With China Holding Firm, Trump Now Hopes US Allies Will Help Fight His Trade War

The US-China tariff war could well be taking an intriguing turn.

After the two sides raised duties on each other to an unconscionable level, the tariff war was shaping up into a geopolitical contest between them.

Each country also initiated a slew of other measures to hurt the other, but last week US President Donald Trump signalled that there could be an end to the reciprocal tariff hikes the two sides were making against each other. He said he did not want them to go higher “because at a certain point you make it where people don’t buy.”

In fact, he hinted at a possible deal. He said China had been in touch with the US, but declined to specify the nature of these contacts and whether they also involved Chinese President Xi Jinping.

In the meantime, Trump has extended the legal deadline for the Chinese company ByteDance to divest its short video app TikTok. On Thursday, the US also eased port fees on Chinese-built ships after an industry backlash. In February, a proposal had been mooted for imposing fees on Chinese-built ships of up to $ 1.5 million per port call. The Trump administration’s declared goal is to revive the US shipping industry.

The total US goods trade with China was estimated at $524 billion in 2024, with US exports to China totaling $143 billion and US imports from China at $438 billion – leaving a US deficit of $295 billion. This is the ostensible cause of the tariff war that really began in Trump’s first term and has morphed into a technology denial regime aimed at blocking or slowing China’s progress in a range of areas.

At present, while there is a 90-day pause in Trump’s global reciprocal tariffs, the tariffs on China remain, now reaching an astonishing 245% on some products. As for Beijing, it matched the US tariff for tariff and has now reached a level of 125% on imports from the US but it says that it won’t go higher because it would be meaningless: all effective trade between the two countries will have come to a halt at these tariff levels.

US tariffs' impact on China

China has serious economic challenges including widespread unemployment. No doubt the effects of the tariffs will hit its manufacturing sector – which produces toys, furniture, electronics for US consumers – hard. But all this should also be seen in the context of the fact that China has been preparing for this situation for a while. Its exports from China to the US had been steadily declining. In 2017, when the first trade war began, they accounted for 20% of Chinese exports, but today they are down to 14%.

China buys agricultural products like wheat, corn, soya beans and commercial airliners from the US. They have recently banned the acquisition of Boeing airliners and diverted agricultural purchases to Brazil and other countries.

China hopes to divert its exports by increasing trade with South-east Asia and BRI countries as well as promoting domestic consumption. It is well known that Chinese consumers are notoriously stingy, in part because of restrictive government policy. The savings rate of the country is an astonishing 44% compared to India’s 31% and the global average of 28.2%. Now, the government is unrolling policies to encourage its middle class to consume more through wage increases as well as monetary and fiscal stimuli.

It is perhaps of greater immediate importance that the Chinese have now halted exports of rare earth metals and magnets. China produces 99% of the world’s supply of heavy, rare earth metals and also 90% of the rare earth magnets which are more powerful than the conventional iron magnets. Consequently, it dominates the global rare earth metals supply chain, supplying more than 70% of US rare earth metal imports. The metals are used by high-end tech and defence companies to make semiconductors, electronics, weaponry, solar technologies, electric vehicles and other products. The magnets are essential for assembling everything from cars and drones to robots and missiles.

While most countries have agreed to negotiate bilateral deals with the US, China has taken a tough line and responded to the US tariff for tariff. Suddenly the US is realising that it needs its allies and partners for what is shaping up to be a geopolitical contest with China. They now want an alliance of countries led by the US to confront China. But the allies are playing it cool.

They have seen what happened on Trump’s “Liberation Day”, April 2, when all of them were hit by 'reciprocal' tariffs to varying degrees.

Allied trust in the US has been shaken. The EU has seen the extent to which the US is riding roughshod over Ukraine, embracing Russia, claiming Greenland and Canada and hearing Trump say that it was an organisation created to “screw us.” On April 8, the EU Commission president held a telephone conversation with China’s premier and both sides condemned US protectionism and called for free and open trade. An EU-China summit is planned for July.

On March 30, China, Japan and South Korea hosted their first economic dialogue in five years and pledged to advance a trilateral free trade agreement. Beginning April 14, Xi Jinping paid state visits to Vietnam, Malaysia and Cambodia to deepen China’s ties with them. As it is, China is the top trading partner of most countries around the world. An example is that of US ally Australia, whose exports to the US are only 15% of its exports to China.

'Great rejuvenation of the Chinese nation'

Trump’s concerns over China are not entirely wrong; the problem has been in the way he has sought redress. Beijing has manipulated trade, subsidised its industries, kept the value of its currency artificially low and stolen or coerced IPR from foreign firms, but the beneficiaries were not just the Chinese but US consumers and American corporations too.

True, the average American also suffered job losses from the way in which US manufacturing was gutted, creating the reservoir of resentment that is being exploited by Trump and his MAGA movement. But for this, American neo-liberal policies are to blame. Denouncing China for its systematic planning and shrewd investments that led to its manufacturing supremacy is a fool’s errand.

Given China’s history and its framing by the Chinese, the US should have anticipated Beijing’s reaction. Xi Jinping and his associates have stressed the target of completing the “great rejuvenation of the Chinese nation”. In their view, and in contemporary propaganda in China, the country suffered a “Century of Humiliation” at the hands of western imperialism. In these circumstances, peremptory demands such as those made by the Trump administration harkened to an era when China was compelled to cede rights to the British, Germans and Japanese in the 19th  and 20th centuries.

It was not surprising that Xi saw the US demands as “blackmail” and vowed to “fight to the end” to resist them. Earlier in the month, the Chinese official spokesperson posted archival footage of Mao Zedong declaring that China would “never yield”, no matter how long the war (in Korea) lasts. The Chinese believe they are now in an existential struggle with the US with both countries vying for economic, political and military supremacy.

Manoj Joshi is a Distinguished Fellow, Observer Research Foundation, New Delhi.

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