Trade war escalation on the cards as China’s tit-for-tat tariffs on US goods kick in

BEIJING – It was no deal for the first round of the trade war between Washington and Beijing, with China’s tit-for-tat tariffs on some US$14 billion (S$19 billion) of American goods kicking in right after midnight (US time) on Feb 10.

The ball now appears to be in the US’ court, and further escalation could be on the cards as both countries have signalled that they are preparing to ratchet up the pressure instead of finding reconciliation.

An “escalation clause” in Mr Donald Trump’s Feb 1 executive order to slap a 10 per cent tariff on Chinese goods notwithstanding, the US President on Feb 9 told reporters that he

would announce reciprocal hikes on “every country” later this week.

In addition, Mr Trump has said that he will introduce this week new 25 per cent tariffs on all steel and aluminium imports into the US.

While China does not export a lot of steel or aluminium directly to the US – with most of its production for domestic use – the East Asian giant’s steel and aluminium exports have been on the rise. Many of these Chinese exports have gone to American allies such as Canada and Mexico, which were among the top five suppliers of steel to the US market in January.

Meanwhile, China’s measures, announced on Feb 4

and targeted to hit Mr Trump’s support base, were seen to be calibrated to leave room for potential dialogue, but also signalled that Beijing is ready to hit back more forcefully.

It has, after all, laid the groundwork since the previous trade war during the first Trump presidency between 2017 and 2021.

Beijing on Feb 4 announced tariffs of 15 per cent on American coal and liquefied natural gas (LNG), and 10 per cent tax hikes on crude oil, farm machinery, pickup trucks and other goods.

Access to Chinese exports of critical minerals – used by the US military industry – was also tightened.

There were hopes that both sides could avert this outcome only a few days ago, with Mr Trump saying on Feb 3 that he expected to talk to Chinese President Xi Jinping “probably in the next 24 hours”, only to say a day later

that he was in “no rush” to do so,

after Beijing announced a series of retaliatory measures.

Associate Professor Hoo Tiang Boon, a US-China relations expert at Nanyang Technological University, told The Straits Times that his suspicion was that China was reluctant to take Mr Trump’s call.

“After all, there was

already an earlier Xi-Trump call in January.

Having another one so soon – which is unusual, and at Trump’s calling – would make it seem China is afraid of US tariffs. Optics-wise, it is not a good look for Xi and China to be singing to Trump’s tune and timeline.”

He added that China could be holding back on a potential Xi-Trump meeting, to see whether the US would escalate tensions in the meantime.

“If they do, that will be the basis and excuse to cancel any potential meeting. If the US doesn’t, the Chinese can then consider whether to meet – it becomes part of the negotiation.”

Analysts had seen China’s response in this round as restrained, but crafted to send a message.

Shanghai-based international relations scholar Shen Dingli told ST that China’s imposition of a 10 per cent to 15 per cent tariff on a few imports from the US avoided a “full reciprocity” in the first round of the trade war.

Professor Zhiqun Zhu from Bucknell University in the US, an expert on Chinese politics and foreign policy, said the list of Chinese retaliatory actions on US exports shows that China’s response is well designed to hurt the US oil and LNG sector, as well as businesses exporting agricultural equipment.

“These are some of the strongest support bases for Trump. So the message is clear: The tariff war will hurt Americans,” he said.

The stand-off with China notably differed from Mr Trump’s dealings with US neighbours Canada and Mexico, whom he

had threatened

with 25 per cent tariffs,

along with China’s 10 per cent, on Feb 1.

A North American trade war

was at least temporarily averted,

after Canada’s and Mexico’s leaders said they would do more to tackle drug and immigration issues, the reasons cited for Mr Trump’s tariffs.

But China has signalled

that it is unlikely to do more on the fentanyl issue.

Its Ministry of Public Security said on Feb 2 that the issue was “an excuse” to impose tariffs on China, highlighted China’s anti-drug policies, and added that the root cause of the US crisis “lies within the US itself”.

Fentanyl is a synthetic drug used as a painkiller, but its abuse

has mushroomed into a crisis in the US

in the past decades, killing tens of thousands of Americans a year. The US has blamed China for being a source supplying the ingredients used to make such drugs.

Professor Shen noted that the US tariff increase of 10 per cent is in response to the alleged export of fentanyl precursors.

“As long as this issue remains unresolved, no Chinese retaliation will force the US to end the trade war.”