The aggressive tariff approach by U.S. President Donald Trump against China has elicited arguments and criticisms unique in the history of economic policy. Alleging breach of trade, such punitive actions were intended to emasculate China's economic rise.
Nowadays, however, with the advantage of hindsight and knowing more about the strategic resilience of China, it has become more apparent that the tariffs imposed by Trump — initially seen as a devastating blow — have ironically turned out to be a positive development that has helped China achieve its strategic aims in the long term and boost its standing in the international community.
On Feb. 4, Trump introduced a 10 percent tariff on a wide range of Chinese commodities. These nearly doubled after a month to 20 percent. Rhetoric was piled upon rhetoric until, on April 2 (which Trump acerbically called Liberation Day), he opted to establish a blanket tariff of 10 percent on all imports into America. More important, some countries, including China, have become exposed to even higher rates, which is an indication of a targeted attack.
Beijing naturally did not sit back. China hit back with tariffs of its own. By April 9, the United States had imposed a tariff of 145 percent on Chinese imports, prompting Beijing to respond with a 125 percent tariff on some U.S. imports. The tit-for-tat exchange created a unique degree of unpredictability in international businesses and supply chains.
First, it had a negative impact on China. The export sector faced headwinds, and the supply chains of certain foreign companies began seeking ways to relocate. Nevertheless, China's reaction was not a reaction, per se, but rather a well-planned transformation of adversity into opportunity. The leaders of the Communist Party of China, who had persistently urged that they should be far more resilient and boost internal consumption, were presented with a convenient external reason to push their policies further.
To begin with, the tariffs created a drive to increase domestic consumption and empower local markets. Reduced access to the lucrative American market for some of their goods prompted Chinese manufacturers to shift their focus to their own huge domestic consumer base. This was precisely in line with Beijing's long-term plan to rebalance the country's economy, making it less dependent on exports and more consumption-based.
Second, the trade war accelerated the diversification of China's global trade. Although the U.S. was a huge market, China was already developing more integrated economic relations with other parts of the world, for example through the Belt and Road Initiative. Trump's tariffs compelled Beijing to adopt a similar approach, and it committed to closer trade relations with the countries of ASEAN, the European Union, Africa and other emerging markets. The strategic shift minimized the dependency of the Chinese economy on the U.S. economy in general, and the unilateral decisions by the latter ensured the enhanced economic resilience of the former and made it more resistant to adverse actions by the United States in the future. The adjustment by China — the strengthening of alternative trade routes — succeeded at weakening the bargaining power that the U.S. initially possessed.
Third, and more important, the tariffs, especially those aimed at high-tech industries, boosted China's desire to achieve technological independence. The American effort to limit China's access to high-tech products, particularly semiconductors, was a rude awakening for Beijing. It validated the age-old assumption of the Chinese leadership that its reliance on technology designed in the West was a strategic weakness.
Therefore, huge government investments were made in research and development, native innovation and the development of national champions in key technological areas. The tariffs accelerated China's growth in technologies such as artificial intelligence, 5G, quantum computing and advanced manufacturing. As a result, the country is now less vulnerable to future tech-related sanctions, although the overall process of achieving total self-sufficiency is still a considerable distance away.
Fourth, the trade war provided the Chinese government with an opportunity to capitalize on a nationalist mood in the country and foster political unity. Presenting the U.S. as an aggressor that seeks to suppress the emergence of China, the CPC was able to benefit from the support of the people in policies that included short-term economic suffering. This outside influence offered a strong story of solidarity, which focused minds away from internal problems and served to strengthen the authority of the party as the guardian of national concerns.
Last, Trump was also protectionist, which allowed China to portray itself as the defender of multilateralism, a principle that involves several countries working together to solve global problems, as well as a champion of free trade — the unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas in the international arena.
Although China has been accused historically of being non-reciprocal in its trade practices, the fact that it was publicly joining the global trade regime and institutions stood in sharp contrast to Trump's “America first” trade policy. This was well received by other countries. This story also helped Beijing expand its soft power and diplomatic influence, particularly with developing countries seeking investment and trade opportunities.
With this type of tension on the economy, the problem of fentanyl became a significant point of contention. The U.S. tariffs were not taken off the table, with the U.S. sticking to a 20 percent tariff to embarrass Beijing into doing more to stop the illicit trafficking of fentanyl. Although the human aspect of the problem is devastating, connecting this vital issue with trade tariffs has become a complex and relatively ineffective approach.
After rounds of intense talks in Geneva and London, both the U.S. and China agreed on a temporary trade cease-fire, with some tariffs being exempted and others deferred, indicating a desire to de-escalate, at least temporarily. Even U.S. Treasury Secretary Scott Bessent said that the U.S. expected to negotiate a trade deadline extension, offering some hope that a more sustainable economic relationship could be crafted.
However, the peace did not last long because both Washington and Beijing quickly blamed each other for the non-observance of the agreement. Such a repetitive process of agreement, followed by accusations and distrust, was in sharp contrast with a unified strategy. Intense hostility had taken root in their relationship. This is evidenced by the fact that no agreements could be offered, even temporarily, which highlighted the fundamental gap in trust and communication.
The biggest question that arises now is how to navigate the challenging effects, given the unpredictable and often regressive effects of previously employed methods. The former U.S. tariff policy was supposed to coerce Beijing, but its unintended effect has been to motivate Chinese self-sufficiency and diversification. Thus, a reconsideration of this policy is necessary for Washington.
A more balanced multilevel solution is greatly needed to overcome these pitfalls. The U.S. needs to quit using its crude tariff weapon as a means of attack. It needs to capitalize on multipronged negotiations with China in such areas of concern as intellectual property theft, forced technology transfers, market access, state subsidies and cyber espionage. Clear, binding rules of engagement, reinforced vigorously and backed by increased transparency, are needed in such talks.
More important, the U.S. will need to invest significantly in its own domestic competitiveness to achieve a genuinely self-sustaining economy. This will require substantial investments in local industries, infrastructure, education and research and development. The concepts of innovation, development of production processes and workforce training are long-term approaches. These are better than simply erecting trade walls. At the same time, the U.S. should address the causal factors of trade imbalances. It should study and enhance both domestic and foreign structural economic policies, including consumer demand, savings and international capital flows.
However, instead of wholesale decoupling, a de-risking strategy should be sought, removing significant sources of vulnerability in strategically important areas such as semiconductors and rare earths. It should continue economic exchanges in which both sides can benefit.
Finally, the imposition of tariffs by Trump — while intended to reduce China's economic strength, has instead provided the decisive motivation for China to enhance its long-term strategic goals — namely, reduced dependence on any country for trade, global trade diversification and enhanced technological independence. While Trump's trade war has challenged China, it appears to have made the country stronger and more strategically maneuverable.
To successfully challenge and collaborate with China in the future, the U.S. must abandon the crude tool of tariffs and adopt a nuanced, concerted and internally oriented plan that cultivates power at home and leverages partnerships abroad. Only in this way will it be able to navigate all the twists and turns of the U.S.-China economic relationship without giving Beijing another advantage.
