The Office of the Customs Tariff Commission of the State Council of China officially announced the escalation of the trade war between Washington and Beijing following the White House’s announcement of an amended presidential decree raising the tariffs that Washington will impose on imports from Beijing from 34% to 84%, in addition to the 20% already imposed. The total tariff then increased to approximately 104% effective Wednesday, April 23, 2025. The Chinese Ministry of Commerce responded by stating that the challenges facing Beijing from the Trump administration are significantly increasing, while stressing that China will take the necessary measures to address external challenges in light of the escalating trade tariff war with the United States.
The People’s Bank of China also confirmed that it will not allow sharp declines in the value of the Chinese yuan against the US dollar and that it has instructed major Chinese state-owned banks to reduce their purchases of US dollars, which would negatively impact the value of the US currency and its transactions in China and around the world. The Chinese government has emphasized that it still has significant financial and monetary maneuvering capabilities to rescue and save its economy from any US-led damage. Here, we find that China has a wide range of tools to respond to these US policies, such as further depreciating the yuan or imposing restrictions on US companies within China, which has already occurred since the beginning of the new Trump administration. China’s response to these American policies and decisions involves warning its citizens against traveling to the United States for tourism, work, or study. This would deprive the U.S. Treasury of millions of dollars annually, given the large number of Chinese tourists visiting the United States. Moreover, Chinese students studying at American universities are among the largest student groups there, contributing significantly to the American economy and national income through investment in education.
At the same time, several leaders of the Chinese Communist Party expressed their absolute confidence in the Trump administration’s inability to continue with these measures. This is due to Trump’s need for China to stop the flow of fentanyl from Mexico to the United States, the U.S. administration’s desire for China’s assistance in ending Russia’s war on Ukraine, and Trump’s unwillingness to take responsibility for shutting down the Chinese app TikTok in the United States due to objections from broad sectors of American public opinion and technology companies.
China is betting on the Trump administration’s inability to withstand this trade war, especially since the two countries are economically intertwined in many aspects. There is a massive amount of bilateral investment and significant digital trade and data flows between both sides, making it difficult for the United States to manipulate Beijing economically and commercially. China’s immediate response to Trump’s first round of tariffs was to impose similar tariffs on some US imports and restrictions on the export of rare earths. Beijing also officially opened an antitrust investigation into US companies investing in China, including Google.
China’s response to Washington was firm, announcing the imposition of counter-tariffs, while the Chinese government declared its readiness to bear severe consequences by taking more stringent measures, such as officially allowing its yuan currency, or the renminbi, to depreciate, which increased the attractiveness of Chinese exports. Chinese state-linked companies have also begun buying shares, in what appears to be a move to maintain stability in the Chinese market in the face of any pressure, changes, or challenges posed by US trade pressure.
China is also expected to exert maximum pressure on American companies within China to force them to leave the country or similarly pressure their management in Washington to halt its trade war with China. China has already begun initiating draconian measures against Tesla, the electric vehicle company owned by American businessman Elon Musk. Tesla has made significant investments in China and is vulnerable to retaliation from Beijing, especially since the American company conducts approximately one-fifth of its business in China. China will exploit this situation aggressively in the coming period.
The most prominent expectations and scenarios for China’s response to these US policies, decisions, and trade measures are that China will pursue several options available to respond in kind to the US administration. These options include the possibility of China considering reducing interest rates, assisting local governments of struggling exporters in finding new sources domestically and in non-US markets, and the possibility of China reducing tariffs on the rest of the world, thus further opening the world’s economy and trade to China in the face of Washington and the US market.
Beijing also imposed restrictions on 18 US companies that were dealing with China, most of them in the defense industry, in response to similar US measures after President Trump pledged to increase tariffs on imports from China from 104% to 125%. China, for its part, also officially announced restrictions on certain materials, particularly rare earths, which are important in the manufacture of high-tech products and electric cars in the US. The United States imports 80% of its needs for these minerals from China.
Many potential Chinese reactions to these US decisions are expected, such as the possibility of suspending all forms of Chinese cooperation with Washington regarding the drug fentanyl and a Chinese ban on imports of American poultry and other agricultural products, such as soybeans and sorghum, which primarily come from the United States.
The Chinese government, represented by its Ministry of Foreign Trade, also announced that Beijing needs to study its readiness in the coming period to see the Chinese economy completely decoupled from the American economy, an idea that is now gaining increasing support in the Chinese capital, Beijing. The Chinese government is also betting that many countries upset by the new US tariffs will begin to ally with China against the United States and that Beijing, with its massive market, represents a good alternative.
China is also betting on a mass exodus of US trading partners to China. China also asserts that raising tariffs on it would mean significantly higher taxes for American consumers and longer shipping times, which would be in China’s favor, given the pressure exerted by the American public on its administration to ease its pressure on Chinese products.
Perhaps the most optimistic scenario in this regard would be for the United States and China to hold private talks. It should be noted that President “Trump” has not spoken with his Chinese counterpart, President “Xi Jinping,” since returning to the White House, although Beijing has repeatedly expressed its willingness to hold talks with the US. If this were to happen, it would ease the pressure on both sides and perhaps find a way out of the mutual trade war.
