Beijing braces for impact: What Trump 2.0 might mean for US-China relations
Both sides have learned lessons from the first US-China trade war. For Trump, it's that tariffs and sanctions are powerful tools. For Beijing, it's that a bad situation can get even worse.
From trade war to trade wall
One of the biggest changes to expect with a second Trump administration is not just bigger tariffs but a more direct embrace of tariffs for their own sake. Previously, Trump talked about tariffs as a negotiating tool to compel other countries to open up their markets to American goods. But this time, Trump seems more eager to use tariffs as an outright economic policy tool. Several factors have driven a shift in Trump’s attitudes towards tariffs and China since his first administration.
First, Trump seriously believes tariffs are good for the US economy. After experimenting with them in his first administration, Trump has had a chance to see the effect of tariffs in action. And despite evidence to the contrary, Trump’s main takeaway is that tariffs are a win-win for the US. As he’s argued repeatedly during speeches and campaign rallies, he believes tariffs either pressured companies to bring back manufacturing to the US or they brought in billions of dollars in revenue from foreign countries — all without causing prices to rise for Americans.
“That message is very simple. Make your product here in the United States of America, you have absolutely no tariff to pay. It works beautifully and it's going to bring business like you wouldn't believe. Nobody's been able to do it except me.” - Trump at a campaign rally in North Carolina
Second, Trump’s original trade war with China concluded with an unfulfilled promise. Recall that in 2020, Trump signed a “phase one” trade deal with China in which China agreed to purchase an additional $200 billion worth of US products. But in the end, China never ended up buying those extra US goods, partly due to COVID. This time, Trump will be much more skeptical of any deal or promise from China.
Third, Trump is less worried this time about trade retaliation from China because he’s no longer running for re-election. Recall that in Trump’s original trade war, China retaliated with tariffs targeting US agricultural goods such as soybean and pork. The idea was to hit Trump where it hurt electorally. But if this gave Trump any pause before, it’s even less likely to do so now.
Asymmetric battle
One of the biggest lessons of the first US-China trade war is that this is a very lopsided battle. Trump’s original trade war was often framed as a contest between two economic giants trying to outdo the other with each successive round. And long before Trump, Beijing had been trying to convince the US and everyone else that the US and China were entering into “a new type of great power relations” where the two nations stood as comparable geopolitical forces if not outright peers.
Yet the reality is quite different. The US dominates nearly every lever of real power: the world’s largest market, the world’s financial hub, the world’s reserve currency, the world’s most powerful military, and control over many of the most technologically advanced sectors of the global economy, to name just a few. In facing off with the US, China ironically finds itself in the position that many other countries have occupied in dealing with a much more powerful and obstinate China.
The actual experience of US-China competition since the start of the trade war has made this fundamental power imbalance strikingly apparent. In trying to retaliate against each new round of Trump tariffs, China could only muster a fraction of the economic response due its far greater dependency on the US market versus the other way around.
And as large a hit as those tariffs were to China’s economy, what has been far more impressive and significant is America’s proven ability to choke off China’s access to key technology. Trump’s ability to nearly destroy ZTE and Huawei with sanctions was like the first demonstration of the atomic bomb in 1945. A question that’s asked less often in the US but is probably the focus of many discussions in Beijing is: which other important Chinese companies could suddenly be wiped out with US sanctions?
At the center of all this are US restrictions on China’s access to cutting-edge semiconductor chips and manufacturing tools. Starting under Trump and expanding under Biden, these semiconductor restrictions have been a real drag on China’s efforts to move up the technology ladder. It’s one of the few issues along with Taiwan that’s mentioned in Chinese readouts of meetings between Xi and Biden. And it’s a key driver behind China’s economic and industrial policy, as laid out in China’s recent Third Plenum.
Hunkering down
How might Beijing respond to a new trade war?
Scott Kennedy at CSIS has argued recently that China held back in the first trade war but would be more willing and able to hit back hard in a second one:
“Beijing’s response to the first round of tariffs under Trump was relatively mild. But this time, the response is likely to differ dramatically, and markets are underpricing the possibility of a blowup in relations and an escalatory spiral as a result.”
Several reports have highlighted specific tools China might use to retaliate, such as export controls on critical minerals such as gallium and germanium or squeezing US firms that depend on China.
But I would bet on a more cautious response from Beijing for several reasons.
First, China has a relatively weak hand as revealed by the first Trump trade war. Later, in the face of increasing semiconductor restrictions under Biden, there wasn’t much that China could do in response.
Second, in hitting back against Trump, Beijing learned it could make a bad situation even worse. In the original trade war under Trump 1.0, China’s retaliatory measures were meant to act as a deterrent against further tariffs. But in each case, they backfired and provoked an even greater response from Trump’s team. Both sides learned that in a game of escalation, the US could always go much further in terms of inflicting economic pain.
Third, China has a lot more to lose this time. Now both sides know just how vulnerable China is to US technology restrictions. And now Trump seems to have shifted from experimenting with tariffs as a dealmaking tactic to seriously considering large-scale decoupling from China.
China has already been preparing by trying to limit its exposure to the US. This includes diversifying agricultural imports away from the US towards other countries, like Brazil, and looking to other export markets, particularly across the Global South. And of course, China is going all-out in trying to achieve greater technological and economic self-sufficiency, including building up its own semiconductor industry. But a Trump election victory couldn’t have come at a worse time for China with the US economy booming and China’s economy struggling so visibly. Rather than a tit-for-tat exchange, a second Trump administration might be more of a one-sided exercise in damage control for Beijing.
I feel China’s hand has strengthened considerably since the first Trump administration. (China’s economy has grown faster than theUS in the 5 years.) If I am right, China might be more willing to ignore Trump and focus on BRICS and the rest of the Global Majority. How much can China appease Trump realistically? The US will never be satisfied, and appeasement does not work in the long run (as the West itself reminds us). China has to play the long game, even if it is painful.
Just my view.