During his long, contentious, and controversial election campaign, the US president-elect Donald Trump made several promises about his foreign trade policies.
The War Cabinet
Apart from steps that Trump has already taken with regard to appointing very well-known China hawks, i.e., John Ratcliffe (to head the CIA), Pete Hegseth as secretary of defence, and Florida Congressman Michael Waltz as the national security adviser, his possible choice of Robert Lighthizer as his trade representative with a possible position in the Cabinet is going to make a major difference going forward. Lighthizer played a key role in Trump’s ‘trade war 1.o.’, helping to craft tariffs on US$380bn worth of Chinese goods. As reports in the mainstream US media show, Lighthizer & Co., are already preparing plans for actually materializing Trump’s 60 per cent tariff plans. In 2023, he also published a book “No Trade Is Free: Changing Course, Taking on China, and Helping America’s Workers”, which seems to have provided the blueprint for the second phase of Trump’s war. In the same year that he published his book, Lighthizer also told a House select committee, “I believe that China is the most dangerous threat that we face as a nation … Indeed, it may be the most perilous adversary we’ve ever had”.
What he is doing now, according to a report in Politico, involves preparing legislation to impose permanent tariffs on China. Previously, most tariffs came in the form of executive orders that any president could withdraw from. But were the Trump administration to back new tariffs with legislation – which it can do due to victories in the presidential election and dominance in the House of Representatives and the Senate – no subsequent president would be able to remove them without a majority in the Congress. The Trump administration will have locked Washington in a permanent war on China.
How China Will Respond
China, for all practical reasons, is the most important economy in today’s world. Given the sheer scale of its production capacity, such as the scale of Electric Vehicles production, most countries, including the US, would still be buying Chinese products, even if their prices go up due to tariffs, at least until they can start producing their own commodities. China will, therefore, first try and engage with the Trump administration.
More important than this, however, is China’s retaliatory capacity. Armed now with “anti-foreign sanctions laws” passed in 2021 after Trump was gone, China can now sanction US companies on a much bigger scale than it could do in 2016. An expanded export control law means Beijing can also weaponize its global dominance of the supply of dozens of resources such as rare earths and lithium that are crucial to modern technologies. Still, this very law allows China to target individuals and organisations involved in implementing foreign sanctions with countermeasures including asset seizures, potentially putting foreign investors’ China operations in a difficult position.
As some experts noted, if China were to issue a prohibition order under this law, it would make it illegal even for a subsidiary of a US bank or any company based in China to comply with US sanctions. Failure to abide by this order could lead to asset seizures. Recent events have shown China increasingly using such legal devices to impose sanctions on US companies.
Still, if Trump imposes a 60 per cent tariff, it will probably reduce US imports from China to 4 per cent, down from 14 per cent in 2023. There is no denying that the Chinese economy will be hit, but China, as mentioned, can and will retaliate. But China can and will also diversify its exports.
China’s non-US Options
After Trump began ‘trade war 1.0.’, it reduced US imports from China, but China’s exports to the rest of the world have increased since 2018. Thus, the net effect of US tariffs has not necessarily led to an increase in US exports to the rest of the world. Therefore, if the ultimate purpose of Washington’s ‘trade war’ on China is to restrict China’s growth, it has failed badly. There is little denying that ‘trade war 2.0.’ will fail again.
Since Trump is expected to impose tariffs worldwide, this will only help China find willing buyers of its relatively cheaper products. Thus, Beijing will have a much less hard time finding new buyers than policymakers and media analysts in the US seem to believe at the moment. Despite the ‘trade war’ started by Trump and maintained by Biden, China’s total contribution to global exports is 17 per cent, up from 12 per cent during the first Trump presidency.
Where are these exports going? Of course, to the rest of the world. In the coming months, China will be keen to expand it even further in the Global South. Chinese giant Electric Vehicle makes, BYD, recently began its operations in Pakistan. This is just one example of a much broader pattern laying well beyond Washington’s capacity to hit and stall.
Therefore, while the Trump administration can start its ‘trade war 2.0.’, there is little denying that its immediate brutal impact will fall equally on US consumers, who will be forced to buy much more expensive products. Unlike the US, Beijing has already taken steps to help its people increase consumption, which will help offset the impact on exports. China’s recently unveiled US$1.4 trillion package is a key step that would help local governments deal with debts and consequently allow consumers to spend more. Increased domestic consumption means less reliance on exports in the long run. Beijing, in other words, is ready for the war. There are no indications that the US government and consumers are.
Salman Rafi Sheikh, research analyst of International Relations and Pakistan’s foreign and domestic affairs