With the curtain now down on the U.S. election, Trump has returned. Given that Trump clearly stated during the campaign that “tariff” was the most beautiful word in his dictionary and threatened to escalate the trade war with China, concerns have been reignited about China’s foreign trade exports and economic prospects in particular. 

However, in my opinion, whether Trump can fully deliver on his tariff threats against China remains to be seen. Even if Trump reignites trade frictions with China, there will also be opportunities within crises. On the basis of managing its own affairs well and getting economic performance back on a reasonable track, China should seek to benefit from the situation and avoid harm, look for opportunities within crises, and strive for the best outcome while planning for the worst. 

Trump’s return is not necessarily the worst outcome 

Following the announcement of the U.S. presidential election results, Trump’s return to the White House is assured. At present, the markets seem to believe that as far as the prospects for China-U.S. economic and trade relations are concerned, this outcome may have been the more detrimental one. Because the non-establishment Trump will act on his own inclinations, his trade policy towards China will be more extreme, more unpredictable and uncontrollable. However, this may be a kind of prejudice and misunderstanding. 

In the context of the United States’ supreme national interest being to maintain its super-hegemony, and containing China’s rise being the bipartisan consensus in the United States, the party in power will continue to target China, whether it is the Republican Party or the Democratic Party. Trump 1.0 opened the “Pandora’s box” of China-U.S. economic decoupling and science and technology (S&T) competition, but Biden’s four years in power further institutionalized and systematized it, establishing the three pillars of China strategy—investment, alliances, and competition. The resulting “small yard, high fence” and “decoupling and chain-breaking” have had an impact on China-U.S. economic and trade relations that is no less than that of the Trump 1.0 period. 

Taking China-U.S. S&T competition as an example, Trump 1.0, used a “three-pronged approach” of tariffs, blacklists, and national security, while during the Biden era it has been government subsidies and export controls, with export controls being upgraded to “scalpel-like precision.” 

During Trump’s first term, the actual average tariff rate on all Chinese goods imported to the United States rose from 2.7% to a high of 15.4%, then fell to around 12.5% after January 2020. Beginning in 2018, export controls and economic sanctions were used against Chinese-funded companies and institutions such as Huawei and ZTE, “weaponizing” the semiconductor supply chain. An executive order was issued in August 2020 banning the use in the United States of Tencent-owned WeChat and ByteDance-owned TikTok, but the ban was rejected by a U.S. court. 

In 2018, the Export Control Reform Act was amended to further empower the U.S. Department of Commerce to control the provision of goods, technology, and software from the United States to foreign countries in the name of “security.” The Department of Commerce has accordingly added more Chinese S&T enterprises to the Entity List and strengthened the review of exports of S&T products and technologies of relevant entities. In 2019, regulations on “deemed exports” were amended to restrict the channels through which Chinese people in the United States can obtain technology. In August 2018, the Foreign Investment Risk Review Modernization Act (FIRRMA) was signed, expanding and strengthening the authority of the U.S. Committee on Foreign Investment (CIFUS) to review and decide on investments by foreign entities in critical technologies, infrastructure, sensitive fields, etc., in the United States, resulting in the rejection of many Chinese-funded investment projects in the United States. 

In May 2019, Executive Order 13873 was issued, requiring the strengthening of “restrictions on foreign adversaries from damaging the U.S. information and communication technology supply chain,” further restricting Chinese information technology companies from investing in the United States, and restricting their equipment, products, and services from entering the U.S. market. In May 2020, [amended] “Foreign Direct Product” Rules were introduced, directly targeting semiconductor companies in countries and regions other than the United States. It prohibits those companies from using equipment and products derived from 16 categories of U.S.-origin technology and software and exporting them to companies on the Entity List. 

In November 2020, Executive Order 13959 was issued, prohibiting U.S. entities from investing in enterprises that the U.S. government has determined to be owned and controlled by the Chinese military, and prompting the New York Stock Exchange to take “mandatory delisting” measures against China’s three major telecommunications operators. In December 2020, the Holding Foreign Companies Accountability Act was signed, requiring the audit institutions of foreign companies listed in the United States to accept the inspection of their audit workpapers by U.S. regulatory authorities. This significantly increased the difficulty of Chinese companies going public in the United States to raise funds. 

