China Hits Back with Tariffs as US Trade Tensions Escalate

The first volley in a renewed trade conflict between China and the United States was fired on Monday, with China imposing tariffs on nearly $14 billion worth of U.S. imports, including crude oil, liquefied natural gas, and machinery. This move follows U.S. President Donald Trump’s recent introduction of 10% tariffs on hundreds of billions of dollars worth of goods that the U.S. imports from China annually.

The tariffs took effect less than a week after Trump imposed his own tariffs, and while there had been hopes that a phone call between Trump and Chinese leader Xi Jinping might prevent a further escalation, that conversation never took place. Now, both sides are left to navigate the future of their deeply interconnected commercial and trade relationships.

Despite the opening salvo, both sides appear to be leaving room for negotiations. “Beijing has been restrained in its response to the new Trump tariffs, in part because the impact on China is modest, and because Xi wants to leave room for further negotiations with Trump,” said Andy Rothman, CEO of advisory group Sinology.

What’s At Stake

China’s newly introduced tariffs include a 15% tax on some coal and liquefied natural gas, and a 10% tariff on crude oil, agricultural machinery, and certain vehicles. These tariffs affect around $13.86 billion in goods, making up less than 9% of China’s overall imports from the U.S., which totaled more than $163 billion last year. The tariffs were announced shortly after Trump’s actions, which added to existing duties on hundreds of billions of dollars’ worth of Chinese imports.

In addition to the tariffs, Beijing also introduced export controls on certain raw materials used in defense and green tech sectors, and measures targeting specific U.S. companies. These moves add to a growing sense of economic and diplomatic tension between the two largest economies in the world.

While the U.S. president has said he’s open to a deal, and suggested he could use tariffs as a negotiating tool, it’s unclear what he specifically wants from China or what he’s willing to offer in return. “Trump appears to be in dealmaking mode, using tariffs as a negotiating tool… It is not clear, however, what Trump wants from Xi, and what he is willing to offer in return,” Rothman commented.

China’s Response: A Calculated Approach

So far, China’s response has been measured. Xi’s government is likely focused on avoiding a deeper trade war, as they were preparing for much worse — including the possibility of 60% tariffs and a complete economic decoupling from the U.S. So far, none of those worst-case scenarios have materialized.

However, a new deadline looms on April 1, when Trump has ordered U.S. officials to deliver a probe into U.S.-China economic relations. This probe could lead to more drastic actions, and China will likely be closely managing its response to avoid triggering a more intense confrontation.

Beijing is also considering the use of its personal rapport with Trump, hoping that face-to-face meetings with the U.S. president could help ease tensions. Trump has expressed interest in visiting Beijing, and sources suggest Chinese officials are eager to avoid escalating the trade dispute further.

Penalties and Concessions: What’s Next?

While Beijing focuses on managing the risk of a trade war, it is also carefully weighing potential penalties to impose and concessions to make should the U.S. escalate further. China has revamped its export control regulations to restrict access to critical materials, which could prove challenging for the U.S., as analysts estimate China controls 60% of global production of these materials, which are vital for both economic and national security.

Still, China is better prepared for trade frictions than it was during Trump’s first term. Chinese firms have diversified their export destinations, and Beijing has worked to repair relations with other global trading partners. However, analysts point out that any potential trade deal would have to go beyond the micro-level issues, such as the future of TikTok, which has become a political hot potato in the U.S.

“The U.S.’s appetite for a sweeping deal doesn’t seem very strong these days,” said Nick Marro, principal economist for Asia at the Economist Intelligence Unit. “This will limit the potential for any significant breakthrough in negotiations.”

Looking Ahead

As the situation unfolds, it remains uncertain how far both sides are willing to push before a deal is reached or a full-scale trade war breaks out. Both countries are deeply intertwined in terms of trade, and the global economy will feel the ripple effects of any escalation. For now, China’s restrained response seems to suggest that they are hoping for a negotiated solution, though they are preparing for all possible outcomes.

With the next deadline fast approaching and no clear resolution in sight, both nations are treading carefully as they navigate this precarious moment in global trade relations.