U.S. President Donald Trump's unwarranted global tariff war, which began on April 2, 2025, with steep 145 percent tariffs on China, alerted economists to unforeseen global consequences. As China's economy relied heavily on manufactured goods, and with the U.S. as its largest export destination, the Trump administration believed that imposing tariffs could weaken China and compel it to comply with its terms and conditions. Beijing, well-prepared in advance, proved this belief wrong. China's resolute response within weeks forced the U.S. to enter negotiations, which took place from May 10 to 12 in Geneva, in which the two sides agreed to suspend tariffs for 90 days. The success of Beijing's policy relied on several factors.
Tit-for-tat response
From the outset of the tariff war, China showed no leniency and resolutely responded to the U.S. tariffs. Beijing stated that “The abuse of tariffs by the United States will have an impact on China, but 'the sky will not fall.'” “China is a super economy. We are strong and resilient in the face of the U.S. tariff bullying” and resolved to 'fight till the end.' In a tit-for-tat measure, China retaliated against each spate of the U.S.U.S. tariffs. These measures not only pressured the U.S. economically but also signaled China's resolve to defend its interests. China escalated its response to Trump's tariffs with a series of measures, including matching U.S. tariff hikes (up to 125%), restricting exports of critical rare earth minerals (such as samarium and gadolinium), blacklisting U.S. firms, suspending imports of U.S. agricultural products (like soybeans and poultry), and launching antitrust probes against U.S. companies.
Meanwhile, as the Trump administration created the impression of U.S.-China talks (which was not the case), and the impression that Beijing had approached Washington, Beijing swiftly rejected those claims, terming them 'fake news.' China's spokesperson stated, “If the U.S. truly wants to resolve the issue, it should heed rational voices from the international community and domestic stakeholders, completely abolish all unilateral tariffs on China, and find a solution through equal dialogue.” The U.S. did exactly that – abolished all tariffs for 90 days.
China's preparedness, its firm stance, and immediate and concrete measures to support domestic sectors affected by the tariffs (as discussed later) on the one hand, and the severe repercussions for the U.S. economy, job market, and inflation on the other, led the U.S. to initiate dialogue by signaling a willingness to de-escalate if China reciprocated. As The New York Times reported, the U.S. delegation to Geneva for talks with its Chinese counterpart was 'careful not to antagonize China.' Instead, it placed most of the blame for the trade war on the Biden administration, accusing it of neglecting the trade imbalance.
A gradual decoupling and diversification
As the U.S. justified its tariffs based on the U.S.-China trade imbalance, particularly China's large trade surplus (with U.S.$438.9 billion in 2024), China began addressing this vulnerability by gradually decoupling from the U.S. through a series of targeted measures. Beijing began to reduce its holdings of U.S. Treasury securities, dropping to the third-largest foreign holder as it diversified foreign exchange reserves and lessened financial exposure to U.S. assets. China halted imports of U.S. liquefied natural gas and coal, replacing them with supplies from Russia and Indonesia, and froze participation in major U.S.-based LNG projects, signaling a strategic shift in energy sourcing. Chinese exporters further redirected shipments through Southeast Asian and European markets, increasing trade with regional partners and reducing reliance on the U.S. as a primary export destination. These actions were accompanied by intensified efforts to achieve technological self-sufficiency and to build parallel supply chains and financial systems, marking a decisive move toward structural. In April 2025, while exports to the U.S. plummeted, China's overall exports surprisingly rose by 8.1% in dollar terms, driven by increased shipments to emerging markets, especially Southeast Asia.
Measures to boosting domestic consumption
China's policymakers were long aware of the chronic challenge of slow domestic consumption. In a highly volatile global trade era, this could prove a stumbling block to the economy. Against the backdrop of rising rivalry with the U.S., the necessity for such measures further increased. While addressing this issue was already part of the economic strategy, the imposition of tariffs provided Chinese policymakers the opportunity to act. From March 2025 onwards, China adopted several initiatives to boost domestic consumption.
