On 2 April 2025, the Trump administration surprisingly announced sweeping reciprocal tariffs on all countries, far exceeding market expectations. This move led to a sharp decline in US stock markets and caused turmoil in global capital markets, significantly heightening the risk of a global recession.
Faced with this crisis, countries around the world are looking for ways to respond, and China’s response is particularly critical. As the world’s largest trading nation and second largest economy, whether China can steady itself will be crucial for global stability. Having long endured pressure from US tariffs, China has accumulated coping experience and developed a bottom-line mindset — its response warrants close attention.
Impact on China still manageable
The direct impact on China this time is substantial. The US has imposed an additional 34% tariff on Chinese goods, on top of the existing 20%, meaning all Chinese exports to the US are now subject to tariffs of up to 54%, with some products facing rates of 65% or more. Such extreme tariffs may not be fully absorbed by the supply chain, effectively shutting most Chinese products out of the US market.
However, the macroeconomic impact on China is expected to remain within a manageable range. In recent years, China has steadily built its development capacity and carried out strategic adjustments to cope with an increasingly severe foreign trade environment. With the “dual circulation” strategy as its core, China has been systematically reshaping its external economic ties, particularly reducing its economic dependence on the US.
China’s trade dependence has dropped from 67% in 2006 to 33% in 2023, and exports to the US now account for only around 15% of total exports. Meanwhile, China has been actively diversifying its international markets, with total exports to global south countries already surpassing those to developed nations. This diversification helps cushion the impact of US tariffs. Domestically, targeted policy support for foreign trade enterprises will also likely be rolled out.
Impact on US consumers and producers
The US’s tariff strategy marks a clear departure from US President Donald Trump’s first term, which mainly targeted China. Back then, China was able to bypass tariffs by setting up supply chains in third countries and exporting indirectly to the US, which limited the effectiveness of the US tariffs. This time, the US is imposing reciprocal tariffs on all countries — especially those closely linked to China’s industrial chain — in an effort to plug previous loopholes. But such a broad trade war may backfire. Can US consumers and producers bear the inflation and rising costs caused by high tariffs?
China exports a wide variety of industrial products, components and consumer products to the US, which are theoretically replaceable. However, with the US imposing tariffs on all countries, the ability to substitute Chinese products has been significantly reduced.
Even if some countries negotiate tariff exemptions, their products may still lack the price competitiveness and supply capacity to fully replace Chinese goods, especially affordable, high-quality intermediate industrial goods and raw materials. Excluding China will not only fuel US inflation, but also exacerbate obstacles — such as high costs and the lack of a supporting industrial ecosystem — to reshoring American manufacturing. These are problems that China is uniquely positioned to solve, at least for the next decade.
Recognising the US’s vulnerabilities, China swiftly retaliated the day after the US’s tariff announcement, imposing a reciprocal 34% tariff on all American imports, along with a series of non-tariff countermeasures. This has dealt a significant blow to US exporters, as China can relatively easily find alternatives to American products from other countries. With a population of 1.4 billion and a rapidly growing economy, China is the world’s second largest importer, just behind the US. Abandoning such a massive market will be a nightmare for American exporters.
New form of globalisation?
By taking the lead in launching reciprocal countermeasures, China also aims to play a demonstrative role on the global stage, rallying other affected countries against US unilateral hegemony. The US has now waged a trade war against the world, drawing criticism and opposition from nearly every country. Even Western alliances are showing signs of fragmentation, leaving the US morally isolated. In the eyes of the world, the US is now a disruptor of global development, placing its own interests above those of the international community.
These comprehensive tariffs will drastically reduce the US’s foreign trade volume, accelerating de-dollarisation and potentially triggering a US debt crisis. The US’s strategic retreat from global affairs provides China with a rare opportunity for international expansion — one that could benefit China’s long-term development and offset the short-term losses from the trade war.
China will seek to strengthen ties with the EU, Japan and South Korea, while deepening cooperation with BRICS and the global south to promote a new form of globalisation. This may well become a watershed moment for a new era.
Contest of comprehensive national strength
In short, under the weight of reciprocal high tariffs, both China and the US will suffer significant losses. This is, in essence, a contest of comprehensive national strength. Both sides hold key bargaining chips, like a staring contest to see who blinks first.
But this deadlock must eventually be broken, as neither side can endure prolonged ultra-high tariffs. China and the US will ultimately return to the negotiating table.
In fact, both still share broad common interests and a mutual desire for dialogue. China has consistently expressed a willingness to resolve disputes through peaceful negotiation. The US, for its part, is using high tariffs as leverage to secure its interests at the negotiation table.
For instance, the US is focused on reshoring manufacturing and creating jobs for industrial workers, while China is the world’s leading manufacturing power. The two sides could explore cooperation in non-sensitive sectors or even in third countries such as Mexico. Such industrial cooperation could help ease strategic tensions and potentially open a path towards building some level of political trust between the two nations.
This article was first published on
ThinkChina on 7 April 2025.