Impact of Trump 2.0 on US-China Relations: Trade Wars, Tariffs, and Future Tensions

Will Trump 2.0 be a “nightmare” for Beijing?

The anticipated return of Donald Trump to the presidency is expected to significantly strain US-China relations, primarily through aggressive trade policies and potential tariffs on Chinese exports. While Trump’s previous campaign did not heavily focus on China, his proposals, including steep tariffs and a hawkish stance on technology decoupling, have raised alarms in Beijing.

Chinese officials express concerns about a more confrontational U.S. approach, particularly regarding Taiwan, and emphasize the need for cooperation over conflict. Despite the challenges posed by a possible trade war, analysts suggest that China’s economy has shown resilience and adaptability, potentially mitigating the impact of U.S. measures. Overall, the situation underscores the complexities of the bilateral relationship as both nations navigate a new era of heightened tensions and strategic competition.

Key Concepts

• Donald Trump’s anticipated return to the presidency is expected to escalate tensions in US-China relations, particularly through aggressive trade policies.
• Trump’s proposed tariffs on Chinese exports could lead to significant economic repercussions for both nations.
• Key figures from Trump’s previous administration may influence a renewed push for economic decoupling from China.
• The potential revocation of China’s most favored nation status could further harm the Chinese economy.
• A comprehensive decoupling of US and Chinese technology sectors is anticipated, affecting access to critical chip technologies.
• The US may adopt a more isolationist diplomatic stance, shifting away from the current approach under the Biden administration.
• Concerns about increased confrontations over security issues, especially regarding Taiwan, are prevalent among analysts.
• Xi Jinping’s congratulatory message to Trump emphasizes the importance of cooperation over confrontation for both nations.
• China’s economy has shown resilience despite previous US trade measures, indicating its capacity for independent innovation.
• The potential economic impact of a trade war could be underestimated, leading to broader ramifications for global trade and domestic stability.
• Chinese authorities are preparing reforms to shift economic reliance from exports to domestic consumption in response to trade tensions.
• High tariffs and changes to trade relations may not be implemented immediately due to domestic economic concerns in the US.
• The political landscape in both countries may shift significantly in response to the challenges posed by a potential trade war.
• The interconnectedness of global trade means that a US-China trade war could have far-reaching effects beyond just bilateral trade losses.
• Analysts suggest that the psychological effects of trade tensions could lead to stagnation or negative growth in China.

Trump’s strong return seems to be the fulfillment of the story of the boy who cried wolf for many countries. Although countries that feel that they will be affected are preparing countermeasures after Trump takes office in January next year, the Chinese authorities may be particularly busy in the two-month policy vacuum period between now and the official handover of the US regime. They must make arrangements in many aspects of domestic and foreign affairs to prepare for the possible turbulence in US-China relations after Trump takes office.

Trump did not spend much time on China during the campaign. In this US election, the originally expected China issue did not ferment. However, the tariff issue raised by Trump was extremely shocking. He said that he would impose a tariff of up to 60% on all Chinese products exported to the United States, and warned Beijing on the issue of Taiwan that if China enters Taiwan, it will impose a tariff of 150-200% on Chinese products. Of course, he did not forget to “flatter” Xi Jinping, praising Xi as a capable leader and touting that he and Xi are “old friends.”

Trump 2.0 puts more pressure on China

Scholars and observers, including those from China, generally believe that Trump 2.0 puts more pressure on China. If Trump’s tariff campaign proposals are implemented without compromise, US-China trade will be greatly affected, almost equivalent to a trade break between the two countries. This is exactly what American China hawks such as Robert Lighthizer advocate. Lighthizer was Trump’s trade representative during his first term, and it was he who led the US trade war with China. He advocated a complete decoupling of the US and China’s economy and trade, and Lighthizer may serve as trade representative again.

