More Method than Madness: China’s Response to Trump’s New Tariff War

Minxin Pei CLM Issue 85 September 2025.pdf

Download PDF • 323KB

China’s initial response to America’s new trade war was cautious and restrained due to uncertainties about the Trump administration’s objectives. But the high tariffs announced on “liberation day” in early April left Xi Jinping no alternative but to retaliate forcefully. By demonstrating defiance and resolve, Xi likely hoped both to rally domestic public support and to force the U.S. to show all its cards. At the same time, however, Xi also attempted to preserve a working relationship with Trump by avoiding antagonizing him personally and by signaling a willingness to de-escalate. In terms of domestic economic policy, China opted for more rhetorical reassurance than a substantive stimulus because of its limited resources and Beijing’s desire to keep its powder dry for future contingencies. On the external front, Chinese leaders adopted a wait-and-see stance. Instead of aggressively exploiting the fallout from Trump’s tariffs on all its trading partners, China pursued a differentiated policy that prioritized Asia with moderately more intense diplomatic engagement while avoiding any new bets on Europe, where the relationship with China is complicated by both pre-existing trade tensions and Chinese support for Russia. With a 180-day truce that avoided a complete meltdown in Sino–American commercial relations, China has demonstrated a more nuanced and effective – approach to the Trump administration and a strategic mindset that is focused on the long term.

Before President Donald Trump reignited the U.S.–China trade war shortly after his return to the White House this year, China appeared too vulnerable to put up a much of a fight. Mired in a protracted real estate crisis and burdened with high levels of debt, the Chinese economy was struggling to regain its pre-pandemic momentum. By contrast, the U.S. economy was in robust health, with full employment, above-trend growth, and booming asset prices. Given its internal weaknesses, the best course of action for China would be a quick resolution to the crisis by accepting unfavorable terms, as nearly all U.S. trading partners would do later. However, events from February to August reveal a far more complex pattern in the Chinese response to Trump’s renewed trade war. Initially, China responded to Trump’s first round of relatively moderate tariff increases with symbolic retaliation, most likely to avoid escalation without knowing the next steps the Trump administration would take. But after Trump announced an additional 34-percent tariff on Chinese imports on April 2, President Xi Jinping responded with strong retaliatory measures that not only matched Trump’s tariff increases but also included restrictions on exports of rare earth minerals. The tit-for-tat tactic led to an instant escalation that raised U.S. tariffs on Chinese imports to 145 percent and Chinese tariffs on U.S. goods to 125 percent. Thankfully, the de facto mutual trade embargo lasted only one month as both sides apparently concluded that they would be better off with a temporary truce than a protracted standoff. Through three rounds of negotiations conducted in Geneva (May 10–11), London (June 9–10), and Stockholm (July 28–29), both countries agreed to a truce that would suspend Trump’s “liberation day” tariff hikes and most of China’s retaliatory measures until November 10. Judging by the outcomes of the first phase of the new trade war, China has scored both gains and losses. In economic terms, China is arguably worse-off than it was before the return of Trump. Even with the truce, the effective average tariff rate on Chinese imports into the U.S. has risen from 20 to 51 percent.[1] The trade war has caused a significant decline in Chinese direct exports to the U.S. Compared with 2024, Chinese exports to the U.S. fell by nearly 21 percent between April and June.[2] The broad slowdown of economic activities in July was also attributed partly to the trade war.[3] Regardless of the ultimate outcome of the new trade war, the U.S.–China trade decoupling will reach a more advanced stage.

Despite such economic costs, President Xi apparently has emerged from this round of trade confrontation with Trump in a stronger position. China likely has also gained international prestige because of its defiance and willingness to stand its ground in a globally unpopular trade war. Even more impressively, China appears to have turned a crisis into an opportunity by using trade negotiations to pave the way for a potential summit between Xi and Trump in the fall of this year (most likely at the end of October). On the domestic front, although it is impossible to know whether Xi has bolstered his support, a reasonable assumption is that this might be the case because Trump’s tariff threats have lifted the electoral fortunes of political parties in Canada and Australia, as seen by voters who are more willing to stand up to Trump. After Trump threatened to impose a 50-percent tariff on Brazilian exports to the U.S. in July because of Brazil’s prosecution of former president Jair Bolsonaro for insurrection, incumbent president Luiz Inácio Lula da Silva saw a rapid rise in his public support.[4] Even though China is a one-party state, similar dynamics of nationalism may also be generating short-term support for its leader.