The Biden administration has basically accepted all of Trump 1.0’s S&T competition weapons without question, including imposing high tariffs on Chinese products, using bans or import restrictions against some Chinese companies and products, imposing export controls on key materials, restricting investment in China concept stocks, restricting investment in China by U.S. residents, and imposing comprehensive financial and economic embargoes against individual enterprises. 

The Biden administration has also introduced new measures. In August 2022, it passed the CHIPS and Science Act, launching a subsidy package worth U.S. $52.7 billion, of which U.S. $39 billion is to be given to relevant manufacturing enterprises. However, companies receiving subsidies must sign an agreement with the U.S. government not to expand advanced chip production capacity in China and other regions of concern to the United States. 

On October 7, 2022, the U.S. Department of Commerce issued new regulations that, by setting specific hardware parameters, restrict China’s access to high-compute GPUs used to train artificial intelligence. At the same time, it imposes comprehensive restrictions on logic and storage chips with advanced manufacturing processes, and on supercomputing centers. Advanced Chinese chip manufacturing enterprises need a license to obtain U.S. equipment and technology, and U.S. residents are also prohibited from working in regulated enterprises. The new regulations have also expanded the focus of S&T competition from communications and chips to artificial intelligence. One year later, on October 17, 2023, the U.S. Department of Commerce updated its export control regulations, further refining and upgrading the restrictions. Furthermore, the U.S. government has also used the fact that the equipment and chips of European and Asian suppliers contain U.S. products, technology, and software to coerce them into implementing global containment actions against China in the semiconductor field. 

The Biden administration has continued the inherited investment restrictions, and continuously optimized and upgraded them as well. In October 2024, the U.S. government issued new regulations to control foreign investment by U.S. enterprises in mainland China in the fields of advanced semiconductors, quantum technology, and artificial intelligence in order to prevent U.S. investment in China from potentially “threatening U.S. national security.” The regulations specifically divide items into “prohibited” and “subject to notification” categories. The prohibited category mainly includes high-performance artificial intelligence, advanced semiconductor manufacturing, EDA and equipment, etc., with other items falling under the notification category. Biden also continued many of Trump’s “blacklists.” At the same time, some relevant bills explicitly require that departments such as Defense not procure the products of some Chinese companies. 

According to U.S. statistics, in 2020 (at the end of the Trump’s previous term), China accounted for 18.4% of U.S. imports, a decrease of 3 percentage points compared to 2017. In 2023 (a year before the end of the Biden administration’s term), the proportion was 13.7%, a decrease of 4.7 percentage points compared to 2020. In the first three quarters of 2024, it decreased further to 13.2%, a year-on-year decrease of 0.4 percentage points. 

Obviously, if Harris had won the election, the basic framework of China policy during the Biden era would likely have continued. It is just that the Democratic Party’s economic policy towards China is perhaps not so aggressive, with an impact that is more like a light rain than a sudden storm. However, while it is true that you cannot hide from an open attack, who says that a concealed attack is necessarily easier to defend against than an open one?

Trump’s tariff policy is subject to significant variables 

During the election campaign, Trump threatened to escalate trade sanctions against China in four ways: 1. canceling Permanent Normal Trade Relations (PNTR, i.e., Most Favored Nation treatment) for China; 2. imposing tariffs of 60% or more on all Chinese exports to the United States; 3. ceasing to import essential goods produced in China within four years; and 4. cracking down on Chinese goods exported to the United States through third countries. 

In contrast to Trump’s passion for tariff measures, the Biden era has had a greater preference for non-tariff measures, such as intervening in global production chains and supply chains in the name of “risk mitigation.” 

Trump 1.0 delivered on his campaign promises on trade policy to a large degree, and one cannot rule out Trump 2.0 wielding the tariff stick with ease, striking deftly in all directions. First, taking advantage of China’s current economic pressures and its greater dependence on external demand, tariffs would be used to hit China while it is down. Second, additional tariffs would be imposed to compensate for the decline in tax revenue caused by the implementation of tax reduction policies, thereby alleviating pressure from U.S. fiscal deficit expansion. Third, even without considering further suppression of China’s economy, tariffs may also be used as a bargaining chip to exchange for China’s compromises and concessions in other areas. Fourth, in early 2020, China and the United States signed the Phase One economic and trade agreement, which hit the pause button on China-U.S. economic and trade frictions. However, the agreement could not be implemented due to the pandemic. Trump may use tariffs to coerce China into completing the agreement and giving compensation. 

