Saturday, President Donald Trump announced additional tariffs on China, Canada, and Mexico.
The Canadian and Mexican governments will certainly survive the episode. China’s, on the other hand, might not.
Over the weekend, Trump made good on campaign promises. “Today, I have implemented a 25% Tariff on Imports from Mexico and Canada (10% on Canadian Energy), and a 10% additional Tariff on China,” he announced on X on Saturday afternoon. “This was done through the International Emergency Economic Powers Act (IEEPA) because of the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl.”
Canada immediately retaliated with tariffs of its own, but late Monday, just hours before the American tariffs were to go into effect, Prime Minister Justin Trudeau came to terms with Trump, agreeing to appoint a “Fentanyl Czar” and adopting other measures.
Mexico quickly decided to send 10,000 soldiers to the U.S. border to fight the cartels involved in the deadly drug plague.
China vs. the Trump Tariffs
China was not so accommodating. Beijing retaliated on Tuesday with an array of measures. The Ministry of Finance imposed 10% and 15% tariffs on a variety of products including crude oil, coal, liquefied natural gas, large cars, and agricultural machinery.
The Ministry of Commerce announced new export controls on metal products and technologies and added American companies to its unreliable entities list. The State Administration for Market Regulation began an anti-monopoly investigation of Google, which has almost no operations in China.
Beijing also launched a propaganda barrage. “China’s position is firm and consistent,” a foreign ministry spokesperson stated in remarks carried by the official Xinhua News Agency on Sunday. “There is no winner in trade and tariff wars.”
In fact, there are winners. The Chinese regime, however, will not be among them.
Trade-surplus countries like China do not have much ammunition in struggles with deficit ones like America. We can see that in the remarks of the oft-quoted Julian Evans-Pritchard of Capital Economics, who stated in a research note that China’s measures were “fairly modest.” They were, he pointed out, “calibrated to try to send a message” to the Trump administration “without inflicting too much damage.”
Ultimately, there is not much damage Beijing can inflict, except to itself.
At the end of November, China’s merchandise trade surplus with the United States amounted to $270.4 billion and was on track to exceed last year’s full-year surplus.
Things Could Get Bad For China’s Economy
China’s predicament is even worse than that large number suggests. For one thing, China is fighting a larger economy. Last year, the U.S. produced about $29.2 trillion in gross domestic product. China’s National Bureau of Statistics reported $18.8 trillion.
Beijing’s GDP report is highly suspect. China, for instance, reported a whopping 10.7% year-on-year export growth in December, a figure well above expectations.
Why such an increase? China needed a great December so that it could report 5.4% growth in the fourth—last—quarter of last year. It needed a great Q4 in order to report full-year GDP growth of 5.0%. Beijing needed 5.0% to meet its official target of “around 5%.”
Xi Jinping Is Creating Problems
As China’s economic problems get worse—the economy is not growing anywhere near the 5.0% pace if it is growing at all—Xi is doubling down on policies undermining the economy.
Most important, he rejects the idea accepted most everywhere that consumption should be the basis of an economy. Xi does not want to empower consumers, he does not want to offend powerful blocs in the Communist Party, he wants to build a wartime economy, he wants to protect the interest margins of fragile state banks. To accomplish all these objectives, China’s ideological leader is implementing policies inhibiting consumer spending.
This means China, as Scott Bessent said in his Senate confirmation hearing last month, has “the most imbalanced, unbalanced economy in the history of the world.”
China Can’t Export Itself Out of an Economic Jam
In these circumstances, Xi Jinping has only one way to rescue the Chinese economy: export more. In practice, he has put the fate of his regime in America’s hands. The United States is by far the world’s largest market, and it cannot be replaced in any realistic time frame.
Moreover, both the European Union and so-called “Global South” countries, perhaps inspired by American moves, are beginning to erect tariff barriers to Chinese goods of their own.
China’s position, therefore, is increasingly vulnerable. Trump can shut out Chinese goods in two ways. First, he can further tariff China as promised during the campaign. He first pledged across-the-board tariffs of at least 60% and later a 10% tariff. Trump made good on the latter promise on Saturday.
Second, Trump can—should—enforce the Tariff Act of 1930, which bars the importation into the United States of goods made with forced labor. Many Chinese goods, including all or virtually all of the country’s “green” products, are made with such labor.
Donald Trump Isn’t Backing Down on Tariffs
Trump looks serious. He took an important step on Saturday by eliminating the “de minimis” exemption for Chinese goods. The provision allowed China’s Temu and Shein, among others, to ship goods worth $800 or less to American consumers free of American tariffs.
To keep access to the American market, the Chinese government and Chinese factories absorbed somewhere between 75% to 81% of the cost of Trump’s 25% tariffs imposed in 2018. This time, the regime has even greater motivation to effectively pay tariffs.
President-elect of the United States Donald Trump speaking with attendees at the 2024 AmericaFest at the Phoenix Convention Center in Phoenix, Arizona.
China can absorb the 10% tariff, but it would have difficulty if Trump were to fulfill campaign promises and take tariffs to the 70% level. At the moment, Trump tariffs are at about 35%.
China’s economy is protected by high currency walls, but those walls are leaking cash, which means the situation is serious for the regime, especially because the country is already on the edge of a debt crisis.
“I don’t think they want the trade war escalating,” said John Gong of Beijing’s University of International Business and Economics to the Associated Press, referring to the Chinese leadership.
That’s correct. This trade war could last a long time. And should it do so, Trump’s next rounds of tariffs will almost certainly tank the Chinese economy—and maybe take the already fragile regime with it.
About the Author: Gordon Chang
Gordon G. Chang is the author of Plan Red: China’s Project to Destroy America and The Coming Collapse of China. Follow him on X @GordonGChang.
