China responds to US tariffs with strength

Source: The post China responds to US tariffs with strength has been created, based on the article “How China is fighting U.S. tariffs” published in “The Hindu” on 17 April 2025. China responds to US tariffs with strength.

UPSC Syllabus Topic: GS Paper2

Context: In early 2025, U.S. President Donald Trump revived his “America First” trade policy by proposing “reciprocal tariffs” to reduce trade deficits. While targeting 57 countries, China was excluded from a temporary 90-day pause. The move has sparked a trade war, with significant global economic implications and rising geopolitical tensions.

Trump’s Strategy Behind Reciprocal Tariffs

1. The Trump administration claimed that “reciprocal tariffs” were necessary to eliminate “unfair trade practices.” The aim was to pressure partner countries into signing bilateral agreements that benefit U.S. interests. On April 9, the tariffs were postponed for 90 days for all except China, to allow time for negotiation.

2. Key advisers like Stephen Marin and Peter Navarro supported the use of tariffs as a strategic tool to extract better trade and security terms. Navarro even stated that Trump himself would act as the chief negotiator, sidelining the U.S. Trade Representative (USTR). This centralised, personalised approach to trade talks raised concerns about the practicality of achieving meaningful deals.

Obstacles in Bilateral Trade Negotiations

Two key challenges undermine Trump’s trade negotiation plan:

1. Centralisation of Negotiation: By bypassing formal institutions and placing Trump at the centre of all talks, the process risks inefficiency and diplomatic confusion.
2. Overloaded Agenda: The 2025 USTR’s National Trade Estimate Report flagged major barriers in 57 countries, including India. These include issues like subsidies, public distribution systems, generic medicines, and data localisation. Addressing all of them within 90 days is nearly impossible.
3. Countries like India would have to accept deep changes in domestic policies, which seems unlikely under external pressure.

China’s Defiance and Strategic Response

1. Unlike 2020, when China agreed to U.S. terms, Beijing now strongly retaliates. After facing a 34% tariff from the U.S., China imposed a 125% tariff on U.S. imports. The U.S. then raised its tariff to 145%, deepening the trade war. However, critical electronics like smartphones and semiconductors were exempted, showing U.S. vulnerability in this sector.

2. China has reduced its dependency on U.S. markets. From 19.2% in 2018, U.S. now accounts for just 13.5% of Chinese exports in 2025. ASEAN, India, and Russia have become key trade partners for China. This diversification limits U.S. leverage.

China’s Economic Leverage Over U.S.

1. Rare Earth Dominance: China accounts for 92% of global rare earth output. It recently imposed export restrictions on seven types, affecting key U.S. industries that depend on these materials.
2. U.S. Treasury Bonds: In 2018, China held $1.2 trillion in U.S. Treasury bonds, which was 22% of the total. By January 2025, it had reduced this to $761 billion, less than 9%. This strategic drop strengthens China’s position, as further reduction or selling of these bonds could impact U.S. financial stability in case of trade escalations.

Conclusion

Trump’s trade war has created global economic uncertainty. While the U.S. seeks to force concessions, countries like China are pushing back with resilience and strategy. A coordinated global response is needed to urge the U.S. to return to multilateralism.

Question for practice:

Examine how China has strategically responded to the U.S. reciprocal tariffs and what economic leverage it holds over the United States.