The start of Donald Trump's second presidential term has been accompanied by clear signs of improvement in China-U.S. relations. Three days before the inauguration, Chinese President Xi Jinping and U.S. President-Elect Trump had a good phone conversation.The inauguration ceremony was attended by Chinese Vice President Han Zheng on behalf of President Xi. Han was the highest-ranking official to attend the ceremony since diplomatic relations were normalized 46 years ago.Han and U.S. Vice President-Elect J.D. Vance had a good conversation in Washington on the eve of the inauguration. Trump also expressed his intention to visit China during the first 100 days of his presidency.All the above facts point to a stable and, hopefully, improving China-U.S. bilateral relations in coming years. However, it might suddenly turn for the worse if the 10 percent tariffs on China are really imposed on Feb. 1, as Trump has stated.
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| The inauguration ceremony was attended by Chinese Vice President Han Zheng on behalf of President Xi. Han met U.S. Vice President-Elect J.D. Vance in Washington on the eve of the inauguration. |
Upturn in China-U.S. trade
In the China-U.S. bilateral relationship, economic and trade relations remain the firm ballast stone — showing initial signs of recovery. According to China customs data, bilateral trade volume reached $688.28 billion in 2024, 3.7 percent higher than in 2023, or virtually at the same tempo as China's global trade, which increased by 3.8 percent.As a result, the U.S. share of China's global trade remained unchanged at 11.2 percent, after a steady fall over the previous 5 years. Chinese exports to the U.S., at $524.66 billion, increased by 4.9 percent, a sharp upturn from 2023 when it fell by 13.1 percent — only 9.8 percent lower than the historic high in 2022 of $581.78 billion.With a gradual recovery month by month, Chinese exports to the U.S. in December hit $48.83 billion, up 15.6 percent year-on-year, and was even 7.6 percent above the historical 2022 high in December. U.S. imports to China, on the other hand, were virtually unchanged, off 0.1 percent at $ 163.62 billion in 2024.
If we compare the performance in 2024 with that of 2019, Chinese exports to the U.S. increased by 25.3 percent over five years, while U.S. exports to China increased by 33.3 percent.This trend of more balanced, steady growth has been in the making for a while. It is thus highly anticipated that both Beijing and Washington will want to keep up the momentum and aim for a new high.
Unilateral tariffs of little use
President Trump, during his campaign and inauguration speech, confirmed his policy of broad unilateral tariffs, and on China in particular. He confirmed on Jan. 21, the second day of his term, that a 10 percent tariff plan was being discussed, to take effect on Feb. 1. Vice President Vance put it clearly during his meeting with Chinese Vice President Han that tariffs will be in the tool kit to address America's huge trade deficit with China.The revocation of China's PNTR (permanent normal trade relations), which leads to a 32 percent tariff on Chinese goods, is also in the process. In that case, the general tariff level on imports from China will be more than 50 percent, including the current average of 19.25 percent. It may be further increased to 60 percent if a general 10 percent tariff is imposed on all imports from the rest of the world. Different estimates have put the scenarios for gradual tariff increases from 10 percent during Trump's first year and 20 percent during the second year. All will be at Trump's discretion if he invokes the U.S. International Emergency Economic Powers Act (IEEPA).
Like a gigantic sword hanging over both China and the U.S., the new tariffs threaten to bring strong headwinds against bilateral trade and to shake the foundation of the overall relationship. Both governments should have serious dialogues to find possible ways to prevent this from happening.
1. Tariffs are not a tool for cutting trade imbalances and bringing manufacturing back.
During his second term (2013-16), President Barack Obama did not impose massive tariffs, and the U.S. global merchandise trade deficit increased by a minimal $4.8 trillion. Trump imposed tariffs on more than $400 billion of imports, and the U.S. global trade deficit swelled by $166.2 billion. During the first three years of the Joe Biden administration, when all the previous tariffs were kept in place, the U.S. global trade deficit increased further by 160.6 billion by 2023. Hence, the new tariffs, if imposed, will make its trade deficit even higher.
The return of manufacturing depends on investment, not tariffs. The U.S. Federal Reserve reported the U.S. manufacturing production index in December 2024 at 99.3, with that of 2017 at 100.0. In other words, eight years of tariffs brought no manufacturing return.
