A stronger, more confident China has little to fear from Trump 2.0

Donald Trump’s intentions towards China are clear, Beijing has seen him off before and this time, the US has less economic leverage, ironically, thanks to its decoupling efforts
Importantly, Trump’s trade tariff plans, if seen through, would only alienate the world, including US allies

Zhou Xiaoming

Published: 5:30am, 29 Feb 2024

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The possible return of Donald Trump to the Oval Office has caused considerable disconcert, even fear, in Western capitals from Brussels to Ottawa and also in Tokyo. Beijing, however, appears nonplussed. It has good reason to be.

To start with, the US presidential election will not substantially change America’s economic and trade policy towards China.

Former president Trump seems tougher on China than incumbent Joe Biden. Trump has suggested that the US should deprive China of its “most favoured nation” status, which World Trade Organization members accord each other. He has threatened a tariff of upwards of 60 per cent on all Chinese imports, from around 20 per cent now, and has vowed to decouple from China economically.

In contrast, the Biden administration seeks the best of both worlds: maximising America’s commercial interest from its economic engagement with China while thwarting its development.

It pushes for improved market access for US service providers such as financial institutions, and tries to get more non-strategic US products like agricultural produce and Boeing planes into China. To help keep US inflation at bay, it also allows Chinese consumer goods into the US with few barriers, except tariffs.

At the same time, the Biden administration’s technological blockade on China is arguably the most restrictive embargo it has introduced on a country since the end of the second world war, when it went to war against Japan and Germany. A second Biden term would probably see the US take more extreme and radical economic and trade measures against China.

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As China narrows the gap with the US economically and technologically, Washington’s fear of losing its hegemony could intensify, prompting it to double down on efforts to suppress China.

Consequently, restrictions on US investment in China could extend from foreign direct investment to portfolio investment. The semiconductor war is highly likely to spread to other sectors. The “high fence” looks set to become higher while the “small yard” could become an expansive field.

Biden and Trump share an ambition: beating China. Both see the country as the single biggest threat to US hegemony, and are determined to stymie its development. They differ only in approach, with Trump’s way more direct and savage. If China were a frog, Biden aims to bring it slowly to the boil while Trump wants to simply throw it into the boiling water.

I was once quoted by Bloomberg as saying that Biden was more dangerous than Trump because he would work with US allies against China. These days, it has become very difficult for Beijing to determine who would be the lesser of two evils, given the geopolitical environment. The best policy for China would therefore be to focus on internal business, rather than fret over the prospect of Trump 2.0, something beyond its power.

More importantly, China is better placed and more confident about coping with Trump than during his first term. The nation is much stronger and more resilient. Its economy has expanded by half since 2017. And it has addressed vulnerabilities in its supply chains and made substantial progress in developing a more integrated and efficient internal market, one poised to overtake the US in the coming years.

Its international competitiveness has also been enhanced in sectors such as renewable energy, civil aviation and artificial intelligence. Trump failed to bring China to its knees during his first term. He would find China more formidable a second time around.

Trump would also find he has diminished economic leverage over China, whose reliance on the US market has substantially diminished – ironically, thanks to Washington’s decoupling efforts. China’s exports to the US last year came to US$500 billion, a 13 per cent annual drop.

China’s share of US imports fell to 13.7 per cent in the first 11 months of 2023, its lowest level since 2004. That share peaked at 21.6 per cent in 2017, before the trade war began. Increasingly, the developing world is a more important market than the West. China is doing more trade with other developing countries than with the United States, European Union and Japan combined.

Beijing has dealt with Trump before. It is well-informed of his way of thinking and doing things, not least his “art of negotiating”, or bullying. If Beijing can be said to have coped with him reasonably well, it is now psychologically better prepared to confront him. As Sun Tzu said, he who knows both himself and his adversary would always win the battles.

To be sure, Trump’s China trade policy, if carried through, poses a serious threat. His proposed 60 per cent tariff hike, for example, would “shrink a US$575 billion trade pipeline to practically nothing”, according to Bloomberg.

But Trump’s China trade policy would also inflict much harm on the rest of the world. China contributed about one-third of global economic growth last year, more than the Group of Seven. Attempting to stall China’s economic growth amounts to sabotaging the main engine of the global economy.

In addition, Trump plans to impose a 10 per cent tariff on all US imports. Such a move would keep numerous products out of the US market, including from America’s Western allies. Furthermore, it is akin to a near-total ban on products from the least developed countries, who are granted zero-tariff market access under WTO arrangements.

It is unlikely that China would be alone in resisting Trump’s proposed trade policy. Indeed, China may find plenty of allies across the rest of the world as countries join forces to push back against Trump’s economic policy.

Zhou Xiaoming is a senior fellow at the Centre for China and Globalisation in Beijing and a former deputy representative of China’s Permanent Mission to the United Nations Office in Geneva