In addition to high tariffs on China, pro-Republican conservative think tanks previously suggested that Trump cancel China’s most-favored-nation status after taking office. If this proposal is also implemented, it will undoubtedly make the Chinese economy even worse.

The China hawks in the Trump team will not only seek to decouple from China economically but also seek a broad decoupling of the US and China in technology, shifting from the current “small courtyard high wall” of the Biden administration to the “big courtyard high wall.” For example, in restricting China’s access to US chip technology, not only high-end chips are banned from being sold to China, but also mature chips are not allowed to be sold to China.

In addition, they will reduce diplomatic contacts with China, intensify confrontation with China on security issues such as Taiwan, and impose more restrictions on cultural exchanges between the US and China, reducing people-to-people exchanges between the two countries. In geopolitics, contrary to the US’s possible shrinking of the front in other areas and regions, it will strengthen cooperation with US allies in the Indo-Pacific region and continue to promote the Indo-Pacific strategy to check and balance China.

In short, in the view of many Chinese official scholars and observers, Trump and the super hawks in his cabinet will take a very hostile stance towards China after returning to the White House, further intensify competition with China, and contain and contain China from all angles and levels. In the next four years, US-China relations will experience significant fluctuations, escalating tensions, intensifying confrontations, and even major crises. The cooperation between the two sides in global governance and bilateral relations will be greatly reduced, and the areas and topics of cooperation will be compressed.

Xi’s congratulatory message implicitly warns Trump

The Chinese authorities certainly have a premonition of this dangerous picture of Sino-US relations. In his congratulatory message to Trump, Xi Jinping specifically emphasized that cooperation between China and the United States is beneficial to both sides, while confrontation will hurt both sides. A stable, healthy, and sustainable Sino-US relationship is in the common interests of the two countries and the expectations of the international community.

He also expressed the hope that the two sides will uphold the principles of mutual respect, peaceful coexistence, and win-win cooperation, strengthen dialogue and communication, properly manage differences, expand mutually beneficial cooperation, and find a correct way for China and the United States to get along in the new era.

Although Xi’s congratulatory message adheres to the authorities’ consistent views and positions on relations with the United States, at this time when international public opinion believes that Trump’s election will be more unfavorable to China, the emphasis on “cooperation is beneficial to both sides, confrontation will hurt both sides” also contains a kind of implicit warning to Trump, that is, if the new Trump administration insists on wielding the high tariff stick and technological containment against China and launching an all-round confrontation with China, China is also ready to fight.

This can be clearly seen from the messages released by China’s official media and hawkish scholars. The general idea is that although Trump’s second term seems to be aggressive, there is nothing to be afraid of. He is just repeating the same tricks as last time. The reason why Trump caught China and other countries off guard during his first term was mainly because they did not expect an anti-establishment person like him to be elected and were not prepared for him to play cards that were not in line with common sense, including launching a trade war and a technology war against China.

However, after his four years and Biden’s four years of using tariff policies, export controls, and financial sanctions, as well as comprehensive suppression and containment of China in geopolitics, the Chinese economy has not been defeated. Technology companies represented by Huawei, as well as China’s leading position in key technologies such as drones, solar panels, graphene, high-speed railways, electric vehicles, and lithium batteries, have proved that the more severely the United States has contained the place, the faster China has developed and the stronger its independent innovation has become.

The Chinese people’s mentality towards the United States has also become mature and strong. Faced with Trump’s repeated tariff threats, the society has shown calmness. China has sufficient countermeasures and means to deal with it and is not afraid of a tariff war with the United States.

Indeed, from the bottom-line thinking emphasized by the Chinese authorities, even if Trump cancels China’s most favored nation’s trade status and imposes high tariffs as soon as he takes office, causing the complete interruption of US-China trade, based on the current output value of China’s exports to the United States of more than 500 billion US dollars, the loss will only be 2.6 percentage points of GDP, which seems to be a small proportion and can be borne by China. Some commentators are promoting this.