It is no accident that China managed to weather the first round of the new U.S.–China trade war with both substantive economic losses and perceived political gains. Analysis of messaging by senior officials and state-run media outlets, China’s escalatory counter-measures, policies to mitigate the effects of the trade war, and diplomatic moves to take advantage of Trump’s tariff war indicate that Chinese leaders most likely have developed in advance a comprehensive contingency plan to better position themselves in a new trade war with the U.S. The guiding principles of Beijing’s counter-strategy include: focusing on long-term domestic resilience, deepening ties with its Asian neighbors, shunning any substantive leadership role in building a broad anti-U.S. coalition, maintaining flexibility, and preserving room for maneuvering even when escalation is required to retaliate against the U.S.

China’s Balancing Act

In retrospect, China’s response to the new trade war resembles an inverted U-shape: initial restraint, simultaneous escalation, and reciprocal de-escalation. This pattern likely reflects a strategy the Chinese leadership has crafted in an environment of high uncertainty regarding U.S. intentions and moves. Given its relative economic weakness, China had no interest in rapid escalation. But at the same time, capitulation was not an option. The optimal strategy was to demonstrate both a willingness to compromise and a resolve to escalate. When Trump announced, on February 1, an increase of 10 percent, Chinese retaliation was mixed. Its tariff increases (15 percent on U.S. LNG and coal and 10 percent on oil, agricultural machinery, and large-engine automobiles) were moderate. But the inclusion of non-tariff measures signaled its resolve to escalate. China placed two American companies on its “unreliable entities list” and announced export controls on five metals – tungsten, tellurium, bismuth, molybdenum, and indium – that are important inputs for semiconductors and military equipment.[5] A notable indication that Chinese leaders did not want to overreact or foreclose potential paths to a compromise is the absence of a propaganda campaign rallying public opinion and denouncing America’s trade war. An examination of news stories in the official mouthpiece, the People’s Daily, shows that rhetoric about the trade war was relatively muted in February and March. Most notably, during this period the People’s Daily did not publish a single commentary authored by Zhongsheng (钟声), which is the most authoritative voice of the publication and likely represents the views of the top leadership.[6]

But China opted for rapid escalation after Trump unveiled the 34 percent “reciprocal tariffs” on April 2. The State Council announced on April 4 a tariff increase of 34 percent on all U.S. imports.[7] More importantly, China immediately implemented strict export controls on seven rare earth materials (samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium), placed eleven additional U.S. companies on its “unreliable entities list,” and singled out sixteen U.S. entities as targets of export control.[8] China’s tit-for-tat tactic continued as Trump dialed up the tariffs. After Trump raised the tariffs on Chinese imports to 84 percent on April 8, China quickly matched it and, for good measure, placed twelve more U.S. entities on its export control list on April 10.[9] Chinese defiance did not let up afterwards. In response to Trump’s decision to raise tariffs to 145 percent on April 10, China hiked tariffs on American imports to 125 percent but also declared that it would ignore America’s “numbers game” since any further increases in tariffs would be economically meaningless.[10] 

A notable feature of China’s April retaliatory measures taken is a concerted messaging campaign designed mainly to rally the Chinese public and to gain the moral high ground. On April 10 the Information Office of the State Council issued a long white paper, “China's Position on Some Issues Concerning China-US Economic and Trade Relations” (关于中美经贸关系若干问题的中方立场). As it would take weeks to draft such a document, release of this document indicates that Chinese leaders had likely made advance preparations to deal with most conceivable contingencies, including rapid escalations.[11] One key measure of the intensity of this messaging campaign is the appearance and frequency of commentaries authored by Zhongsheng. Between April 5 (the Chinese announcement of 34-percent tariffs on American goods) and May 13 (the day after the announcement of a truce following talks between the U.S. and China in Geneva), fourteen commentaries by Zhongsheng were carried in the People’s Daily. It is difficult to recall another time that the People’s Daily published commentaries representing the voice of the top leadership with such frequency. A close analysis of the fourteen commentaries by Zhongsheng shows that, before the announcement of the Geneva talks on May 7, these commentaries sought to convey a range of related messages. Besides blaming the U.S. for the trade war and defending the benefits of the multilateral trading system, these commentaries focused on the harm the new trade war will inflict on both the global economy and the U.S. After the U.S. and China announced the Geneva talks, commentaries by Zhongsheng changed their tone dramatically and began to underscore the desirability of dialogue as a means of resolving trade disputes.

