Reasons Behind China’s Limited Retaliation in the Trump Trade Dispute | Money News

As anticipated, China has responded to Donald Trump’s 10% tariff on its exports to the United States.

In retaliation, Beijing has implemented tariffs of 10-15% on various energy products imported from the US.

However, what has caught the attention of analysts—especially since Mr. Trump initiated the trade conflict over the weekend—is the comparatively mild approach taken by the president towards China, as well as Beijing’s composed reaction.

While America’s nearest neighbors, Canada and Mexico, faced 25% tariffs (which were reduced to 10% for Canadian energy exports) and have since been paused, China received only a 10% tariff.

Money blog: Now we know why Guinness tastes worse in Britain

This has prompted curiosity among many observers, considering that China is typically viewed as a more significant trade opponent by the US than Mexico and Canada, the latter being traditionally regarded as a close ally, especially through their collaboration in the ‘Five Eyes’ security alliance with Australia, New Zealand, and the UK.

The significant inquiry this raises is what prompted Mr. Trump to act in this manner.

The prevailing theory suggests that the president aimed to compel China to engage in negotiations and, by imposing stricter measures on a close ally like Canada, intended to send a clear signal to China’s leadership about potential future consequences.

This impression was further emphasized by Mr. Trump’s description of the 10% tariff on China as an “opening salvo” during a recent address.

Why is China remaining calm?

This is not the only intriguing aspect of this situation.

The other notable point is Beijing’s relatively subdued response. While Canada reacted immediately with countermeasures and Mexico indicated it would do the same, China initially only hinted at potential “necessary countermeasures” and mentioned its intention to file a complaint with the World Trade Organization.

Since then, Beijing has issued its own tariffs on US energy imports and carried out an antitrust investigation into Google, as well as adding the parent company of Tommy Hilfiger and Calvin Klein to a blacklist of “unreliable entities.”

This gives Chinese President Xi Jinping leverage to negotiate further should he engage with Mr. Trump in the coming days to seek a resolution to this dispute.

Nevertheless, this restrained reaction raises questions about China’s rationale.

There is a perception within Beijing that, considering Mr. Trump’s initial moves, they have escaped relatively unscathed compared to Canada and Mexico.

This composed response may also suggest that Beijing is aware of other strategies it can employ besides immediate retaliation.

China’s strategic advantages

For one, China holds $769 billion in US Treasury bonds. A significant sell-off of those, although damaging to China itself, would raise US borrowing costs.

Alternatively, Beijing could choose to allow its currency, the renminbi, to depreciate in the foreign exchange markets, as it did during Mr. Trump’s previous term.

Regardless, Mr. Trump’s latest actions are unlikely to alter the practices of Chinese businesses, particularly its manufacturers.

Over the years, especially during Mr. Trump’s preceding term, they have adjusted to US confrontations, often rerouting their exports to the US through third countries, notably Vietnam.

Chinese companies’ relief

Both companies were highlighted as the president closed the “de minimis” loophole established in 1938, which allowed goods valued under $800 to be sent straight to US consumers without import duties or strict customs examinations.

Read more:
What’s happening with Trump and tariffs?
How the UK is in a solid position to evade Trump tariffs

This has been a persistent issue for US retailers, and its elimination partly explains why shares of Walmart were not adversely affected, unlike other US stocks, on Monday.

Nevertheless, Shein and Temu appear to be approaching the news with equanimity.

They may even consider this a temporary disruption that will pass quickly, or they might believe that their massive purchasing power and supply chains enable them to simply redirect inventory elsewhere or even store it for the time being.

It’s also worth noting that Shein, which was banned from selling in India in 2020, has recently resumed its operations in the country.

Overall, Chinese enterprises have responded with relief to the recent developments, recognizing that the situation could have been much worse.

This likely explains why, despite the current slowdown in the Chinese economy, the authorities in Beijing have chosen to maintain a relatively composed stance in response to Mr. Trump’s actions.