By all measures, China seems like the perfect target for Donald Trump’s tariff hikes. It has the largest trade surplus in goods of all U.S. trading partners, it employs a series of unfair trade practices to gain a competitive advantage, and it has failed to live up to the terms of the trade agreement that it signed with President Trump in his first term.
Still, Mr. Trump hasn’t imposed new tariffs on China. The 10 percent tariff hike he threatened to impose for its lax fentanyl policies is significantly less than what he promised on the campaign trail. Moreover, it is substantially lower than the 25 percent tariff he may soon put in place against Canada and Mexico.
To be clear, this does not mean that tariffs on Chinese products are off the table. Instead, it means that he may be playing for the biggest possible win, albeit with a significant risk of failure. China is a formidable negotiating partner, so success is far from guaranteed. In the meantime, he seems to be directing his retribution toward America’s neighbors, with whom he has more leverage, making an early victory on trade more feasible.
Curbing immigration is a key priority for Mr. Trump, so linking tariff threats to efforts to seal the border is not surprising. However, more factors are at play. Both Canada and Mexico, separately, have over three-quarters of their exports destined for the United States, so they are highly dependent on the U.S. market. This dependence provides the United States considerable leverage, and may give Mr. Trump his quick tariff win.
China, on the other hand, presents more challenges. During Mr. Trump’s first term, Beijing demonstrated its resolve against U.S. tariffs every step of the way. It shrewdly focused its retaliatory duties on politically sensitive sectors, such as agriculture. Since then, it has developed an even bigger retaliatory toolbox, including holding back exports of critical minerals that the United States depends on.
China is already using these new tools. In response to actions the Biden administration took at the end of last year further restricting semiconductor exports to China, Beijing banned the export of gallium, germanium and antimony to the United States and began an antimonopoly investigation against the U.S. semiconductor company Nvidia. China also put a number of American companies on its “Unreliable Entity List” for sending weapons shipments to Taiwan.
China has also taken steps to reduce its dependence on the U.S. market, by boosting production at home and seeking other export markets. Only about 15 percent of China’s exports are destined for the U.S. market, a drop of more than four percentage points since 2018. This suggests the United States may have less negotiating leverage this time around, even with a weaker Chinese economy.
The earlier tariff war ended in January 2020 with the so-called Phase One trade agreement, negotiated between the United States and China after years of escalating tension. The agreement included commitments from China to buy certain levels of American goods and to protect intellectual property, among other measures. Mr. Trump was proud, referring to it as “a transformative deal that will bring tremendous benefits to both countries.”
The second phase of the agreement was derailed by Covid; Mr. Trump now appears poised to pick up where he left off. In addition to taking a softer stance on tariffs toward China than expected, he invited President Xi Jinping to his inauguration, extended the time period for selling TikTok and has continued to underscore his “very good relationship” with Mr. Xi. He has even mentioned visiting China during his first hundred days in office.
Furthermore, Mr. Trump prides himself on doing what others deem impossible or inadvisable and going against those who often focus on the downsides of his bold initiatives, rather than the opportunities. Mr. Trump’s bromance with Kim Jong-un of North Korea during his first term is a case in point.
Pursuing a new trade deal with China will not be easy. Beijing will be unwilling to alter its state-led economic model, which relies on subsidies, state-owned enterprises and robust industrial policies — the basis for many U.S. complaints.
To make a meaningful dent in our trade deficit with China, any trade deal would also need to address two emerging developments. First, global markets in sectors such as electric vehicles, solar panels and steel are being flooded with Chinese products, with no end in sight as Beijing encourages its factories to produce more output in key sectors and domestic demand remains weak. A trade agreement could address this problem through a combination of export restraints by Beijing and meaningful steps to boost consumer demand at home.
Second, Chinese companies have been avoiding U.S. tariffs by moving their operations to other countries. Since 2018, China’s announced foreign direct investment in Mexico has roughly tripled and has increased by about 170 percent in Vietnam. Any trade deal must address that. Provisions to strengthen rules of origin, which determine whether a product was manufactured in multiple countries, and to impose bans against certain Chinese companies’ exports to the United States should be on the table.
If Mr. Trump does travel to Beijing soon, there will be strong pressure for a big announcement during his stay. But sacrificing substance in order to reach a quick trade deal with China would be a mistake. A wiser approach would be to announce the start of negotiations and lock down a few early “down payments,” including a “catch up” purchasing deal to meet the targets set out in the Phase One agreement, as Treasury Secretary Scott Bessent noted in his recent confirmation hearings.
Trying to improve the U.S.-China economic relationship is a laudable goal — but only if Mr. Trump approaches those negotiations with the discipline equal to what Beijing will surely bring to the table.
Wendy Cutler is the vice president of the Asia Society Policy Institute.
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