Even though a new dispute over export controls would soon threaten to unravel the fragile truce achieved during the Geneva talks, the U.S. and China managed to resolve the dispute in London during June 9–10. An examination of official media coverage of U.S.–China trade disputes following the Geneva talks shows that the rhetoric became significantly milder and more restrained than it had been during the height of the trade war in April. A highly noteworthy feature of China’s propaganda campaign throughout this round of the trade war was its studious avoidance of criticizing Trump personally. The official Chinese media consistently blamed the U.S. government, not the president, for the trade war. This most likely reflected a top-level decision not to antagonize Trump or to endanger future direct exchanges between Xi and Trump.

This strategy apparently paid off later. The turning point in the new trade war was the phone call between Trump and Xi on June 5 – their first since Trump took office on January 21. The phone call paved the way for the London talks four days later. More importantly, it improved the prospects for a summit in 2025.[12] Perhaps to underscore the importance of preserving a working relationship with the U.S. despite trade and geopolitical tensions, a commentary by Zhongsheng on July 9 called for cultivating “a new generation of envoys for Sino–American friendship.”[13] Two days later, in Kuala Lumpur Foreign Minister Wang Yi met with U.S. Secretary of State Marco Rubio for the first time. Despite Rubio’s long record as a China hawk, the meeting seemed to have exceeded expectations because China characterized it as “positive, pragmatic, and constructive” (积极、务实、建设性).[14]

China tried hard to strike a balance between demonstrating resolve to escalate and signaling a willingness to negotiate in response to Trump’s new trade offensive. This delicate stance was likely motivated by China’s desire to avoid needless escalation in an environment of extreme uncertainty. Most obviously, run-away escalation would deal a painful blow to the struggling Chinese economy and possibly spill over into the bilateral military rivalry. Even though Trump’s national security team is filled with China hawks, Beijing was almost certainly relieved to see that the second Trump administration had not done anything regarding Taiwan or the South China Sea that would have required a tough response. But an uncontrolled escalation in the trade war risked provoking Trump to seek escalation dominance with whatever leverage at his disposal, including policy changes regarding Taiwan and the South China Sea. In addition, like other targeted countries of Trump’s tariff war, China simply did not know Trump’s real and ultimate objectives.

Maintaining this delicate balance was not easy for Beijing mainly because it had very limited access to Trump and his senior advisers after the outbreak of the trade war. Before Trump and Xi spoke directly on June 5, their only telephone call was on January 17, four days before Trump’s inauguration. Chinese foreign minister Wang Yi and his American counterpart, Secretary of State Marco Rubio, also had only one phone call (on January 24). After Trump imposed the first round of tariff increases on China on February 2, he said he was “not in a hurry” to talk to Xi.[15] This statement most likely made it difficult for senior administration officials to hold talks with China. Indeed, prior to the negotiations in Geneva on May 10, Vice Premier He Lifeng held only one “introductory video call” with Treasury Secretary Scott Bessent (on February 21). Before the escalation following Trump’s announcement of “reciprocal tariffs” on April 2, He Lifeng also had a video call with U.S. Trade Representative Jamieson Greer (on March 26). Without real access to Trump, Chinese leaders relied on visiting American business leaders, especially those perceived as personally close to Trump, both to gain a better understanding of Trump’s goals and to signal a willingness to compromise. On March 23, Premier Li Qiang met Republican Senator Steve Daines. He Lifeng met Kenneth Griffin, founder of Citadel and a Trump supporter, on March 24, and Steven Schwartzman, CEO of Blackstone with close ties to Trump, on March 25. Other prominent American business leaders whom He Lifeng met in April and May include Jensen Huang, CEO of Nvidia, Jamie Dimon, CEO of JPMorgan Chase, Harvey Schwartz, CEO of the Carlyle Group, and John Dugan, chairman of Citigroup. 

There is no evidence that these meetings helped Chinese leaders to better understand Trump’s objectives or to convey to the Trump administration their desire for compromise. Nevertheless, a reasonable conclusion to draw from Chinese efforts to reach out to American business leaders is that Beijing was anxious to gain more direct insights into Trump’s thinking and to keep the door open for compromise. By contrast, probably convinced that it possessed escalation dominance, the Trump administration displayed little interest in starting a dialogue with China until late April when the effects of embargo-level tariffs and China’s retaliation, in particular its suspension of exports of rare earth materials to the U.S., became real concerns to Trump.

