China has gotten off lightly on tariffs—for now

Many economists were surprised that China came in for gentler treatment in Trump’s first trade volley than Canada and Mexico. (Image: AP)
Many economists were surprised that China came in for gentler treatment in Trump’s first trade volley than Canada and Mexico. (Image: AP)

Summary

Economists expect U.S. levies on Chinese imports to rise further—but they also see scope for a deal.

China’s economy is vulnerable given its reliance on exports for growth.

China looks like it got off easy in President Trump’s first broadside in a new trade war. But few in Beijing expect it to be the last.

Instead, Trump’s decision to raise tariffs on Chinese imports by an additional 10% is likely an opening salvo in what is expected to be the most significant front in the president’s broader battle to reshape the global economic landscape to his liking.

Despite more aggressive initial moves against Canada and Mexico, China remains the Trump administration’s biggest trade target. The superpower is jostling with the U.S. for global clout and, having already taken a huge chunk of global manufacturing, is now racing to challenge American dominance in artificial intelligence and other advanced technologies.

Slapping much steeper tariffs on China—of 60% or more—was a signature pledge of Trump’s presidential campaign. That suggests the new tariff Trump says will be levied on Chinese goods starting Tuesday is merely a down payment in a series of increases aimed at rebalancing a trade relationship that the president sees as lopsided and unfair.

A key moment, analysts say, could come around April 1, when U.S. agencies are due to report back to the White House on the causes of and remedies for the country’s persistent trade deficits, and the national-security implications they entail. China’s exports to the U.S. exceeded imports from the U.S. by $360 billion in 2024, according to Chinese customs data, a gap that is 23% wider than when Trump first hit China with tariffs in 2018. China’s surplus with the world overall was an arsenal of weapons at their disposal to hit back, raising the specter of a full-scale trade war that could be damaging for both countries and painful for the global economy. China is especially vulnerable given its current reliance on exports for growth, a result of government efforts to juice manufacturing to offset a real-estate crunch and lukewarm consumer spending.

It isn’t yet clear if Trump’s ultimate goal in a trade fight with China is to negotiate a deal with Beijing over trade or use tariffs and other tools to engineer a more decisive economic break, the kind of “decoupling" advocated by prominent China hawks in his administration such as Secretary of State Marco Rubio. Still, economists see advantages for both sides in pursuing a deal to avert a drawn-out trade fight—though they say there will be hurdles to getting an agreement done.

“There are market forces that could push both parties towards making a deal," said Mansoor Mohi-uddin, chief economist at the Bank of Singapore, a private bank, citing Trump’s sensitivity to the gyrations of the stock market and Chinese officials’ anxiety over disorderly moves in China’s currency, the yuan. “Trump at the end of the day I think will be cautious about watching markets collapse and getting blamed for it."

The White House said Saturday that illegal immigration and the threat posed by fentanyl and other drugs constitute a national emergency under a U.S. law that gives the president broad powers to impose tariffs on imports. Energy imports from Canada face a 10% tariff and all other imports from the U.S.’s northern neighbor will face a 25% levy, the White House said. Mexico would be hit with a 25% tariff, and China with a 10% tariff, on top of existing levies on most Chinese goods that average about 14%, according to Goldman Sachs.

Many economists were surprised that China came in for gentler treatment in Trump’s first trade volley than Canada and Mexico, both ostensible U.S. allies with deep ties to the U.S. economy.

Rory Green, chief China economist at GlobalData-TSLombard in London, said he thinks that sends a signal that Trump is eager to negotiate with Chinese leader Xi Jinping and that decoupling isn’t his main goal.

“It seems he is moving on a deal footing and not putting Xi Jinping under a lot of pressure," he said.

China’s initial response was to say it would challenge the tariffs at the WTO, a process that can take years. It didn’t announce any tariffs on U.S. imports or other retaliatory measures, and the Ministry of Commerce in a statement called for “frank dialogue" between both sides.

China is now preparing for negotiations, The Wall Street Journal reported, with an opening bid centered on a commitment to clamp down on fentanyl-related trade, reviving a 2020 plan to buy more U.S. goods and an offer to increase investment in the U.S. in key sectors such as battery manufacturing.

Economists see some major obstacles to a workable agreement. China would likely request an easing of U.S. export controls on semiconductors and other advanced technology as part of any deal, which the U.S. imposed on national-security grounds. The U.S. is unlikely to be satisfied with promises of more Chinese purchases of U.S. products alone, since China missed earlier purchase targets and Trump has been signaling that he wants Xi’s help in bringing an end to Russia’s invasion of Ukraine. Extending talks into the arena of geopolitics could mean bringing up Taiwan, a self-governing democracy backed by the U.S. that China claims as its own.

Photovoltaic modules for solar panels in a factory in Suqian, eastern China.

On the flip side, Trump on the campaign trail said he would welcome greater Chinese investment in manufacturing in the U.S., though overcoming hostility in some parts of the U.S. could prove difficult. Chinese officials have been dialing up stimulus efforts to boost domestic spending, which could help suck in more imports from the U.S. and elsewhere.

Some economists say one area that might prove fruitful in a negotiation is the currency. Trump has signaled that he wants a weaker dollar and, though a weak yuan has underpinned China’s rapid export growth in recent years, Xi might be persuaded that a stronger yuan and better U.S. relations are preferable to 60% tariffs, said Green of TSLombard. That might require the People’s Bank of China to take steps to boost the currency by selling its hoard of dollar assets, pushing up the yuan relative to the greenback.

China is wary of repeating what it considers the Japanese mistake of agreeing to U.S. demands to revalue its currency in the 1980s, but officials might see themselves as better prepared to manage the risks of the stock and real-estate bubbles that followed than Japan was, he added.

With these and other uncertainties hanging over a deal, many economists are sticking with their forecasts for steeper tariffs on China for now. Not all expect Trump to follow through with tariffs as high as 60%, with many anticipating average tariffs on Chinese goods reaching 30% or 40%.

Tao Wang, chief China economist at UBS in Hong Kong, told clients Monday that she expects growth will slow to 4% in 2025, compared with 5% in 2024. That reflects her assumption that tariffs will rise to about 60% on a big chunk of Chinese goods before the end of the year, hitting exports and delivering a knock-on blow to business investment and consumer spending. “There remains a lot of uncertainty on the timing and scale of additional tariffs on China," she said.

Write to Jason Douglas at jason.douglas@wsj.com

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