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Soon after US President Donald Trump's opening salvo of his second trade war, hitting more than five hundred billion dollars worth of Chinese goods with a ten percent tariff, China retaliated with tariffs of its own, So yeah, r escut It imposed ten to fifteen percent levees on fourteen billion dollars worth of American goods, including coal, crude oil, and cars with larger engines from the likes of GM and Ford. Those tariffs went into effect Monday, February tenth.
China's retaliatory tariffs on fourteen billion dollars of US goods also due to kick in today.
And within hours, Trump slapped a twenty five percent tariff on all steel and aluminium imports, industries dominated by China.
So if it's made in the United States, there is no tariff. What you have to do is make it in the United States.
We don't need it from another country.
Jenny Marsh, who oversees Bloomberg's coverage of Greater China economy and politics, says President Si Jinping doesn't appear to be flustered by the flurry of tariffs coming from Trump.
You know you saw Tudor and Mexico's leader both rushing together on the phone striking these deals. Chi Jinping setting a very sort of cool, calm, collective signal that he isn't going to be doing the same thing, like he's a much bigger fish, and China's going to respond to its own way.
And Bloomberg opinion columnist Sruly Wren says, China's response this time is very different from the first trade war in twenty eighteen.
China is in a much weaker position than twenty eighteen when President Trump started his first trade war. What happened is that the Chinese economy has become more reliant their exports than ever before, and China really doesn't want to kill the only bride spot in its economy.
Welcome to The Big Take Asia from Bloomberg News. I'm wanh. Today in the show, we unpacked China's response to Trump's barrage of tariffs. Can China avoid a full blown trade war with the US, and what's at stake for both countries going forward.
We have one very big power over China, and that's tariffs.
In the past few weeks, President Trump has proposed and delayed twenty five percent tariffs on Canada and Mexico. In comparison, the tariffs on China are much lower at just ten percent. But Trump says he's just getting started.
That was just an opening salvo. If we can't make a deal with China, then the tariffs who will be very, very substantial.
Jenny, and truly thanks for joining us. Let's get into it. In the first trade war, the US and China imposed of tit for tat tariffs on each other. Eventually things calm down a bit when the two signed a trade deal in twenty twenty. We're China basically committed to buying more goods from the US. Now, what does Trump really want from China this time around? How is it different from the first trade war?
Well, he says he wants to rebalance trade, and I think last time that meant getting China to buy more from the US. But this time it seems broader. It seems like what he actually wants is to get manufacturing back on American shores. He really wants to return America to this sort of like manufacturing powerhouse it used to be.
I think the interesting thing is that trade war won, and it was all about China, Whereas this time around, that's his goal rebalance trade, but with everybody to sort of take aim at all these different sort of partners and economies of America trades with to bring manufacturing back to the US. So it's sort of a much more ambitious and wide ranging doctrine that he's trying to roll out this time around.
Now, after you were tarras of ten percent on Chinese goods took effect last week, Beijing responded with its own round of tariffs. Truly, can you walk us through China's reaction?
It seems like China's response is quite muted this time. Instead of reciprocated ten percent broad based the teriff back on the US, China basically targeted a few things like oil and natural gas, and it also launched the Toothlip's anti trust probe into Google, which basically left China more than a decade ago. It really compared to twenty eighteen, the response was very muted.
And what's the rationale behind such a muted response, you think?
I think the problem with China is that this time around twenty twenty five, China is in a much weaker position than twenty eighteen, when President Trump started his first trade war. China had a notorious COVID zero lockdown, right, and after China exited the COVID zero lockdown in late twenty twenty two, what the middle class discovered was that the economy had long COVID as well. You know, like we are four years into the property downturn, and you
still see those unfinished apartment buildings pappered across China. These developers they have already gone defunct, right, and the government is not stepping in to finish those buildings and deliver presole units to households. Basically, the Chinese people just say, okay, the government doesn't care about consumer rights and saving deposits basically doubled from twenty eighteen to twenty twenty five, and youth unemployment is in double digits. People have money, they're
just not spending it. As a result, in twenty eighteen, consumption accounted for two thirds of China's economic growth. Now it's not even one third.
