deal between the U.S. and China didn’t end well. In 2018, the two countries exchanged tariffs on hundreds of billions of dollars’ worth of goods. This standoff lasted more than two years until China agreed to spend an additional $200 billion a year on U.S. goods by 2020.

Washington hoped this deal would reduce the massive trade deficit with China, but the Covid pandemic derailed these plans, and the deficit now stands at $361 billion, according to Chinese customs data.

China is also looking ahead in any potential negotiation. It still sells nearly four times more goods to the U.S. than it imports, and during Trump’s first term, China eventually ran out of items to target with tariffs.

Analysts suggest that China is now considering a broader range of measures beyond tariffs in case the trade conflict intensifies.

Time is running out. This is not yet a full-scale trade war, but businesses worldwide will be closely watching to see if the two leaders can reach some form of resolution in their upcoming talks.

Trump's uncertainty creates pressure, but Xi Jinping sees it as an opportunity to position China for the long term.