However, if we look at the problem and take countermeasures in this way, it is actually very shortsighted and irresponsible. Because it completely writes off the cost that the people have to bear in this bottom-line thinking. Bottom-line thinking is a way of thinking that indicates the countermeasures that should be taken when the most suspicious and extreme situation occurs.

Although the probability of such an extreme situation occurring in reality is extremely low, the government’s policies should still try their best to avoid it. Once the worst situation occurs as assumed, the biggest victim is not the ruler of the country but its people. The people, especially the disadvantaged groups at the bottom, will pay the greatest price for this. In the more than 70 years since the founding of the Communist Party of China, it is not that there have been cases of eating tree bark and grassroots and even cannibalism. Many living people still have such memories.

Imposing a 60% tariff on Chinese goods may lead to zero economic growth

It is certainly impossible to have such horrific consequences in a trade war with Trump, but this does not mean that the authorities can remain calm by using bottom-line thinking to deal with his tariff stick. On the surface, if the two countries’ trade is completely decoupled, China will only lose more than 2 percentage points of GDP.

However, considering China’s current economic growth level, the loss of more than 2 percentage points of GDP is half of China’s growth rate. Not only that, if the US-China economy and trade are completely decoupled, other countries, such as China’s current largest trading partners ASEAN and the EU, will certainly reduce their trade with China and will not make up for the losses of the trade war with the United States by strengthening trade ties with them as some Chinese scholars have imagined.

In other words, China’s GDP loss is not only the current measured level but may be higher. Considering the psychological impact on China’s domestic industries, enterprises, markets, and people, perhaps China’s GDP growth will be close to 0, or even negative. This is just a trade-off from an economic perspective. Once the economic depression caused by the trade war reaches this level, it will also affect finance, society, and politics. Will there be a systemic financial crisis? Will the widespread sharp drop in income and the threat of unemployment lead to social protests? And what kind of reaction and changes will the political system have? These situations must also be taken into consideration.

Therefore, the start of the US-China trade war after Trump took office is by no means “nothing to be afraid of,” as the Chinese official public opinion downplayed. This is why the authorities, although releasing such public opinion, actually respond with extra caution and make thorough preparations, including the recent approval of the NPC Standing Committee’s $10 trillion debt repayment scale, unilateral opening to foreign investment, and the promotion of some substantive economic reform measures as much as possible. Trump’s tariff threat may bring an “extra benefit” to China; that is, it will give China a reform impetus for long-term development.

Although Xi Jinping is politically conservative and stubborn, it is also necessary to see that if Trump implements his tariff threat, the authorities will have to take more measures to boost the economy, especially domestic consumption, so that China’s economy can truly rely on consumption rather than exports. However, this requires the prompt implementation of some undecided economic reforms to stimulate the vitality of domestic economic growth. This is the so-called crisis-driven reform, which is also a tradition of China’s reform. Some economists are advising the authorities to deal with Trump’s tariff threats in this way. Observers

estimate that Trump may not impose high tariffs on Chinese goods and cancel China’s most-favored-nation treatment in one step in the early days of his presidency because he has to deal with domestic issues such as immigration because this will push up inflation in the United States and cause a large number of American voters to lose their jobs. According to a report released by the U.S.-China Business Council and the Oxford Economics Institute in November 2023, the termination of permanent normal trade relations with China will cause the United States to suffer economic losses of $1.6 trillion within five years and cause the United States to lose more than 700,000 jobs.

Although the current inflation in the United States has fallen significantly, it is still higher than the policy target of 2% and has a rebound trend. Trump was elected to the White House due to voters’ dissatisfaction with the Biden administration’s economy (including high inflation), and he may need to consider the inflation and unemployment issues that high tariffs on China will bring to voters.

In any case, Trump 2.0 will bring more uncertainty and instability to US-China relations, especially if the Taiwan issue is taken into consideration, and perhaps the two countries will indeed have a serious conflict.