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China and the US risk renewing a full-blown trade war unless the two largest economies can defuse the dispute before Chinese tariffs on $14bn of American exports take effect on Monday, analysts warned.
President Donald Trump last week unveiled an extra 10 per cent tariff on Chinese goods to force Beijing to do more to tackle fentanyl-related exports to the US and Mexico and threatened more if China retaliated.
When the US duties took effect three days later, Beijing immediately hit back, announcing additional 10 to 15 per cent duties on US energy exports and farm equipment. China’s duties are due to take effect on Monday.
“This could be just the beginning of this phase of the trade war,” said Zhang Yanshen, an expert at the China Center for International Economic Exchanges. “This could become a very, very bad situation.”
Some analysts had expected the US and China to hold talks to avert major trade hostilities. Trump initially said he expected to talk to President Xi Jinping, but after China retaliated, he said he was in “no rush” and the tariffs were an “opening salvo” with “very substantial” measures to come.
Asked if the Trump team was engaging with China in the same way that it did with Canada and Mexico, which were subject to higher tariffs before Trump granted them a one-month reprieve, a White House official said the US was “in constant contact with our counterparts, both in Beijing and here in Washington”.
A Chinese embassy spokesperson in Washington said there had been “no new development” since China announced retaliatory tariffs.
Experts in Beijing said Trump’s shock tactics, aimed at forcing Xi to reach a deal quickly, might have backfired. The US president provided only two days between announcing and implementing the tariffs — a timeline that was probably unacceptable to Xi.
“China doesn’t want a deal like that,” said Ma Wei, a researcher at the Chinese government-affiliated CASS Institute of American Studies. “You have to have equal talks and an equal agreement, not one in which you first put a high tariff on me, and then you say we have to make a deal.”
Ma said the US tactics had echoes of a Chinese idiom “cheng xia zhi meng” — dealing with your enemy under duress when it is at your castle gates.
But analysts noted that the limited scope of China’s retaliation — which included antitrust investigations into Google and Nvidia but hit a narrower range of goods than the US levies — suggested room for negotiations.
Trump administration officials stressed that the US president wanted China to stem them flow of fentanyl, a deadly opioid that has become the leading killer of Americans aged 18 to 45.
But experts in Beijing said talks might have stalled because Trump was demanding co-operation on other fronts, such as pressuring on Russia over its invasion of Ukraine and or ceding ownership of short video platform TikTok to an American buyer.
“Fentanyl is an issue that can easily be addressed — China has already been co-operating with the US side on this,” said John Gong, professor at the University of International Business and Economics. “So Trump probably wants something more that they cannot publicly talk about.”
Trump on Friday said he would unveil “reciprocal tariffs” on countries next week but provided no information on which nations would be targeted. The White House late on Friday also temporarily paused so called de minimis exemptions on tariffs for low-cost shipments from China, which had provided a boon to companies such as Shein and Temu.
Wendy Cutler, a trade expert and vice-president at the Asia Society Policy Institute, said that unlike Canada and Mexico, China would play a longer game.
“Beijing most likely will take a wait-and-see approach before considering engagement, including having more certainty on whether it will be further impacted by additional reciprocal, sectoral or universal tariffs,” Cutler said.
Chinese experts said it would be difficult for Beijing to reach a “grand bargain” on a short deadline, especially on thorny subjects such as the war in Ukraine over which the US has accused China of helping Russia.
Several experts at a recent University of California San Diego and Council on Foreign Relations forum on China said Beijing was more concerned about US tech export controls than tariffs.
China is also better prepared to tolerate tariffs this time, said Gong. Exports to the US accounted for 15 per cent of overall Chinese trade last year, a smaller share than in the past.
“The Chinese government position on this tariff stuff might be: ‘So be it’,” said Gong. “The bulk of it is paid by American consumers anyway and a lot of Chinese companies have already moved part of their operations overseas . . . Tariffs are not such a lethal weapon as perceived by Washington.”
But some economists believe that the full force of Trump’s threatened tariffs — such as the 60 per cent levy suggested during the presidential campaign — would take a heavy toll on China’s economy.
Hui Shan, chief China economist with Goldman Sachs, estimated that each 20 percentage point increase in US tariffs would knock 0.7 percentage points off China’s GDP growth.
Beijing could offset part of this blow with currency depreciation, consumer stimulus packages and other measures, but it would still probably absorb about a 0.2 percentage-point hit to GDP growth, she said.
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