Xi Jinping does not want a protracted trade war with the United States. He understands that this will hurt the Chinese economy at a time when the country is already grappling with a property market crisis, slowing growth, and surging youth unemployment. But if Donald Trump insists on fighting one, the Chinese leader might well draw encouragement from the fact that he is up against a US president who is also attacking his own allies and trading partners, seems to have only the most tenuous grasp of how global trade actually works and has already demonstrated that he will back down when American investors get “a little bit yippy.”
Trump’s aides have made valiant efforts in recent days to retrofit a strategy to the market chaos induced by his “Liberation Day” tariffs. The treasury secretary Scott Bessent insisted on 9 April – shortly after the president announced he was pausing most of the tariffs he had imposed only hours earlier – that it was a negotiating tactic all along, and other countries purportedly desperate to strike new trade deals were now besieging the White House, just as they had planned. Karoline Leavitt, the White House press secretary, derided reporters for missing Trump’s “art of the deal.”
But Trump himself has been clear about why he reversed course. “Over the last few days it looked pretty glum,” he conceded during a photocall outside the White House that afternoon. People were “getting a little bit yippy, a little bit afraid,” he acknowledged, with a selloff in the US bond market in particular – which typically strengthens in times of uncertainty – meaning that “people were getting a little queasy.” (He did not specify who these “people” were.)
This reassured global markets, which rocketed back up on the revelation that the US president did seem to be responsive to market pressures after all. (The S&P 500, Dow, and Nasdaq all fell again on 10 April, as investors reckoned with the fallout of the 10 percent universal tariff that remained and the steep tariffs imposed on China.) Crucially, Trump also revealed his pain threshold for economic turbulence, backing off when the bond market began to wobble. Officials in China, which is currently the second largest foreign holder of US treasury debt, will certainly have taken note.
Trump has now signaled that he is narrowing the scope of his trade war from taking on the entire world at once to focus on China in particular, at least for the time being. The White House clarified on 10 April that the US has raised tariffs on Chinese imports to 145 percent, not 125 percent as most analysts had understood. The previous total did not account for the 20 percent already levied in response to China’s alleged role in the supply of fentanyl. But at this point the figures are so eye-watering as to become almost arbitrary – Trump seems determined to make imports from China so expensive that trade between the two countries in many areas simply begins to grind to a halt.
Xi adopted a cautious approach during Trump’s first couple of months in power, sending a high-level envoy to attend his inauguration as Chinese officials sought – and largely failed – to establish communications with their new US counterparts and assess the returning president’s China policy. But as Trump has ratcheted up tariffs on China in recent weeks, Beijing has hit back, increasing tariffs on US goods to 84 percent on 9 April, barring some US companies from doing business in China, and restricting the export of some rare earth minerals. On 11 April, in response to the latest increase, China’s commerce ministry raised its tariffs on the US again to 125 percent. “The US’s repeated imposition of exorbitant tariffs on China has already become a numbers game, with no practical significance,” the ministry’s spokesperson said. The statement accused Washington of “bullying and coercion,” and warned that it was “becoming a laughingstock.”
This is not China’s first trade war with Donald Trump. During the last one, which began in 2018, the two sides traded tit-for-tat tariffs before signing a trade deal in 2020. Trump hailed the outcome as a “tremendous victory,” although China then failed to purchase most of the additional US exports it had promised. The most important lesson for Chinese officials from Trump’s last term, beyond his susceptibility to flattery – which they masterfully exploited during his “state visit-plus” to Beijing in 2017 – was that because China exports far more goods to the US than the other way around, Beijing soon ran out of imports to target and was vulnerable to Trump’s pressure tactics.
China has since attempted to diversify its trade away from the US. Whereas almost one in five of China’s exports went to the US in 2018, that figure was 14.7 percent in 2024. Beijing has also tried to reorient its economy towards domestic demand – with limited results thus far – at the same time as identifying other pressure points that might affect Washington’s calculus, such as targeting agricultural exports from Republican-led states, including chicken, beef and soybeans, which went into effect in March. “We have been engaged in a trade war with the US for eight years and have accumulated rich experience in this struggle,” announced the People’s Daily, the official newspaper of the Chinese Communist Party in a front-page editorial on 8 April. “We have made all kinds of preparations to deal with shocks.”
Like Trump, Chinese officials are surely bluffing when they feign indifference to the mutually assured economic destruction that will follow if the world’s two largest economies continue on their current collision course. Xi would certainly have preferred to avoid or at least delay this fight until his domestic economy was in better shape. But he has long warned that this confrontation was coming – that China was engaged in a long-term contest with the US, which he accuses of attempting to thwart his country’s development through a campaign of “all-round containment, encirclement and suppression.”
In Beijing’s worst-case scenario, the US would first have strengthened its alliances, courted China’s regional rivals and diversified its own supply chains before launching an all-out trade war. Instead, Trump has targeted allies and adversaries alike with his on-again-off-again tariff wars, while threatening to burn down the post-World War II international order and annex Greenland, Canada and the Panama Canal. Xi might well believe it is better to face down the US while it is under such chaotic leadership, and so deeply divided at home.
He also has reason to believe that China will have the higher pain threshold in an escalating trade war. Unlike Trump, Xi does not have to worry about midterm elections next year, or the next presidential contest in 2028. He knows that Americans elected Trump, in large part, on his promise to turbocharge the economy and bring prices down. His US counterpart is about to find out just how many components of American consumer goods, electronics, medicines and toys come from China. And how long American voters will be prepared to tolerate spiralling prices and shortages in the service of Trump’s improvised scheme to remake the world. If the widespread panic over toilet paper during the Covid-19 pandemic is any indicator, then the Chinese leader might assume the answer is: not very long.
The coming trade war, if it is not averted, will hit China’s already faltering economy hard. Xi is unlikely to be sanguine about the serious challenges that now lie ahead. But at least he will now have an American bogeyman to blame for all his domestic difficulties, with a blustering president issuing his daily diatribes on social media, apparently intent on wreaking havoc around the world. It is notable that China’s censors allowed JD Vance’s comments last week, when he derided the country’s workers as “Chinese peasants”, to circulate unhindered on social media, garnering widespread outrage at the apparent attitude of the current US administration. Meanwhile, China’s “national team” of state-backed companies already appears to be actively intervening to prop up the country’s stock market and the central bank is thought to be preparing to deploy new stimulus measures in the coming weeks.
As the US markets plummeted earlier this week, Trump insisted in a Truth Social post that China “wants to make a deal, badly,” implying that Xi would soon be joining the other leaders supposedly begging him for a deal. “We are waiting for their call,” Trump wrote on 8 April. “It will happen!” It could be a long wait. Twenty-four hours later, China’s foreign ministry spokesperson posted a video of Mao Zedong railing against US imperialism during the Korean War, which is known in China as the War to Resist US Aggression and Aid Korea. “We are Chinese,” wrote Mao Ning. “We don’t back down.”
[See also: Donald Trump’s gamble with your pension]
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