In trade war with US, China holds lot more cards than Trump may think − in fact, it might have winning hand

By Linggong Kong for The Conversation

Auburn, US: When Donald Trump pulled back on his plan to impose eye-watering tariffs on trading partners across the world, there was one key exception: China.

While the rest of the world would be given a 90-day reprieve on additional duties beyond the new 10 per cent tariffs on all US trade partners, China would feel the squeeze even more. On April 9, 2025, Trump raised the tariff on Chinese goods to 125 per cent.

The move, in Trump’s telling, was prompted by Beijing’s “lack of respect for global markets.” But the US president may well have been smarting from Beijing’s apparent willingness to confront US tariffs head on.

While many countries opted not to retaliate against Trump’s now-delayed reciprocal tariff hikes, instead favoring negotiation and dialogue, Beijing took a different tack. It responded with swift and firm countermeasures. On April 11, China dismissed Trump’s moves as a “joke” and raised its own tariff against the US to 125 per cent.

The two economies are now locked in an all-out, high-intensity trade standoff. And China is showing no signs of backing down.

And as an expert on US-China relations, I wouldn’t expect China to. Unlike the first US-China trade war during Trump’s initial term, when Beijing eagerly sought to negotiate with the US, China now holds far more leverage.

Indeed, Beijing believes it can inflict at least as much damage on the US as vice versa, while at the same time expanding its global position.

A changed calculus for China There’s no doubt that the consequences of tariffs are severe for China’s export-oriented manufacturers – especially those in the coastal regions producing furniture, clothing, toys and home appliances for American consumers.

But since Trump first launched a tariff increase on China in 2018, a number of underlying economic factors have significantly shifted Beijing’s calculus.

Crucially, the importance of the US market to China’s export-driven economy has declined significantly. In 2018, at the start of the first trade war, US-bound exports accounted for 19.8 per cent of China’s total exports. In 2023, that figure had fallen to 12.8 per cent. The tariffs may further prompt China to accelerate its “domestic demand expansion” strategy, unleashing the spending power of its consumers and strengthening its domestic economy.

And while China entered the 2018 trade war in a phase of strong economic growth, the current situation is quite different. Sluggish real estate markets, capital flight and Western “decoupling” have pushed the Chinese economy into a period of persistent slowdown.

Perhaps counterintuitively, this prolonged downturn may have made the Chinese economy more resilient to shocks. It has pushed businesses and policymakers to come to factor in the existing harsh economic realities, even before the impact of Trump’s tariffs.

Trump’s tariff policy against China may also allow Beijing a useful external scapegoat, allowing it to rally public sentiment and shift blame for the economic slowdown onto US aggression.

China also understands that the US cannot easily replace its dependency on Chinese goods, particularly through its supply chains. While direct US imports from China have decreased, many goods now imported from third countries still rely on Chinese-made components or raw materials.

By 2022, the US relied on China for 532 key product categories – nearly four times the level in 2000 – while China’s reliance on US products was cut by half in the same period.

There’s a related public opinion calculation: Rising tariffs are expected to drive up prices, something that could stir discontent among American consumers, particularly blue-collar voters. Indeed, Beijing believes Trump’s tariffs risk pushing the previously strong US economy toward a recession.

Potent tools for retaliation Alongside the changed economic environments, China also holds a number of strategic tools for retaliation against the US It dominates the global rare earth supply chain – critical to military and high-tech industries – supplying roughly 72 per cent of US rare earth imports, by some estimates.

On March 4, China placed 15 American entities on its export control list, followed by another 12 on April 9. Many were US defense contractors or high-tech firms reliant on rare earth elements for their products.

China also retains the ability to target key US agricultural export sectors such as poultry and soybeans – industries heavily dependent on Chinese demand and concentrated in Republican-leaning states. China accounts for about half of US soybean exports and nearly 10 per cent of American poultry exports. On March 4, Beijing revoked import approvals for three major US soybean exporters.

And on the tech side, many US companies – such as Apple and Tesla – remain deeply tied to Chinese manufacturing. Tariffs threaten to shrink their profit margins significantly, something Beijing believes can be used as a source of leverage against the Trump administration. Already, Beijing is reportedly planning to strike back through regulatory pressure on US companies operating in China.

Meanwhile, the fact that Elon Musk, a senior Trump insider who has clashed with US trade adviser Peter Navarro against tariffs, has major business interests in China is a particularly strong wedge that Beijing could yet exploit in an attempt to divide the Trump administration.

A strategic opening for China? While Beijing thinks it can weather Trump’s sweeping tariffs on a bilateral basis, it also believes the US broadside against its own trading partners has created a generational strategic opportunity to displace American hegemony.

Close to home, this shift could significantly reshape the geopolitical landscape of East Asia. Already on March 30 – after Trump had first raised tariffs on Beijing – China, Japan and South Korea hosted their first economic dialogue in five years and pledged to advance a trilateral free trade agreement.

The move was particularly remarkable given how carefully the US had worked to cultivate its Japanese and South Korean allies during the Biden administration as part of its strategy to counter Chinese regional influence. From Beijing’s perspective, Trump’s actions offer an opportunity to directly erode US sway in the Indo-Pacific.

Similarly, Trump’s steep tariffs on Southeast Asian countries, which were also a major strategic regional priority during the Biden administration, may push those nations closer to China. Chinese state media announced on April 11 that President Xi Jinping will pay state visits to Vietnam, Malaysia and Cambodia from April 14-18, aiming to deepen “all-round cooperation” with neighboring countries.

Notably, all three Southeast Asian nations were targeted with now-paused reciprocal tariffs by the Trump administration – 49% on Cambodian goods, 46% on Vietnamese exports and 24% on products from Malaysia.

Farther away from China lies an even more promising strategic opportunity. Trump’s tariff strategy has already prompted China and officials from the European Union to contemplate strengthening their own previously strained trade ties, something that could weaken the transatlantic alliance that had sought to decouple from China.

On April 8, the president of the European Commission held a call with China’s premier, during which both sides jointly condemned US trade protectionism and advocated for free and open trade. Coincidentally, on April 9, the day China raised tariffs on US goods to 84 per cent, the EU also announced its first wave of retaliatory measures – imposing a 25 per cent tariff on selected US imports worth over €20 billion – but delayed implementation following Trump’s 90-day pause.

Now, EU and Chinese officials are holding talks over existing trade barriers and considering a full-fledged summit in China in July.

Finally, China sees in Trump’s tariff policy a potential weakening of the international standing of the US dollar. Widespread tariffs imposed on multiple countries have shaken investor confidence in the US economy, contributing to a decline in the dollar’s value.

Traditionally, the dollar and US Treasury bonds have been viewed as haven assets, but recent market turmoil has cast doubt on that status. At the same time, steep tariffs have raised concerns about the health of the US economy and the sustainability of its debt, undermining trust in both the dollar and US Treasurys.

While Trump’s tariffs will inevitably hurt parts of the Chinese economy, Beijing appears to have far more cards to play this time around. It has the tools to inflict meaningful damage on US interests – and perhaps more importantly, Trump’s all-out tariff war is providing China with a rare and unprecedented strategic opportunity.

(Linggong Kong is a Ph.D. Candidate in Political Science, Auburn University.)