Newly translated documents discussed in these analyses include:

1. China’s Foreign Trade under the New Pattern of Development: New characteristics, new advantages, and new considerations by Sun Xuguang, PhD candidate at the School of Economics and Management, University of Chinese Academy of Sciences; and Zhu Caihua, professor at the Institute of International Economics, University of International Business and Economics.
2. Decoding the Impact of External Demand under the Tariff Storm by Guan Tao, global chief economist at BOCI China.
3. The Impact of the New Trump Administration’s Policies on China’s Economy and Trade by Jiang Zhao, associate researcher at the Ministry of Commerce-affiliated Chinese Academy of International Trade and Economic Cooperation; Dong Chao, researcher at the Chinese Academy of International Trade and Economic Cooperation; and Fu Jiang, assistant researcher at the Chinese Academy of International Trade and Economic Cooperation.
4. Preparing for the Worst, How China Should Respond to Extreme Tariff Policies by Shen Jianguang, chief economist at JD.com; Fan Lei, director of research at JD.com; and Jiang Chuanyue, macro researcher at JD.com.

Jump to commentary from:

Jeannette Chu | Karen Sutter | Michael Enright

Nothing is more top of mind right now for political leaders, government officials, and business executives around the world than the U.S.-China trade relationship. It has been a whirlwind of policy shifts and escalating tariff announcements by both sides. Other retaliatory actions, including the Chinese Ministry of Commerce (MOFCOM)’s rolling announcements of export restrictions on critical minerals, further amplify trade tensions. Add to this China’s designations of U.S. companies on China’s Unreliable Entity List, first-time designations on the Export Controlled Party List, and antimonopoly investigations into Nvidia and Google. If it were possible to characterize a trade war as a “hot” war, this might be an appropriate moment to do so.  

These readings are built around a theme of “China’s Trade Policy Under Trump 2.0.” And whilst it is true that the reading materials attempt to extrapolate from the first Trump administration—(“Trump 45”), what the current administration will do, there is much more to China’s evolving trade policy than just responding to the current administration’s (“Trump 47”) tariff actions. For example, each of the selected readings addresses the current malaise infecting China’s domestic economy by recognizing that increasing domestic consumption will not be enough and prescribes accelerating domestic reforms as a key means of lifting the economy out of its doldrums. Just as we saw during the “Two Sessions” last month, moderating domestic economic woes is paramount in driving economic, fiscal, and industrial policy as well as trade policy.  

In the second article, “The Impact of the New Trump Administration’s Policies on China’s Economy and Trade,” by researchers from MOFCOM’s think tank, the Chinese Academy of International Trade and Economic Cooperation, recommends “accelerate(ing) internationalization of the RMB including encouraging foreign financial institutions to use China’s payment system, the Cross-Border Interbank Payment System for RMB transactions. The authors also conclude that Trump 47 policy proposals centering around tax cuts and tariffs would face headwinds from voters, interest groups, partisan politics, etc., and could be difficult to implement due to the need for congressional action. This article was only published on March 18; before President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs and has not aged well.   

This optimistic view of limitations on Trump 47 tariffs is also found in the article “Preparing for the Worst, How China Should Respond to Extreme Tariff Policies.” Despite this grim title, the authors suggested that even 60 percent tariffs on Chinese goods might not be fully implemented due to fears of inflation. The current 145 percent tariffs on many Chinese imports to the United States certainly shatter all thoughts of a 60 percent tariff ceiling. Yet this article was the only one to mention the impact of U.S. export controls and acknowledge the possibility of even more restrictive controls on strategic commodities. It is also interesting to see the authors call for increased participation in multilateral organizations and mechanisms, particularly at a time when the United States appears to be withdrawing from longstanding forums for global engagement.  

 “China’s Foreign Trade Under New Patterns and Development” posits a shift from China’s foreign trade being driven by external factors, which the authors describe as “the international great circulation,” to a “domestic great circulation” and ultimately a dual-circulation model for foreign trade. Their extensive discussion of the importance of talent in driving scientific and engineering discovery and innovation should serve as a clarion call to action for U.S. policymakers who, thus far, have focused unilateral export control actions on inhibiting the flow of hardware, particularly AI-relevant chips, to China. The authors assert that China’s strong education system and talent development have enabled China to withstand efforts to exploit “chokepoints” through technological “blockades.” The growing flow of research and engineering talent from the United States back to China is likely to accelerate China’s ability to meet goals for indigenous development and production of advanced semiconductors, thus meeting the authors’ exhortations to create a new international circulation model in the face of “decoupling and chain breaking.” 

All these articles provide clues on how Chinese leadership might respond to Trump 47’s efforts to bring China to the negotiating table. It will be important for U.S. policymakers and negotiators to understand that China in 2025 is vastly different from the China that signed the Phase One deal in January 2020. Beijing’s reactions to Trump 47’s threats of “secondary tariffs” on countries that buy oil from Venezuela as well as how both countries address the steady rollout of new U.S. national security actions including Section 232 investigations into semiconductor, pharmaceutical, critical minerals and truck imports present opportunities to change the trajectory of this consequential trade relationship.  

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The articles translated for Interpret: China focus on the potential effects and options for China with regard to U.S. tariff actions. The articles were published before two-way tariff hikes reached their mid-April 2025 peak and are generally sanguine about China’s ability to cope with a sustained high-tariff environment, particularly over the mid-to-longer term. People’s Republic of China (PRC) leader Xi Jinping’s insistence on positive views of China’s economy may have constrained the extent to which the authors explored more serious and negative consequences for China. The articles also may aim to shape a narrative favorable to China. Among their recommendations, Jiang Zhao and Dong Chao of the Ministry of Commerce’s think tank, CAITEC, recommend shaping international economic narratives to refute U.S. economic hegemony.   

