US President Donald Trump's brinkmanship with China is escalating with the announcement of a fresh 10% tariff, along with 25% duties on imports from Canada and Mexico on March 4. Given the 10% levy imposed by the US that came into effect last month, Chinese exports to the U.S. are set to face duties of up to 20% at least.
During Trump's first terms, tariffs valued at nearly $380 billion had been imposed on Chinese products. Later, towards the end, both parties conciliated and inked a deal to redress the issue of trade deficit. Under phase I of the US-China trade deal in 2020, Beijing had pledged to increase imports from Washington to the tune of $200 billion over a span of two years. However, Trump, after beginning his second stint as President, has now indicated that he wants to put the Phase I deal back on the table to give US businesses equitable access to the Chinese market.
'Unreliable Entities'
The issue of trade deficit looms large even five years later. In 2024, Washington's imports from Beijing stood at $438.9 billion, an increase of 2.8% compared to 2023, according to statistics compiled by the US Trade Representative's office. On the other hand, Chinese imports from the US were $143.5 billion in 2024, a decrease of 2.9% from the previous year. Thus, last year, America's trade deficit in goods with China was $295.4 billion.
In response to America's actions, China has announced 15% tariffs on wheat, corn, cotton and poultry, in addition to 10% duties on soybean, dairy products, pork and beef. Not just that, it has added 10 American firms to its ‘unreliable entities list' over the sale of weapons to Taiwan, while 15 American companies have been put on the export control list. Biotech major Illumina, which already has the ‘unreliable entity' tag, is prohibited from selling its gene-sequencing devices on the mainland. US fibre-optic products are also under the lens over anti-dumping policies in China.
In 2020, Beijing promulgated the Export Control Law, which prohibits the overseas sale of strategic materials and advanced know-how to specific foreign entities. The ‘unreliable entities list' includes foreign companies and individuals that are said to impinge upon Chinese interests. It came into being in response to the first Trump administration's action against Huawei and its addition to the ‘entity list' on the grounds that the company had hurt American interests.
Agriculture Focus
Beijing is also targeting Washington's agricultural produce, which rose to 15% of China's total imports between 2012 and 2023, from merely 4% in 1998-2004. While China imported nearly $25 billion of farm produce from the US last year, it is diversifying its suppliers and taking recourse to domestic substitution. Syngenta, one of the world's largest agriculture-technology firms, was acquired by China for $43 billion in 2017. Going ahead, Beijing is prioritising strengthening food security to combat trade disruption, as evidenced by its annual farm-policy roadmap titled ‘Number 1 document'. The new strategy aims to achieve self-sufficiency through subsidies and incentives for foodgrain-producing areas, and through the introduction of high-yield seeds. China has also decided to consolidate its ‘national reserves' and expedite the construction of storage facilities for cotton, sugar, meat, grain, and fertilizers.
Why Xi Is Wooing The Private Sector
These developments related to escalating tariffs come at a time when the Chinese elite congregate for a sitting of its legislative and policy-advisory wings—the National People's Congress and the Chinese People's Political Consultative Conference—popularly referred to as the ‘two sessions'. This key event on the Party's political calendar charts the policy course. In the run-up to this conclave, President Xi Jinping has met with China Inc and is closing ranks with the country's entrepreneurial class, rehabilitating the likes of Jack Ma, Alibaba's founder, who had been at the receiving end of the Communist Party's crackdown. Xi encouraged them to give free rein to their “animal spirits” with respect to resuscitating the economy. One of the most significant takeaways from the ‘2 sessions' was Xi telling cadres that they needed to do more to support China Inc. Thus, the private sector is back in China's economic calculus and will be expected to pool resources into technological self-sufficiency and innovation.
Meanwhile, China's ‘No. 2', Premier Li Qiang, has already identified focus areas like quantum technology, AI, bio-manufacturing, and 6G technology in his Government Work Report. As a confidence-building measure, the Party-state has issued a directive on bolstering monetary support for self-reliance and innovation. Since there is a long gestation period in the development of technology, the new approach seeks to merge equity investment and insurance to provide support for technology companies at every phase of growth. Another instrument being considered to assuage the private sector is legislation that aims to provide better protection and a level-playing field to businesses.
Really 'Ready For War'?
To sum up, Beijing's official response to the fresh round of Washington's tariffs has been that it is ready for a trade war or “any other type of war”, and that it will fight till the very end. Nonetheless, it has also dangled a carrot, urging the Trump administration to get back to the discussion table soon. The Sino-American dynamics are tough to predict. But if Trump's strategy this time is to use tariffs to get Xi to blink, then the extra 10% tariffs may not be sufficient as it had been preparing well for this contingency through its export-control framework. Its only worry may be a sustained tariff onslaught and, potentially, more technology and investment curbs.
(Harsh V Pant is Vice President, Observer Research Foundation, New Delhi. Kalpit Mankikar is Fellow, China Studies, at ORF.)
Disclaimer: These are the personal opinions of the author
