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China’s Tariff Moves: A Tactical Response to U.S. Trade Policy

Following heightened tensions in U.S.-China trade relations, Beijing has recently unveiled its plan for countermeasures against U.S. imports. Amid calls for dialogue and efforts to find common ground, China has opted to impose tariffs on certain American products.

China announced it will implement a 15% tariff on coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, and large-engine cars imported from the United States, set to take effect on February 10. This timeline is critical; it affords the opportunity for both nations to potentially de-escalate tensions before the tariffs are enforced.

Despite the imposition of these tariffs, there are indications that China may remain open to negotiations. Reports suggest that U.S. President Trump and Chinese President Xi Jinping are scheduled to have a conversation later this week, signaling a willingness to engage in dialogue, despite today’s tariff announcement. China’s actions appear measured, especially compared to the previous U.S. administration’s comprehensive 10% tariffs on all Chinese goods.

It’s notable that while the U.S. is a major exporter of liquefied natural gas, China represents just a small fraction of this market. Furthermore, Chinese automobile imports predominantly come from European and Japanese manufacturers. This strategic selectiveness in the targeted goods may be more about positioning rather than a full-blown trade war, potentially enabling China to strengthen its negotiating stance.

China’s leadership may also be buoyed by the relatively positive official interactions that characterized the early days of Trump’s presidency. With instances of amicable communications preceding the inauguration and Trump expressing interest in collaborative solutions to global issues, Xi Jinping might be inclined to avoid exacerbating tensions, especially as he focuses on rejuvenating China’s own economic landscape.

Potential Challenges in Deal-Making

Formulating a trade agreement with China presents unique challenges for President Trump, particularly when compared to negotiations with neighboring countries like Mexico and Canada. The U.S. considers China its primary economic rival, and the overarching goal has been to mitigate dependencies on Chinese supply chains.

If Trump pushes too hard in negotiations, there exists a risk that Xi could choose to withdraw from discussions. The current climate reflects a more self-assured China than previous negotiations; Beijing has significantly grown its influence internationally, establishing trade relationships with over 120 countries.

Over the years, China has also been adapting its economic strategy, reducing reliance on exports, with trade constituting approximately 37% of its GDP now as opposed to over 60% two decades ago. This shift means that while a 10% tariff may be impactful, Beijing could potentially weather the economic consequences in the short term.

However, concerns loom regarding Trump’s commitment to escalate tariffs further, which could intensify the situation. Beijing is likely preparing contingency plans should tensions rise, as they aim to navigate this complex relationship with prudence.

Historical Context: Lessons Learned

The last major trade agreement between the U.S. and China serves as a cautionary tale. The two countries engaged in a protracted series of retaliatory tariffs starting in 2018, which persisted for over two years, culminating in China’s agreement to increase purchases of U.S. goods by $200 billion annually. Although this agreement was intended to address the trade imbalance, the COVID-19 pandemic disrupted these plans, resulting in a staggering deficit that now stands at $361 billion, according to Chinese customs data.

Given that China continues to export substantially more to the U.S. than it imports, it faced constraints in retaliating during Trump’s previous tenure. Analysts speculate that China is not solely relying on tariffs this time around and is exploring diverse strategies for retaliation should trade tensions escalate further.

With all eyes on the unfolding situation, businesses globally are anticipating whether both leaders can find a resolution in their upcoming discussions, as the clock continues to tick down to the proposed tariff implementation date.

Source
www.bbc.com