Several authors discuss China’s “new development pattern” and are mostly optimistic about China’s ability to diversify trade and use domestic consumption to drive growth. The authors emphasize fiscal stimulus (in a nod to monetary policy constraints) but do not discuss the constraints of China’s long-standing reliance on fixed asset investment and exports to drive growth. The articles do not address the potential effects if countries act to counter surges in PRC exports or restrict PRC investment. Additionally, they mostly do not discuss PRC countermeasures and their effects (e.g., tariffs, import and export controls, VAT export rebates, export subsidies, currency devaluation, and market restrictions), although Guan Tao of BOCI (BOC International, which is the investment banking arm of the Bank of China) implies a role for price coordination and recommends export financing. 

Sun Xuguang and Zhu Caihua are bullish on China’s prospects. They discuss longstanding PRC efforts to diversify from the U.S. market and U.S. technology and see China’s (protected) market as a base from which PRC firms can expand globally. They reference sectors for growth that face overcapacity (e.g., electric vehicles) and in which PRC firms are displacing foreign competitors (e.g., autos and information technology).  

Guan Tao is an outlier in assessing that China’s domestic demand is weak and unable to replace U.S. exports. Guan considers the risks of PRC deflationary pressures and of countries ganging up on China. He sees U.S. tariffs affecting both PRC imports and exports, noting that about 80 percent of PRC imports support manufacturing for export.  

Shen Jianguang et al. see contradictions in Trump administration policy objectives and their effects. They view U.S. tariffs as unsustainable and anticipate negotiations in which China can manage the United States by committing to import U.S. goods through purchases by state-owned enterprises. They imply that commitments might be sufficient, noting that the United States did not enforce the 2020 Phase One deal and related purchasing arrangements. Unlike Sun and Zhu, these authors acknowledge the importance of U.S. technology to China and the risks of sustained U.S. controls. 

As the Trump administration focuses on goods trade, these writings recommend that China focus on expanding services trade, new trade agreements (e.g., CPTPP), and a “globalization” of PRC firms’ operations (to avoid tariffs). This approach echoes China’s response to the global financial crisis when it sought to expand trade and PRC firms’ presence overseas through development funds and projects with foreign governments in what became China’s One Belt, One Road initiative. The CAITEC authors anticipate a rise in global frictions, new agreements, and reshoring, but do not explore how these trends challenge China’s export model. They see opportunities in renewables with a bifurcation of “new” and “old” energy markets and in promoting the renminbi with a diversification of the global monetary system. Such efforts face limits given potential foreign countermeasures to surges in PRC renewable exports and investment, and PRC capital controls. The authors see risks in holding U.S. assets but do not discuss diversification beyond expanded trade with Brazil and Russia. 

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The strengths of China’s economy are clearly reflected in the readings, but the challenges the Chinese economy faces are not. China is contending with a property bubble, difficult local government finances, a slowing economy, extremely high levels of new graduate unemployment, demographic decline, and international pushback against its party- and state-led industrialization. And that was before the current tariff war.  

The readings are somewhat incomplete in assessing China’s trade and investment position. They do not appear to acknowledge the flow of Chinese-made goods through third countries into the United States, or the exports of Chinese inputs and components that wind up in products destined for the United States, and therefore, underestimate the potential impact of a trade war with the United States on China’s economy. They also fail to recognize that China-based assembly can move quicker than many imagine. Samsung Electronics was one of the largest foreign investors in China as late as 2016, but by 2020 had virtually exited the country. As late as October 2023, Apple’s CEO, Tim Cook, claimed that more than 90 percent of Apple products sold worldwide were assembled in China. We note that Apple recently announced its intention to shift all iPhone assembly for the U.S. market out of China by the end of 2026. The ripple effect of such a move could affect 2–3 million workers in China and could reorient the smartphone supply chain away from China. 

The readings suggest that China’s response to the tariff war could involve stimulating domestic demand, a further opening and reform process, greater inward foreign direct investment, increasing internationalization of the renminbi (RMB), and general moderation in other dimensions. None of this is likely to occur or be effective. China will continue to find it difficult to stimulate consumption beyond government investment. Since the primary objective of China’s leaders for the economy is not headline growth but technological self-sufficiency and then superiority, current conditions are likely to result in less opening and reform. Foreign investors have become more wary of China, and China has become more wary of foreign investors, having added dozens of U.S. firms to export-control or unreliable entity lists. In uncertain times, there tends to be a flight to the U.S. dollar, and China shows no signs of loosening control over the RMB sufficiently to foster true internationalization. China’s initial reaction to the U.S. tariffs has been to become more nationalistic, more convinced of the wisdom of its ways, and more strident in its rhetoric than usual. Neither the party/government nor the general public appears to be seeking moderation at the moment.  

Finally, China’s leaders may underestimate the United States’ resilience. They tend to follow traditional U.S. media sources that are reflexively against the current U.S. administration and do not necessarily understand that those sources do not accurately reflect the views of half the country, the half that the current U.S. administration listens to. China’s ability to split major U.S. companies off from the U.S. government in the 2018–2019 trade war is also unlikely to be duplicated today.  

China, however, is not powerless. It has targeted specific U.S. weak spots by raising tariffs, halting imports of U.S. aircraft, and stopping exports of rare earths to the United States. The U.S. administration’s exemption of computers and consumer electronics from the recent tariffs shows that there is no alternative supply at the moment. And the U.S. public is certainly not united.  

Asymmetric views of the relative strength of the U.S. and China positions are likely to lead to more storms before a (hoped-for) calm. Interesting times indeed. 

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