In the end, it turned out that nothing could replace direct high-level talks between the U.S. and China. The three rounds of intense negotiations held between He Lifeng and Scott Bessent apparently enabled both countries to probe each other’s intentions and bottom lines and to reach a pragmatic, albeit temporary, solution.

Focus on the Domestic Economy

Although China’s use of tit-for-tat retaliation in the new tariff war has received most of the media attention, its long-term strategy actually remains focused on reviving and strengthening the domestic economy because the party’s senior leadership and most private-sector observers believe that, regardless of the near-term outcomes of the trade war, the broad commercial relationship between China and the U.S. will continue to deteriorate and that China’s best course of action is to put its own economic house in order. When he met Spanish Prime Minister Pedro Sanchez on April 11, Xi said, “Regardless of changes in the external environment, China will maintain firm confidence and focus its energy on doing its own things well” (无论外部环境如何变化，中国都将坚定信心、保持定力，集中精力办好自己的事).[16] The communiqué of the Politburo meeting on April 25 invoked, for the first time, the “international economic and trade struggle” (国际经贸斗争), and reiterated “unswervingly doing our own things well.” (坚定不移办好自己的事).[17] In an article published in Caixin in early June, Tu Xinquan, dean of the Research Institute on the WTO at the University of International Business and Economics in Beijing, stressed the same theme: “In the medium to long term, the trend in Sino–American trade is more decoupling and the scope and degree of decoupling will continue to expand. … Fundamentally, China should continue to strengthen its own development, with the recognition that the nature of Sino–American competition is competition of development and its outcome depends on the results of each’s development.”[18] A commentary published in the party’s flagship journal, Qiushi, in June called for “staying the course of strengthening domestic circulation,” ... relying more on domestic demand, because making “domestic circulation play the leading role in economic development will enable China to keep the initiative of development firmly in its own hands.”[19]

The first, and also the easiest, step by party leaders was to try to regain the confidence of the private sector. The relationship between the party and private entrepreneurs had become chilly after Xi Jinping launched a crackdown on the private sector in 2020–2021 when the government halted the initial public offering of Alibaba’s fintech start-up, Ant Group, prohibited after-school tutoring, and imposed hefty fines on iconic tech giants such as Meituan, Alibaba, and Tencent. As the private sector contributes more than two-thirds of Chinese economic output, it is critical for the party to restore its credibility with leading private entrepreneurs. On February 17, two weeks after Trump announced the first round of tariff increases on China, Xi Jinping, Premier Li Qiang, Executive Vice Premier Ding Xuexiang, Wang Huning (a member of the Politburo Standing Committee), and three other Politburo members (including Premier He Lifeng) held a high-profile meeting with leading private entrepreneurs, such as Ren Zhengfei (founder of Huawei), Wang Chuanfu (founder of BYD), Lei Jun (founder of Xiaomi), and Liang Wenfeng (founder of DeepSeek). Although Xi repeated essentially the same talking points as during his last meeting with private entrepreneurs on November 1, 2018 (notably, he had not held such a meeting prior to November 2018), the meeting on February 17 was designed to send a stronger political message because of the attendance of the top three economic policy-makers, Li, Ding, and He. (At the meeting staged in November 2018, then Premier Le Keqiang was conspicuously absent.)[20] The party followed up this meeting with both a propaganda campaign touting the importance and accomplishments of the private sector and approval of the Private Economy Promotion Law (民营经济促进法) by the National People’s Congress Standing Committee on April 30.[21]

