Analysis: Will China Turn Trump's Tariffs into a Full-Blown Trade War?

Trump’s New Tariffs Shake Global Markets

Starting Tuesday (4th), former President Donald Trump’s latest executive order will impose a 25% tariff on Canadian and Mexican imports and a 10% tariff on all Chinese products entering the United States. This move fulfills a key campaign promise, but it also raises a critical question: How aggressively will China retaliate?

China’s Response: Strategic or Subdued?

Following the announcement, Chinese officials—caught off guard during a week-long public holiday—condemned the move and vowed to file a complaint with the World Trade Organization (WTO). Beijing also promised “corresponding countermeasures” but did not specify how or when they would act.

“The imposition of a 10% tariff on Chinese imports severely violates WTO rules,” China’s Ministry of Commerce declared in a statement on Sunday (2nd), asserting that the nation would “firmly defend its rights.”

Interestingly, China’s reaction has been notably more restrained than that of Mexico and Canada, both of which swiftly announced retaliatory tariffs. While China’s latest tariffs add to existing ones on a range of products, Canada and Mexico had previously enjoyed near-duty-free trade with the U.S. under longstanding agreements.

Why Is China Holding Back?

Beyond the public holiday, several factors may explain China’s measured response:

1. Diplomatic Warming Under Trump’s Second TermDespite Trump’s hawkish stance on China, Beijing has sought to avoid escalating tensions. Xi Jinping and Trump recently had what the U.S. president described as a “very good” phone conversation, and a top Chinese official attended Trump’s inauguration—an unprecedented move.

2. Trump’s Negotiation SignalsThe former president has suggested he is open to working with Xi, particularly on issues like the Russia-Ukraine war. In a recent Fox News interview, Trump hinted that Washington and Beijing could reach a new trade deal.

3. Tariff Levels Leave Room for NegotiationWhile Trump once threatened tariffs exceeding 60% on Chinese goods, the current 10% rate signals a potential opening for future discussions rather than an all-out economic confrontation.

   
   

Could a Trade Deal Still Be on the Table?

Trump’s rhetoric suggests that the new tariffs are linked more to China’s role in fentanyl production than to trade imbalances. However, experts speculate that he may be waiting for the results of a broader U.S.-China economic review before making his next move.

A Shanghai-based think tank, the Fudan Development Institute, noted that “the risk of escalating into a full-scale trade war cannot be ruled out. Before taking concrete action, Trump may use strategic ambiguity to pressure opponents and extract significant concessions.”

The White House’s final decision on further tariffs, expected by April 1st, could determine the next phase of this economic standoff.

China’s Game Plan: Retaliation or Restraint?

For now, Beijing appears to be weighing its options. While China has officially complained to the WTO, its broader messaging remains conciliatory. Vice Premier Ding Xuexiang recently told the global elite at the World Economic Forum in Davos that China is committed to “promoting balanced trade.” Meanwhile, Xi Jinping has called for a “new starting point” in U.S.-China relations.

China is also positioning itself as the rule-abiding party in contrast to what it portrays as U.S. unilateralism. Additionally, Beijing has emphasized its efforts to curb fentanyl precursor exports, shifting blame for America’s drug crisis back onto Washington.

What Retaliation Could Look Like

If China chooses to hit back, it has a variety of tools at its disposal:

• Tariffs & Trade RestrictionsIn 2018, China imposed $185 billion worth of tariffs on U.S. goods in response to Trump’s trade war. A similar move could be on the horizon.

• Export Controls on Critical MineralsChina has already tightened export controls on key rare-earth minerals crucial for semiconductor and military technology. Further restrictions could disrupt global supply chains.

• Diversifying Trade PartnersChina has long been reducing its reliance on the U.S. economy, expanding trade with Europe, Latin America, and Africa. This diversification strategy could help mitigate the impact of new tariffs.

  
  

Who Will Feel the Pain?

Despite Trump’s claim that the tariffs will benefit American workers, economists and lawmakers warn that U.S. consumers will bear the brunt of higher prices. In the first 11 months of last year, the U.S. imported $401 billion worth of goods from China, resulting in a trade deficit exceeding $270 billion.

State media in China downplayed the impact of the new tariffs, noting that exports to the U.S. make up just 3% of the country’s GDP and less than 15% of total exports.

The Road Ahead

For now, China sees Trump as a dealmaker rather than a hardliner, which may explain its patience. However, if tariffs increase or if Washington escalates trade restrictions, Beijing may be forced to strike back.

With the next phase of Trump’s trade strategy set to be revealed in April, the world will be watching closely. Will China retaliate with force, or will it continue its wait-and-see approach?

One thing is certain: This economic chess game is far from over.