So basically, in twenty eighteen, China was in a much stronger position economically to respond, where they could say the Trump's tearuffs, fine, we can take a hit on exports because we can rely on the strong Chinese consumers. But now in twenty twenty five, Chinese economy is slowing. You've got Chinese consumers not spending. China's domestic demand has drunk so much that China has to rely on exports to absorb all that production.
Right, Yes, so China thought it was prepared, right, it was trying to beef up its own self reliance in the supply chain. But in fact, by ignoring the middle class and by failing to foster a strong consumer culture, China is actually more vulnerable than before because in the global trade war, the economy that has the most powerful
consumer base basically wings and Donald Trump knows that. Right, he can threaten terroriffs and say really nasty things on the global stage because he can basically shut off the access to the world's most resilient consumers, Americans, and China no longer has that.
Jenny on the US side, what do you see as the biggest difference between Trump's latest trade war and the one in twenty eighteen.
I think for Trump, this is faster and more furious than it was the first time around. First time around, and we had investigations, it was quite slow walking. First day in office. Is Bam, it's coming quick and it's broader.
I think for China, I think they've been here before, and last time, during the last trade war, they unleashed this sort of wolf warrior tactic that was going toe to toe with Trump on the rhetoric, swinging back to every tweet he said, and I think they realized I did them no favors because that wolf warrior approach didn't go down well with other countries, and it just meant that Trump hit back all that bit harder. And I think this time they have learned from it and they're
going to be very careful. So I think it was just they've had four years to think about this and how they do things differently this time around, and so I think they are coming back with a much more considered response. Last time they were just responding to the chaos of Trump when everyone was getting to know what Trump was like, and now they have a much better read on him and sort of how to protect themselves.
So how can China protect itself? I mean, there's been tark about it behaving like the more sensible adult in the room. Will that help it to avoid a full blown trade war?
I wouldn't necessarily call China being the adult in the room. I guess this time around, they are just trying to play a little bit smarter. Instead of going in a hard boxing match with Trump, they are playing basically the Chinese taichi. They're just trying to play soft and the elusive and the hope that the Trump will self destruct in the meantime.
If China's approach is like slow Tai Chi on tariffs, Trump is taking the opposite tack. On Monday, Trump doubled down and slapped a twenty five percent tariff on all steel and aluminum coming into the US. China doesn't export a lot of these metals directly to the US, but it does dominate the global steel and aluminum industries and sells its products to countries like Canada and Mexico. They then process the metal and sell it on to the US. So while the tariff is not directed China, China and
as trading partners, do end up taking the hit. After the break, we'll look at how She's handling Trump's tariffs and what China's trade war game plan could look like. Even though China's economy today is in a much more fragile state than it was in twenty eighteen. That doesn't mean that it's out of options when it comes to
fighting a trade war, Bloomberg. Shuly Wren says, in the years since Donald Trump first launched his tariffs, Beijing has been working to prepare the Chinese economy for a second strike.
In twenty eighteen, the trade war that President Trump launched basically was unexpected, right, and a lot of Chinese exporters they were hurt, for sure. But these days they are trying very hard to diversify the opening factories around the world. Basically have moved all everywhere, to Mexico to Vienna.
Besides moving supply chains outside of China, Truly, says, China has also reduced reliance on exports to the US. Back in twenty eighteen, the US accounted for close to twenty percent of China's exports. Now it's only some fifteen percent. Suly. What more tools or other tools does China have and its kit to deploy against Trump's trade war compared to twenty eighteen.
Well, China has TikTok this time. Basically it could be a good will towards Trump, because Trump has talked about wanting to have TikTok for cheap, and perhaps the social media can go IPO in New York and the US government can make quite a bigger profit out of it. So that's one tool that China could use and say, hey, let me give you a nice gift. How about making one hundred percent return on a bigger social media platform.
There are other tools that the Shi Chimpin could use, but none of them will be very palatable to him. For instance, the first time around, China did use the un it cheapened its currency to counter Trump's twenty five percent terraff. This time around, China could still do that, but the pressure of capital outflow is just that much stronger. The economy is not doing very well. Investment returns in China are very dismal, and people naturally want to put
money out of China. And if you weaken your currency by another, say ten to fifteen percent, the pressure of outflow it will just be that much greater. Another tool is perhaps using stimulus, the big one that China did after the global financial crisis. Again, it's not a good option because China's decked to GDB racial is already at three hundred percent. It's one of the world's most indebted nations.
