Why Does China Go Head-to-Head with Trump?

Since Trump announced the imposition of high tariffs on Chinese imports, a series of confrontations have unfolded between China and the United States, with both sides constantly vying for power. This has drawn widespread attention from countries around the world. In an interview with French media, Agatha Kratz, former deputy researcher at the European Council on Foreign Relations and partner at Rhodium Group, commented that "the confrontation between China and the US may promote China's structural economic reforms to help boost economic recovery."

01 Why Did China Decide to Firmly Resist Trump?

In fact, China had initially attempted negotiations. In response to Trump's two rounds of 10% tariffs in February and March, China made swift but restrained countermeasures. At that time, China's retaliatory measures aimed to make Washington aware of Beijing's potential counterattack strategies. China took some actions, such as investigating Google, restricting rare earth exports, and imposing tariffs on American agricultural products.

In reality, American agricultural products heavily rely on the Chinese market. Moreover, China expressed willingness to assist the US in combating drugs and conveyed the message "we can talk." However, the US did not respond. On April 2nd, Trump announced an additional 34% tariff on China and clearly stated no further negotiations would take place. From then on, Beijing decided to adopt stronger measures to counteract this.

02 Trump Administration's Actions Led to a Change in China's Attitude

Kratz believes that initially, China remained tolerant because Trump emphasized tariff policies during his campaign. China believed it could seek negotiations after his inauguration. However, as the situation worsened—such as when Vice President Pence compared the Chinese to "country bumpkins"—China decided to change its strategy.

03 Has the US Market Closed to China?

The current tariff levels exceed 100%, which is clearly unsustainable. They will inevitably fall back, but they will not return to the low levels of 10%-20%. Instead, they are more likely to stabilize at 30%-40%. For certain industries, this is equivalent to a complete blockade; the US will turn to other countries, and China must also seek new buyers.

Kratz believes that when tensions will ease depends on how quickly the economies of both countries change. Some irreplaceable products will continue to be traded, but this will cause inflation in the US. Chinese enterprises may indirectly export to the US through Southeast Asian countries, but overall, the scale of Sino-US trade will definitely shrink. Additionally, the US and China are embroiled in a technology war, not only semiconductors, but more American products will be banned from being exported to China.

04 What Do Tariff Exemptions for Certain Products by Both Countries Indicate?

Sino-US economies are deeply interdependent. To reduce costs, both sides have to exempt certain key products. The US relaxed restrictions on electronics, while China exempted semiconductors. Such exemptions also occurred during the first trade war. Exemptions can indeed alleviate economic pressure but will also reduce the urgency of negotiations between the two sides.

05 Is There Hope for a Trade Agreement This Year?

Regarding this issue, Kratz believes that currently, it is not a balanced state, and high tariff levels cannot be sustained indefinitely. There will certainly be relief. The key is whether this relief will be part of a systematic negotiation or continue with "patchwork-style" exemptions? Also, when this happens depends on how quickly the economies of both countries change.

06 Both Sides Suffer Losses

Kratz points out that in the short term, American data looks good: reduced trade deficit, preventive stockpiling suppresses inflation. But by around June, inflationary pressures will increase.

On the Chinese side, although exporters temporarily alleviated pressure by "rushing exports," the real impact will become apparent in the third quarter. For example, in 2024, China's GDP growth is expected to be 2.5%, with 1.4% coming from exports, which account for about 20% of GDP. Among them, the US is the largest single market. If the US implements a blockade, China's growth will slow down.

Moreover, if China turns to other markets, countries like Europe, Bangladesh, and Indonesia are also worried about the impact of Chinese exports and will take protective measures. For Chinese companies, once external markets contract, the impact will be severe.

07 How Does China Respond to This Impact?

Under the influence of Sino-US trade confrontation, China must make choices in supporting exports, consumption, and scientific and technological innovation. The US is negotiating with Vietnam, Malaysia, and Thailand to replace China in the supply chain to alleviate inflation. However, whether this approach is feasible remains to be seen.

08 Will Trade Confrontation Promote Economic Transformation in China?

Kratz believes that China may increase efforts in reforms in healthcare, education, and elderly care in the future to release household consumption intentions. Additionally, in terms of fiscal system reform, more incentive mechanisms will be added to encourage local governments to support consumption and promote the development of the service industry.

09 Can Trump Benefit?

Kratz said that Trump brought unprecedented uncertainty, disrupting corporate expectations. He could have continued the "strategic industrial protection" of the Biden era centered on the Inflation Reduction Act (IRA), stabilizing the supply chain and attracting foreign investment through gradual tax increases. However, he chose a method of intense shock, which exacerbated economic volatility and inflation.

10 How Should Europe Respond to the Trade War

Kratz emphasized: "Europe is more dependent on the US market than China." EU exports to the US are twice that of China. She suggested: Europe needs to seize the negotiation window to push for US tax cuts. At the same time, Europe should seek pragmatic cooperation in Sino-European relations. In this way, Europe has the opportunity to establish a new partnership with China.

Source: https://www.toutiao.com/article/1831148456821195/

Disclaimer: The article solely represents the author's views.