However, the party does not appear to have put its money where its mouth is. In terms of actual policy to stimulate the economy, Chinese leaders did not roll out large fiscal or monetary packages. With general government debt at 88 percent of GDP (2024 data), Beijing has limited fiscal resources.[22] As Chinese leaders expect that the Sino–American economic cold war to be a protracted fight, it seems prudent to keep their powder dry for even more dire contingencies. As a result, the government made several high-profile announcements on pro-consumption policies, but it did not provide the amount of fiscal support needed to raise private consumption. On March 16, the government issued an “action plan to promote consumption” (提振消费专项行动方案), but the document consisted of nearly identical broad measures that were contained in prior policies to promote consumption.[23] The communiqué of the Politburo meeting on April 25, which was devoted to economic policy, referred to only modest stimulus policies, such as accelerated implementation of previously announced policies of issuing special local government bonds and ultra-long central government debt.[24] According to an independent analyst, the party was intent on maintaining the existing course in order to keep open future options. For 2025, the government has allocated 1.3 trillion yuan ($200 billion) in ultra-long bonds to finance “priority strategic investments” and a program to subsidize an appliance replacement program. In addition, local governments were permitted to issue 4.4 trillion yuan in “special bonds,” mainly to refinance existing or off-the-book high-interest debt. With the nominal central government deficit set at 4 percent of GDP for 2025, deficit spending was only one percentage point higher (or an additional $190 billion) than it was in 2024. The party’s top leadership maintained the same tone at its Politburo meeting on July 30. Even though the communiqué of the meeting stressed again the importance of unleashing potential domestic demand, it did not contain any new fiscal stimulus.[25] Such evidence suggests that the party is refraining from a major stimulus package in response to the trade war mostly out of its desire to conserve limited resources for future contingencies.[26]

Diplomatic Outreach

By levying high tariffs on all trading partners, in particular the key allies that the U.S. needs in order to counter China, Trump may seem to have created a historic opportunity for Xi to expand China’s influence and to weaken Washington’s ties in critical regions, such as Asia and Europe. An examination of the speeches and activities of top Chinese leaders, however, reveals a more complex pattern. As expected, through their speeches and official media outlets, Chinese leaders sought to use Trump’s “liberation day” tariffs to portray the U.S. as a bully responsible for destroying the world’s multilateral trading system and to cast Beijing as a defender of the same system.[27] Despite their lofty rhetoric, Chinese leaders adopted a more selective diplomatic strategy that prioritized strengthening relations with the Southeast Asian countries, Australia, and New Zealand.  In terms of its European trading partners, China refrained from placing new bets. Instead of a broad and concerted push to defuse prior trade tensions with the EU, China chose to focus, as it always does, on individual countries with which it has stronger ties (Spain, Germany, and France) than it does with Brussels. As for countries in the Americas, Beijing did not seem to be in a rush to exploit the tariff war. The same pattern held for Africa and the Middle East because China has not expanded its economic outreach to countries in these two regions since the new trade war. In the space below we focus on China’s diplomatic activities targeting the Asia–Pacific and Europe since start of the trade war.

Based on the number of high-level visits by Chinese leaders in the spring, it is clear that Beijing sought to shore up its ties with its neighbors in Southeast Asia. Economically, ASEAN has become China’s largest trading partner due to its importance in enabling Chinese exporters to work around the U.S. trade barriers. Geopolitically, the neutrality of the major Southeast Asian countries is central to the Chinese strategy of countering America’s encirclement. These considerations likely lay behind Xi Jinping’s high-profile visit to Vietnam, Malaysia, and Cambodia from April 14 to 18, a period coinciding with the height of the “liberation day” tariff war (although the visit had almost certainly been scheduled months earlier). At the end of May, Premier Li Qiang visited Indonesia and Malaysia. Additionally, Xi met in Beijing with New Zealand Prime Minister Christopher Luxon (June 20), Singapore Prime Minister Lawrence Wong (June 24), and Australian Prime Minister Anthony Albanese (July 15). By comparison, Chinese outreach to Japan and Korea, two large trading partners, was more low-key, most likely because Beijing believed that these two countries were too closely aligned with the U.S. militarily and their leaders would be reluctant to risk Washington’s ire by improving ties with China.

Consequently, China was content to maintain the appearance of a stable relationship, especially with Japan. At the end of March, Foreign Minister Wang Yi led a delegation to participate in the sixth Sino–Japanese Economic Dialogue in Tokyo, but the gathering yielded nothing more than a set of agreements on holding future dialogues on secondary issues.[28] The eleventh China-Japan-Korea Foreign Ministers’ Meeting was held at the same time in Japan. Although the Chinese official press highlighted Wang’s speech calling for closer trilateral cooperation, neither Japan nor Korea was eager to make any moves that could anger the Trump administration ahead of “liberation day.”[29] In mid-July, China also hosted India’s external affairs minister, Subrahmanyam Jaishankar, who was received warmly (he met with Xi Jinping). Although this visit was most likely the outcome of the meeting between Xi and Indian Prime Minister Narendra Modi at the BRICS summit in Russia last year, Jaishankar’s visit to China apparently marked a further thaw in ties between the two countries after their bloody border clashes in June 2020. The pace of warming Sino-Indian ties accelerated after Wang Yi visited New Delhi in mid-August to pave the way for Prime Minister Modi to participate in the summit meeting of the Shanghai Cooperation Organization (SOC) at the end of August in Tianjin.

