BEIJING – With President-Elect Donald Trump intensifying his tariff threats against China, Beijing is strategically positioning itself to initiate negotiations with the incoming U.S. administration, aiming to avert another full-scale trade war, according to analysts.
Armed with insights from the previous trade skirmish under Trump’s first term, China is amassing bargaining chips to negotiate on various fronts, including trade, investment, and technology. This move comes as China’s economy, though dominant in certain global sectors, remains vulnerable to further economic pressures.
This week, China launched an investigation into U.S. chip giant Nvidia over alleged antitrust violations, following its earlier decision to ban exports of rare minerals to the U.S. “We have to look at this as the opening bid in what will likely ultimately turn into a negotiation with the U.S. rather than just an imposition of tariffs and everyone walks away,” said Fred Neumann, HSBC’s Chief Asia Economist.
China has shown signs of being better prepared for potential tariff impositions, except perhaps for an extreme scenario like a 60% tariff on all Chinese goods, noted George Magnus, a research associate at Oxford University’s China Centre. The shift in China’s economic focus towards sectors like electric vehicles and green energy has reduced its reliance on traditional American imports like Boeing jets.
However, China is not self-sufficient. Analysts argue that a new trade war would disproportionately affect China, given its dependency on U.S. imports for advanced technology and its need for U.S. consumer markets, especially with global trade outlooks being pessimistic and domestic demand weak.
Alicia Garcia-Herrero, chief economist for the Asia Pacific at Natixis, highlighted that Beijing aims to negotiate before Trump enacts further restrictions on U.S. high-tech exports and to secure the renewal of the U.S.-China Science and Technology Agreement, which lapsed in August. The commercial viability of China’s own advanced chip technology by companies like Huawei remains uncertain, pushing for negotiations to ensure continued supply of American chips.
Historically, it took China two years to commit to buying an additional $200 billion in U.S. goods under the “Phase One” agreement. Now, China might leverage new incentives, like increasing purchases of U.S. oil and liquefied natural gas, to sweeten the deal.
Amidst these negotiations, China’s commerce ministry has expressed openness to dialogue with Trump’s economic teams. However, Beijing also holds significant leverage with potential retaliatory measures if it feels negotiations are not fruitful. U.S. firms in China are already experiencing market access issues, with business sentiment at its lowest since 1999, according to the American Chamber of Commerce in China.
Trump’s proposed tariffs also aim at pressuring China over non-economic issues like fentanyl control, which Neumann from HSBC warns could make trade disputes more intractable. This approach reflects a tit-for-tat strategy similar to China’s past economic coercion tactics.
As both nations navigate this complex economic landscape, the outcome of these negotiations will be crucial in shaping not only bilateral trade but also the broader global economic environment.