In 2023, Robert Lighthizer, who served as U.S. Trade Representative in the Trump administration from 2017 to 2020, denounced the consensus on the benefits of trade liberalization in his new book No Trade Is Free. If he again serves as U.S. Trade Representative, it will undoubtedly increase the probability of China and the United States resuming tariff conflicts. That probability would be raised further by China hawks such as Marco Rubio joining the Trump 2.0 inner circle. 

The Japanese example may provide a certain reference for the future of China-U.S. economic and trade ties. According to U.S. statistics, in 1986 (the year after the September 1985 Plaza Accord), Japan accounted for 22.2% of U.S. imports (0.8 percentage points higher than the historical high China’s share reached in 2017). That proportion has fallen to below 10% since 2003. In 2023 it was only 4.7%, and it dropped further to 4.5% in the first three quarters of 2024. Japan accounted for a record high of 56.4% of the U.S. merchandise trade deficit in 1991. That proportion has fallen to below 10% since 2014, reaching 6.7% in 2023 and 5.7% in the first three quarters of 2024.

Judging from similar indicators, the current China-U.S. economic and trade frictions have already surpassed the severity of the Japan-U.S. frictions at that time. For example, over the six years from 2018 to 2023, China’s shares of U.S. merchandise imports and merchandise trade deficits fell by 7.7 and 20.7 percentage points, respectively. From 1987 to 1992, Japan’s two respective shares fell by 4.1 percentage points and rose by 13.3 percentage points. 

Of course, it is not written in stone that Trump will deliver on his China trade policy, or even if he does, the timing may be later, and there will be uncertainties as to pace and intensity. 

First, the Republican Party swept both houses of Congress in this election, making it possible for Trump to focus more on solving domestic issues. The lackluster results of Trump 1.0 on the domestic side could be said to be one of Trump’s regrets. 

Second, given that China’s shares of U.S. merchandise imports and trade deficits have dropped significantly, there is no great political benefit from continuing to pressure China on trade issues. If Trump really cares about the U.S. trade imbalance issue, Trump 2.0 may be more interested in imposing tariffs on economies whose shares of U.S. merchandise imports and the trade deficit have risen significantly in recent years. 

Third, high inflation triggered public discontent, which was the main reason for the Democratic Party’s defeat in this election. Economic work was Trump 1.0’s strong suit, and fighting inflation will remain a top priority for Trump 2.0. But regardless of whether it is imposing a high tariff of 60% on China or a 10% tariff on the world in general, it would increase inflation, which may make Trump 2.0 apprehensive. 

Fourth, China’s share of the U.S. import market has declined, but its share of the global export market has risen, indicating that achieving a shift in the trade balance through foreign investment is an effective way to circumvent trade barriers. This is also the main reason why Trump 2.0 has threatened to impose tariffs on Chinese exports to the United States through third countries. However, blockading China’s indirect exports to the United States globally is easier said than done: On one hand, the screening process is difficult and costly, and on the other hand, it may arouse opposition or even retaliation from the places where Chinese-funded overseas investment enterprises are located. 

Fifth, since the Biden administration has carried forward and built upon many Trump 1.0 practices, Trump 2.0 can also learn from some of the Biden administration’s practices. In particular, whereas Trump 1.0 emerged as a sudden new force, and the government team was made up mainly of non-mainstream extremists, with this strong comeback, Trump 2.0 will receive support from more think tanks and mainstream figures, so its policies may well be more systematic and rational. 

In summary, China must be prepared for the China-U.S. economic and trade relationship to get worse before it gets better, but it must also avoid losing its head in a panic. Instead, it must remain calm and counter each move. Even if, in the long term, China-U.S. trade relations might develop into the situation like that between Japan and the United States today, in order to reduce the impact of short-term drastic adjustments on the Chinese economy, China must still actively create conditions for extending this period as long as possible. 

The key to actively responding to external shocks is to accelerate the implementation of existing and additional policies, further deepen and broaden reform and opening-up, get economic performance back on a reasonable track, turn market expectations around, and boost market confidence. This will strengthen China’s bargaining power and confidence in foreign economic and trade negotiations. At the same time, on the basis of simulation exercises and scenario analysis, China must closely follow and dynamically assess the progress of Trump’s China trade policy, and should take the initiative, lay the groundwork in advance, seek to benefit from the situation and avoid harm, look for opportunities within crises, and strive for the best outcome while planning for the worst.