China’s differentiated approach to its neighbors and trading partners in Asia during this period reveals a more nuanced and realistic strategic calculus that takes into account China’s influence in these countries and their respective ties with the U.S. On the whole, China has bet more on countries that have deeper economic ties with China and that are reluctant to take sides in the U.S.–China cold war. Even among U.S. allies in the region, such as Australia and New Zealand, their distance from China is a plus as this geographic reality constitutes an obstacle to closer security cooperation with the U.S., thus making them more promising prospects for improved ties.

Taken as a whole, Chinese diplomatic outreaches, though varying in degree of intensity, are part of a broader effort to stabilize ties with its neighbors so that China can make it more difficult for the U.S. to recruit them into an anti-China coalition. That is perhaps why Xi convened the second “Central Work Conference on Neighboring Countries” (中央周边工作会议) in Beijing from April 8 and 9. As the first “Central Work Conference on Neighboring Countries” was held in October 2013, the timing of the conclave this year likely signifies Xi’s diplomatic focus on China’s periphery. Attendance by all seven members of the Politburo Standing Committee further underscores the importance Chinese leaders placed on shoring up ties with its neighbors as tensions with the U.S. continued to escalate.[30]

On the surface, it also seems to make sense for China to take advantage of the rift between the U.S. and the EU over trade. But Chinese leaders preferred a differentiated and, compared with that toward the Asian countries, a more muted approach to Europe. Beijing’s European strategy prioritized ties with key countries that seemed to be less under the sway of the U.S. (such as France, Germany, and Spain). At the same time, China did not view the EU, which has switched to a more hawkish stance on China, and countries more closely associated with the U.S. (such as the UK and Italy) as potential partners it should cultivate aggressively.

This can be seen from the level of interactions between Chinese leaders and their European counterparts. After announcement of the “liberation day” tariffs, Premier Li Qiang, not Xi Jinping, had a phone call with van der Leyen, EU Commission president. By contrast, Xi warmly received visiting Spanish Prime Minister Pedro Sanchez a few days later. In late May, Xi called French President Emmanuel Macron and German Chancellor Friedrich Metz. The UK was accorded less courtesy, as only Foreign Minister Wang Yi had a call with Foreign Secretary David Lammy on April 23. There were no high-level contacts between China and Italy during this period. (Despite strained Sino–Canadian relations, Li Qiang had a phone call with the new Canadian Prime Minister, Mark Carney, in early June, likely sending an olive branch to a leader who had showed defiance against Trump).

China’s decision not to exploit Trump’s trade war and seek better ties with the EU seems puzzling because 2025 marks the 50th anniversary of the establishment of diplomatic relations between China and the EU. Diplomatic activities celebrating the anniversary should provide an impetus for both sides to make the compromises necessary to resolve their disputes over trade and over Chinese support for Russia. In retrospect, the divide between Beijing and Brussels was simply too wide to bridge despite their high-level engagements during the trade war that included, most importantly, the Sino–EU summit in Beijing in late July.[31] Unwilling to budge on trade and on Russia, the EU and China salvaged the summit with a largely symbolic agreement on climate change.[32]  Another possible factor is Chinese leaders’ assessment that the EU as a trading bloc lacks the political cohesion and will to stand firm against the U.S. and that Chinese efforts to turn the EU into an ally in the unfolding trade war will be fruitless.  Subsequent developments, in particular the EU’s acceptance of an unfavorable framework agreement on July 27, apparently validate this assessment.

