On the latest episode of The President’s Inbox, Jim sat down with Zoe Liu, Maurice R. Greenberg senior fellow for China studies at the Council, to discuss China’s response to President Donald Trump’s tariff hikes and what it means for the future of U.S.-China relations.
Here are three takeaways from their conversation:
1) Trump’s tariffs have escalated a simmering geopolitical competition with China into a full-scale trade war. President Trump’s opening salvo of widespread tariffs against China in 2018 was followed by President Biden’s export controls on advanced technologies. The result, as Zoe argued, is that "since 2018 to now, the United States and China have in fact already been engaging in a low-level trade war.” Despite that skirmishing, China remains the United States’ third-largest trading partner, and the United States remains China’s largest trading partner. Trump’s April 2 “Liberation Day” tariff hikes triggered an escalatory spiral that now has U.S. tariffs on most Chinese goods at 145 percent and Chinese tariffs on most U.S. goods at 125 percent. That has created what Treasury Secretary Scott Bessent has called “the equivalent of an embargo” between the two countries. Analysts warn that both countries could be headed toward recession as a result.
2) China says it has the political will and economic tools to withstand prolonged confrontation. Beijing has been preparing for a potential tariff confrontation with the United States for some time. Although the Chinese economy has been slowing down for several years, Beijing has refused to move away from its investment and export-driven growth model. This has left it vulnerable to foreign tariffs and trade disruptions. Nevertheless, its decision to retaliate against Trump’s tariff hike was shaped by a political narrative emphasizing national resilience and portraying the tariffs as a form of foreign coercion reminiscent of China’s “century of humiliation.” So far, the Chinese public has supported the government's hard line, and President Xi Jinping wants to avoid being seen as yielding to U.S. pressure. China also holds leverage over global supply chains by controlling the export of consumer products and critical minerals, whose loss has already begun to disrupt U.S. consumer markets and industry. As Zoe put it, Beijing “believes the Chinese people can eat the leaves of bitterness longer than Americans can tolerate inflation."
3) The confrontation will further rupture the U.S.-China economic relationship, either through forced decoupling or a negotiated deal. Ever since “Liberation Day,” the Trump administration has signaled its interest in talks with China to ease the trade war. One question is whether Trump’s and Xi’s negotiating styles mesh. Trump favors personal, transactional diplomacy, while Xi Jinping prefers that deals be hammered out by technocratic subordinates. This morning’s news that U.S. and Chinese officials will meet in Switzerland this weekend marks the first potential break in tensions, though Beijing continues to insist publicly that the United States must unilaterally de-escalate before broader negotiations can begin. Although the news of the Geneva meeting broke after Zoe spoke with Jim, a point she made about the challenge of reaching an agreement likely still stands: "A deal in principle could come quickly, but any sort of ‘grand bargain’ agreement will take a long time." In the meantime, the immediate economic fallout and long-term instability will continue to drive companies and markets on both sides of the Pacific further apart.
If you’re looking to read more from Zoe, check out her latest article in Foreign Affairs, “How China Armed Itself for the Trade War.”
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