So if we're talking about stimulus, we will have to talk about perhaps five percent of GDP every year for years to come, and that's going to add even more debt to the economy.
Now, China has a reputation for playing the long game, while the US, on the other hand, seems to have a much shorter attention span. How do we think that tilts the balance in these trade negotiations?
I mean present shating Ping of course thinks he has a lot more time to burn them present charmp Right, he's only seventy one year old, and he doesn't face term limits, not anymore, right, so he thinks he might have a long game. But I am worried that the government in Beijing could be a little bit too complacent. What if China's economy just collapsed over the next four years. There is systemic risks in China.
Here's Jenny Marshagan.
I think that's right. I mean, I think beijing strategies just damage limitation. Let's just try and get through the next four years with as little damage as possible. They know they're going to be tariffs, And I also wonder if thinking at where the opportunities might be for them, because this time around, they're not the only target for Trump. He's going to target the European Union. He said, he's making these extraordinary expansionist claims. He wants to sort of
buy Greenland and take over the guards of strip. That's going to go down, you'd think very badly in the global South. So for China, is there an opportunity there? One of the biggest things of Biden achieved was sort of getting the allies to come all in line with US policy. And if that's all going to fraction, now, can Beijing Brussels closer make amends with South Korea and Japan? So I imagine they'll sort of be looking for like where they can actually win during this trade war?
And how would Trump counter attack in this trade war? If he senses that China's gaining the upper hand, are we going to see him wheel tariffs with more force this time around?
All indications are yes, But then the caveat is Trump is so unpredictable the amount of uturns. He's already done. He's given Mexico and Canada this reprieve, and he's had four years to think about tariffs and what he didn't achieve last term, and he's got this sort of strong cabinet around him. He's got he's loyalists, people who was singing from the same hymn sheet, and he has much stronger mandate as well to do all of this.
Now, surely do you think there could be other ways that Trump could try to target China where it hurts.
Terriff is a very obvious choice for him, but there are other things that he can paint China on Presenting Pin cares very much about upgrading China's industrial sector right, and he can impose more export controls on China, and that hurts the sentiments back in China. Basically presenting Pain likes to portray himself as a big character on the world stage, and in China people don't call him directly by name. They call him Dada basically means mister big.
And he has talked a big game. He has talked about China dream right, and China establishing a multipolar world and not being dominated by this one big bully in the United States. Basically, but I'm not sure that his deeds have been matched by his words. Let's take a look at the economy. It's not going anywhere, right, He tried to buffer China against the external shocks after the twenty eighteen trade war, and the Chinese economy is more vulnerable than ever.
Now.
What can we expect in the weeks and months to follow on tariffs?
A lot of back and forth negotiations, and I suspect President Trump is going to paint him.
You know, there's this April one deadline, the trumpetermenication to report back to Trump on the first trade war, and once that happens, then I think sort of full more negotiations will start with China, So we'll have a restart of those sort of trade war talks we had last time, and it'll be interesting to see who she didn't think puts forward this time.
Do you see anyway for the US and China to avoid the full blown trade war.
I don't at this point. I think the deflationary pressure in China is so strong that Chinese companies will be very keen to export their products and services to the rest of the world, especially to the US, because profit margins are just that high, and that if President Trump really clears up while protecting US labor, he is going to use terraffs and the trade war to stop basically China eating the world.
What are the risks you see beyond trade? If the US is the instigator of trade wars with multiple countries, does this in any way leave room for China to step up on the world stage.
Trump is basically saying things which is so shocking to sort of the rules based world order that America has been the custodian of for decades, talking about taking over the guards a strip or buying Greenland, or even annexing Canada. This sort of does create some room, you think, for Beijing to sort of amp up its rhetoric around Taiwan. The US has been the leading figure opposing Chooting Ping's territorial kind of rhetoric around Taiwan, his ambitions to take Taiwan.
And if you then have a US leader who himself has all these sort of empire building aspirations, that makes it much harder for the US to sort of have the moral high ground to be trying to restrain China. I'm restrained. She That doesn't mean she didn't. Ping's gonna invade Taiwan anytime soon, but it just means he's got a little bit more space now around that issue. And I think that could be a dangerous.
Thing, Jenny, and truly thanks so much for sharing your insights with us. This is The Big Take Asia from Bloomberg News.
I'm wan ha.
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