Trump made the trade war with China a central focus of his first presidency. A second term could intensify this confrontation, with, for example, 60% customs duties. The impact of this measure is very real, but limited, especially since China is already preparing to face it.
Alex Wang
China’s ability to resist increased tariffs, such as a possible 60% rate imposed by the United States, depends on several economic, political and strategic factors.
Low dependence on export to US
With 3-4% of its GDP dependent on trade with the United States, China has limited exposure to this market as a proportion of its total economy.[1].
China has gradually reduced its dependence on the American market by developing other commercial partnerships, particularly in Asia, Europe, and developing countries. If American customs tariffs increased sharply, it would disrupt certain export sectors, but China has margins to limit the impact on its overall economy.
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Diversification of export markets
To reduce its dependence on the United States, China has already intensified its trade relations with other regions. China is a key player in the Regional Comprehensive Economic Partnership (RCEP) Agreement[2]which encompasses several major Asian economies. ASEAN has become the first partner ahead of the US. Although EU-China relations are sometimes complex, for example, conflicts over electronic vehicles and agricultural products, Europe remains a major trading partner. It is also strengthening its exchanges with BRICS member countries. [3]particularly with Brazil, and these regions within the framework of the Belt and Road Initiative (BRI) [4]. The opening of Port Chancay [5] will boost trade between South America and China. Without forgetting the rapid increase in its export to Russia for several years.
This diversification could limit the impact of U.S. tariffs, although the United States remains a crucial market for some Chinese sectors.
Focus on the domestic market
China’s “double circuit” strategy (dual circulation), launched in 2020, aims to balance growth drivers. It wishes to stimulate domestic demand by increasing household purchasing power through job security, continued wage increases and improved social protection, which would reduce dependence on exports while maintaining a role active in global supply chains. A strong domestic market could absorb some of the external shocks caused by high tariffs.
Ability to adjust your competitiveness
China has several levers to mitigate the impact of tariffs.
A controlled decline in the currency could make Chinese products more competitive, even with high tariffs. This strategy, used during the Trump 1.0 period, would be used again this time as well, but only to a certain extent, as it could damage the necessary import.
Through its integrated industrial ecosystem and the promotion of new productivity, China can adjust costs to maintain competitive prices.
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Alliances and diplomatic pressures
The United States’ rising, widespread tariffs could raise concerns among its allies and trading partners.
Tariffs at such a level could violate World Trade Organization rules, allowing China to legally challenge U.S. measures.
Resilience of supply chains
Despite U.S.-led decoupling efforts, China remains central to global supply chains. The overflow supply chain phenomenon[6] will continue via Vietnam, Mexico, Malaysia and India.
Many American sectors, such as electronics, pharmaceuticals or consumer goods, still depend on China. American businesses could pass the tariffs on to American consumers, causing a new round of inflation. Some industries may find it difficult or expensive to relocate production outside China.
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Impacts on U.S. Businesses and Consumers
Such high tariffs could have negative repercussions on the United States itself: the shelves of department stores, for example at Walmart, are filled with good quality and cheaper Chinese products. A tariff increase of this magnitude could make consumer goods more expensive, making daily life increasingly difficult for the masses of Americans.
China could impose restrictions on critical exports, such as rare earths, disrupting strategic industries in the United States.
This economic interdependence limits the real scope of tariffs as a weapon of pressure.
Chinese response scenarios
If the United States imposed such high tariffs, China could respond in a targeted manner:
Taxes on US imports: Target sensitive sectors, such as agriculture, that politically support the Trump administration.
Limitation of strategic exports : Restrict sales of critical technological components, such as rare earths.
Economic diplomacy : Strengthen relations with other economic powers to isolate the United States in certain international initiatives.
Conclusion
The economic impact of 60% customs duties would be real, particularly on exporting industries dependent on the American market. But China is well-equipped to withstand high tariffs thanks to its trade diversification, large domestic market and central role in global supply chains.
China’s success in the face of 60% tariffs would largely depend on its ability to accelerate its economic transition to a more autonomous and innovative model, while maintaining its global partnerships. At the same time, the United States itself could feel the negative effects of these measures, which could prompt negotiations or compromise.
Furthermore, it could be that Trump is not really going to implement this 60%. This could be the start of the negotiation: ask for much more even if it means giving up later. To be continued…
[1] Only 3-4% of China’s GDP comes from exports to the United States. For example with the figures for 2022, the calculation can be done as follows: the share of total exports in GDP (20.79%) * the share of exports to the US (16.2%) = 3, 36%;
16,2% : https://rbcglobalconnect.rbc.com/fr/ressources/explorer-marches/chine/profil-commercial
[2] Cf Alex Wang, RCEP vs CP-TPP vs IPEF: a gigantic game of Go in the Indo-PacificRevue Conflits, June 17, 2023
[3] Cf. Alex Wang, BRICS strengthens as next summit approachesConflicts, August 20, 2024
[4] Cf. Alex Wang, Belt & Road Initiative (BRI): progress report and its future, Conflicts, October 19, 2023
[5] Cf. Alex Wang, The port of Chancay in Peru: a Chinese stone in the backyard of the United States? March 25, 2024
[6] Cf. Alex Wang, Sino-Asian relocation by “overflow”, Conflicts, January 11, 2023