Conclusion

Overall, China’s actions in response to Trump’s trade war during the initial phase were marked by a mixture of caution and willingness to escalate in retaliation. Although this combination may seem contradictory, it is the logical outcome of two key considerations underlying the Chinese leadership’s strategic calculus. First, extreme uncertainty about Trump’s objectives initially necessitated caution and restraint, as was the case in early February when the U.S. levied 20- percent tariffs on Chinese imports. But a forceful retaliation was required after the announcement of the “liberation day” tariffs in early April when Chinese leaders saw an escalatory response as the only politically feasible course of action, both to rally domestic public opinion and to force Trump to put all his cards on the table. Second, although Chinese leaders were willing to escalate the trade war as a last resort, they placed greater emphasis on caution because they had less leverage vis-à-vis the U.S. in terms of escalation dominance, and they lacked sufficient economic heft to recruit potential allies. As for stimulating the domestic economy to counter the effects of the trade war, caution was also preferred due to fiscal constraints and the questionable effectiveness of monetary policy due to deflation. Chinese leaders likely understood that this round of the trade war was just the beginning of a long struggle and that things could get much worse in the future. Under these circumstances, they should conserve scarce resources for future contingencies. The principle of keeping all options open apparently informed China’s approach to America’s new trade war. Xi likely saw the trade war from a broader strategic perspective and did not want to risk run-away escalation that could trigger a full-spectrum confrontation with Trump. That is why official Chinese rhetoric studiously avoided attacking Trump personally. More importantly, China responded quickly and positively when the U.S. signaled it was willing to negotiate a truce at the end of April. For Beijing, the bigger prize is not a less costly exit from the trade confrontation with Trump but success in preventing the trade war from precipitating far more dangerous and unnecessary conflicts with the U.S. in the security realm. As Chinese leaders are uncertain about Trump’s stance on security issues related to China, especially Taiwan, they prefer not to alienate him so thoroughly that the China hawks around him could nudge him into adopting their more confrontational policies.

It remains too early to determine whether China will emerge from the new trade war with less harm to its economy. Judging by its sophisticated strategic calculations, flexible tactics, and realistic assessment of its domestic and external constraints, China is following a new playbook designed for a very long game.

About the Contributor

Minxin Pei, editor of China Leadership Monitor, is Tom and Margot Pritzker ’72 Professor of Government and George R. Roberts Fellow at Claremont McKenna College. His recent books include China’s Crony Capitalism: The Dynamics of Regime Decay (2016), The Sentinel State: Surveillance and the Survival of Dictatorship in China (2024), and The Broken China Dream: How Reform Revived Totalitarianism (2025).

Notes

[1] Chad Bown, “US–China Trade War Tariffs: An Up-to-Date Chart,” The Peterson Institute, https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart.

[2] “国务院新闻办就2025年上半年进出口情况举行发布会,” https://www.gov.cn/lianbo/fabu/202507/content_7031904.htm.

[3] “China’s Economy Slows Broadly Even as Exports Keep Rising,” The New York Times, https://www.nytimes.com/2025/08/15/business/china-economy-july-tariffs.html.

[4] “Trump's Tariff Threat Pushes Lula's Popularity and Worsens Legal Troubles for Brazil's ex-Leader,” ABC News,  https://abcnews.go.com/International/wireStory/trumps-tariff-threat-pushes-lulas-popularity-worsens-legal-123885482.

[5] “国务院关税税则委员会：对原产于美国的部分进口商品加征关税,”人民日报, February 5, 2025, p. 3.

[6] In Chinese, the word zhongsheng (“bell sound”) is a homophone of “voice of the center.” Commentaries by “Zhongsheng” are typically published to communicate messages by the top leadership on important issues.

[7] “国务院关税税则委员会对原产于美国的所有进口商品加征关税,” 人民日报, April 5, 2025, p. 2.

[8] “我国对中重稀土相关物项实施出口管制; 商务部将11家美国企业列入不可靠实体清单, 商务部将16家美国实体列入出口管制管控名单,” 人民日报, April 5, 2025, p. 2. 

[9] “国务院关税税则委员会调整对原产于美国的进口商品加征关税措施; 商务部将12家美国实体列入出口管制管控名单,”人民日报, April 10, 2025, p. 3.

[10] “国务院关税税则委员会对原产于美国的进口商品加征关税税率提高至125%,”

人民日报, April 12, 2025, p. 3.

[11] “中国发布  ‘关于中美经贸关系若干问题的中方立场,’白皮书,” 人民日报,  April 10, 2025, p. 1.

[12] “习近平同美国总统特朗普通电话,” 人民日报, June 6, 2025, p. 1.

[13] 钟声, “培育中美友好的新一代使者,”人民日报, July 9, 2025, p. 2.