2. China is not the source of the U.S. trade deficit increase over the past six years.
According to the U.S. Bureau of Economic Analysis, the total U.S. merchandise trade deficit hit $1.08 trillion in the January-November period of 2024, an increase of $286.43 billion over the same period in 2018 ($797.72 billion) — six years earlier. During this period, the largest source of the deficit increase was Mexico, rising from $70.31 billion to $157.21 billion (up $86.9 billion). The second-largest source was Vietnam (up $76.61 billion), followed by Ireland (up $37.65 billion). The above three combined contributed $201.17 billion, or 70.2 percent of the total increase. The U.S. trade deficit with China, on the other hand, fell from $381.63 billion to $270.42 billion (down $111.21 billion).
3. U.S. exports to China outperformed imports from China over the past 15 years.
According to the International Trade Bureau of the U.S. Commerce Department, during the past 15 years (2009-23), U.S. exports worldwide increased by 91.1 percent, while its exports to China increased by 112.6 percent, from $69.48 billion to $ 147.78 billion — faster than its global exports. During the same period, U.S. imports worldwide increased by 97.5 percent, while those from China grew by just 44.0 percent. U.S. exports to China during the 15 years grew faster than its global exports, and two and half times faster than its imports from China. The U.S. trade imbalance position vis-a-vis China is improving.
4. It is unrealistic to impose high tariffs across the board on many Chinese goods.
China remained the largest source of U.S. imports of computer, electronic and advanced technology products during the first 11 months of 2024. The U.S. imported $103.03 billion of ATP from China, almost equal to total imports from the European Union and more than Japan, South Korea and Malaysia combined. During the first 10 months of 2024, American imports of 254 products were 100 percent from China, 1,008 products were 80 to 99.9 percent from China and 1,607 products were 50 to 79.9 percent from China. What can the U.S. do if high tariffs block their imports?
5. Tariffs will cause incredible damage to the U.S. itself.
Tariffs are not a one-way tool but rather a reciprocal one, drawing countertariffs from the target country for sure and bringing the two sides back to the same relative tariff level. This will hurt the American economy and families.The tariffs on more than $370 billion of Chinese goods during Trump 1.0 triggered Chinese countertariffs and other retaliatory measures that cost $11.6 billion in U.S. farm product sales to China — in particular, 79 percent of soybean sales. The tariffs also cost 0.5 percentage points in U.S. GDP during 2018-19, adding $88 billion to the American family burden through inflation. If 60 percent tariffs are ultimately imposed on Chinese goods, the move will slice Chinese GDP growth and exports and cut into the American economy badly.The Oxford Economics Institute estimates that if a 60 percent tariff is imposed on imports from China and 10 percent tariff on imports from elsewhere, U.S. GDP will be cut by $ 1.9 trillion and the jobless rate will increase by 0.8 million. Bloomberg has estimated a 40 percent drop in U.S. imports, repeating the Great Depression days.
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Turning a new page
Looking ahead, China and the U.S. should not entangle themselves in trade imbalances and tariffs but find a new, innovative perspective and turn a new page.
The world is facing a completely different future shaped by AI, big data, quantum computing and telecom. The U.S. and China, the world largest AI powers by far, have tremendous common interests to share. According to the Hurun Unicom List 2024, China and the U.S. each have four unicoms among world's Top 10, with Byte-Dance, the mother company of Tik Tok, at the top. AI- leaders in the two countries should enhance collaboration tremendously in R&D and applications worldwide, bringing an unlimited future for both countries. On the basis of AI development, the cooperation in fintech also knows no boundaries.
In this context, both China and the U.S. could lift trade and investment in traditional industries to a new high.
A master plan in energy and investment should be a high priority. China could invest in the development of gas and oil in Alaska, Texas and elsewhere in the U.S., with part of the output exported to China, increasing total U.S. exports to China.
The countries should update their agriculture cooperation agreement and enhance U.S. agricultural products and technology exports to China.
They could also enact a broad plan of trade and investment in the automotive and steel industries, with more Chinese investment in the U.S., which would result higher production and more exports from the U.S.
The semiconductor industries of the two countries should work together for a road map of trade and investment cooperation, replacing bans and restrictions. Such cooperation should be based on a sound global chip supply chain, which would benefit companies in both countries.
In this way, with cautious optimism, China-U.S. bilateral trade would see steady growth, with deficits on the U.S. side gradually falling. China-U.S. trade and investment should be based on a more profound foundation of industrial compatibility in global supply chains, in turn leading to a more stable ballast stone for the overall China-U.S. relationship for years to come.