On 16 March, China unveiled a plan of special initiatives to make domestic demand the main engine and anchor of economic growth. The plan aimed to boost consumption, stimulate domestic demand across the board, and increase spending power by raising earnings and reducing financial burdens. Local governments were encouraged to provide financial assistance and increase subsidies to individuals in need, enhance pension benefits for retirees, and expand health, eldercare, and childcare services to further reduce household financial burdens. Additionally, insurance for rural and non-working urban residents, along with appropriate increases in basic pension benefits for retirees, was included.
Stimulus packages
The Chinese government made various measures to mitigate the impact of tariffs on its citizens and affected business sectors. In its March 2025 session, the 14th National People's Congress, China's national legislature, made several announcements. It announced a substantial increase in fiscal spending and issued government bonds for 2025, with a clear focus on supporting consumption, investment, and economic resilience. These include achieving economic growth of around 5%, setting a target of around 4% for its deficit-to-GDP ratio, issuing a total of 1.3 trillion yuan (U.S.$182 billion) of ultra-long special treasury bonds in 2025, up 300 billion yuan from last year, and issuing 4.4 trillion yuan of local government special-purpose bonds in 2025, an increase of 500 billion yuan over 2024. It adopted structural monetary policy instruments to provide support for the real estate sector and the stock market. According to independent observers, these measures amounted to nearly 6 trillion RMB (about $823 billion) in net government spending for 2025, alongside expected cuts to the reserve requirement ratio and policy interest rates.
Economic Performance under tariffs
Despite exceptionally high U.S. tariffs, most sectors in China demonstrated remarkable resilience. For instance, in April 2025, China's industrial production grew by 6.1% year-on-year, surpassing expectations. Reuters attributed this growth to the Chinese government's supportive measures aimed at mitigating the impact of tariffs. At the same time, China's GDP growth in the first quarter of 2025 reached 5.4%, exceeding forecasts and maintaining momentum from the previous quarter. Retail sales increased by 5.1% in April 2025, while exports from China surged by 8.1% year-on-year to U.S.$315.7 billion during the same month, significantly surpassing market forecasts of 1.9%.
Conversely, the U.S. economy faced formidable challenges. On May 16, 2025, Moody's Investors Service downgraded the United States' sovereign credit rating from its top-tier “AAA” status to “AA1,” citing concerns over the nation's escalating U.S.$36 trillion debt and persistent fiscal deficits (earlier Standard & Poor's, and Fitch Ratings had downgraded the U.S. from AAA in 2011 and 2023 respectively). While the downward trend had long been underway, the tariff war accelerated the process. U.S. GDP growth slowed sharply, with the first quarter of 2025 projected to expand at just a 0.4% annualized rate, raising concerns about a potential recession and a deteriorating job market. The tariffs drove up consumer prices, with estimates showing a 1.7% short-run increase in aggregate prices and specific sectors like shoes and apparel seeing price hikes of 15% and 14% respectively, translating to an average loss of purchasing power of $2,800 per household. Real GDP growth decreased by 0.7 percentage points over the year, and the unemployment rate increased by 0.4 percentage points, with payroll employment down by thousands of jobs. As the U.S. also faced retaliatory tariffs from China and the EU, this resulted in a significant decline in U.S. exports and a drop in wages. Economists argue that a typical middle-income household in the U.S. will encounter higher taxes, inflation, and diminished income. Collectively, these challenges created substantial economic and political pressure, paving the way for the urgent negotiations that resulted in the 90-day tariff halt.
Conclusion
The U.S. decision to resolve trade issues with China through negotiations is a positive sign, not only for these two powers but also for the global economy. One should remain optimistic that the U.S. and China will reach an agreement in the future. The tariff war has taught many lessons. China is far more prepared and resolute in protecting its interests than the U.S. had anticipated. Beijing's response significantly thwarted the U.S.' bullying instinct. At the same time, the tariff war revealed the double standards of promoting the concepts of free market economy, 'rule-based order', and respect for international institutions (WTO), until they serve the imperialists who created them. As long as they stop serving imperialism, they should be discarded. While China had anticipated U.S. tariffs under Trump's second term, the absurd level to which they escalated was beyond expectations. This will further lead China to decouple from the U.S. in a way that no disruption, not even a complete halt in trade, could harm its interests. The tariff war revealed weaknesses in U.S. global leadership and ended up inflicting greater economic harm on Washington than on China, which demonstrated stronger resilience.