[14] “王毅会见美国国务卿鲁比奥,” 人民日报, July 12, 2025, p. 3.

[15] “Trump in No Hurry to Talk to Xi amid New Tariff War,” Reuters, February 4, 2025, https://www.reuters.com/world/us-tariffs-chinese-imports-take-effect-after-trump-reprieves-canada-mexico-2025-02-04/.

[16] “习近平会见西班牙首相桑切斯,” Ministry of Foreign Affairs, April 11, 2025, https://www.mfa.gov.cn/zyxw/202504/t20250411_11592994.shtml .

[17] “中共中央政治局召开会议分析研究当前经济形势和经济工作,” 人民日报, April 26, 2025, p. 1.

[18] “从未来中长期来看，中美贸易发展的趋势就是进一步脱钩，脱钩范围和程度肯定会继续扩大…. 从根本上说，中国应继续强化自身的发展，认识到中美之间的竞争本质上是一场发展竞赛，最终取决于各自的发展成效.” 屠新泉, “特朗普为何急与中国谈判,” 财新, June 10, 2026, https://opinion.caixin.com/2025-06-10/102328786.html.

[19] “面对日益复杂严峻的外部环境，我们必须坚定不移做强国内大循环，进一步强化国内大循环在新发展格局中的主体地位和主导作用，把发展的主动权牢牢掌握在自己手中.”巨 力, “坚定不移做强国内大循环,” 求是, no.  12 (2025), http://www.qstheory.cn/20250614/cbf402ed4a5d4970957a95b9e7962fd4/c.html.

[20] “习近平在民营企业座谈会上强调民营经济发展前景广阔大有可为,” 人民日报, February 18, 2025, p. 1; “习近平主持召开民营企业座谈会,”  新华社, November 1, 2018, https://www.gov.cn/xinwen/2018-11/01/content_5336540.htm.

[21] ​“民营经济发展前景广阔、大有可为,” 人民日报, February 19, 2025, p. 1; “扎扎实实促进民营经济健康发展,” 人民日报, February 21, 1925, p. 1; “为民营经济持续、健康、高质量发展提供坚实法治保障,” 人民日报, May 2, 2025, p. 4.

[22] “General Government Debt,” IMF, https://www.imf.org/external/datamapper/GG_DEBT_GDP@GDD/CHN/FRA/DEU/ITA/JPN/GBR/USA/FADGDWORLD.

[23] “中办国办印发提振消费专项行动方案,”人民日报, March 17, 2025, p. 4.

[24] “中共中央政治局召开会议分析研究当前经济形势和经济工作,” 人民日报,  April 26, 2025, p. 1.

[25] “中共中央政治局召开会议，” 新华社， July 30, 2025, https://www.gov.cn/yaowen/liebiao/202507/content_7034454.htm.

[26] 李超, “备足预案保持定力：4月政治局会议传递的信号,” 财新, April 26, 2025, https://opinion.caixin.com/m/2025-04-26/102313466.html.

[27] “中共中央政治局委员、外交部长王毅就中国外交政策和对外关系回答中外记者提问,”Ministry of Foreign Affairs, March 7, 2024,

https://www.mfa.gov.cn/wjbzhd/202403/t20240307_11255225.shtml; 钟声, “维护多边贸易体制才能实现共同繁荣,” 人民日报, April 6, 2025, p. 3.

[28] “第六次中日经济高层对话达成二十项重要共识,”  人民日报, March 24, 2025, p. 3.

[29] “第11次中日韩外长会在东京举行,”  人民日报 , March 23, 2025, p. 3.

[30] “中央周边工作会议在北京举行,” CCTV, April 9, 2025, https://news.cctv.com/2025/04/09/ARTInWrgufJbozE4ftss2OO5250409.shtml.

[31] “A Savage Squabble between China and Europe,” The Economist, July 15, 2025,

https://www.economist.com/china/2025/07/15/a-savage-squabble-between-china-and-europe.

[32] “Europe and China Agree to Take Action on Climate Change and Nothing Else in Tense Beijing Summit,” AP, July 24, 2025, https://apnews.com/article/european-union-china-trade-summit-beijing-0f2f0b67435b88a78adef3aa001d0099.

Photo credit: Alexander Mischenkov, CC BY 4.0 <https://creativecommons.org/licenses/by/4.0>, via Wikimedia Commons