As US president-elect Donald Trump steps up his tariff threats against China, Beijing is moving to beat the next US president to the punch with its own restrictions and get Washington to the negotiating table ahead of a full-blown trade war, analysts said.
Armed with the lessons of the last trade war during Trump’s first term, China is seeking to amass bargaining chips to kick off talks with a new US administration on contentious aspects of bilateral ties, including trade and investment, and science and technology. It is also concerned about the harmful effects of additional tariffs on its already-fragile economy.
Last week, China launched a probe into US chip giant Nvidia Corp over what it claimed were suspected antitrust violations, which follows its ban on US-bound exports of rare minerals.
Illustration: Yusha
“We have to look at this as the opening bid in what will likely ultimately turn into a negotiation with the US rather than just an imposition of tariffs and everyone walks away,” HSBC chief Asia economist Fred Neumann said.
China is better prepared to deal with almost any tariffs, short of an “Armageddon announcement” of a 60 percent tariff on all Chinese goods, said George Magnus, research associate at the University of Oxford’s China Centre.
The world’s second-largest economy now globally dominates sectors such as electric vehicles and green energy, and has less need for the Boeing jets and large gasoline-fueled cars it bought back in 2017, having found substitutes such as Airbus airplanes and its own Comac C919.
Nonetheless, China is far from self-sufficient.
A new trade war with the world’s biggest economy would still hurt China more, analysts said, as Washington can levy ever-larger import duties on its goods and further rip China from its supply chains.
China still needs to import strategic materials from the US, such as advanced microchips and other high-tech equipment, and counts on US consumers to buy its goods, given an increasingly pessimistic global trade outlook and weak domestic consumer demand.
Beijing wants to sit down with Trump before he places more curbs on US high-tech exports and to secure the renewal of the US-China Science and Technology Agreement, said Alicia Garcia-Herrero, chief economist for the Asia Pacific at Natixis.
The agreement, which enables scientific collaboration between the two countries, lapsed in August and negotiations over its renewal are unlikely to be completed before Trump’s Jan. 20 inauguration.
While China’s Huawei has heavily invested in advanced chipmaking capabilities, their commercial viability remains unclear, she said, incentivizing China’s negotiators to sit down with their US counterparts to strike a deal ensuring a steady supply of US-made chips.
Beijing took two years before it agreed to buy an extra US$200 billion in US goods and services, per the terms of the “Phase One” agreement which ended the first trade war.
This time, China has new carrots to dangle, such as increasing purchases of oil and liquefied natural gas, as the US is currently pumping out more than it can consume.
“Trump bragged on the campaign trail: ‘Drill baby, drill,’ so [he] will need the demand support,” said Bo Zhengyuan, a Shanghai-based partner at consultancy Plenum.
Given the increasing restrictions on the export of chips, agricultural goods, commodities and energy are among the items the US can still sell to China, Bo said.
When asked for comment, the Chinese Ministry of Commerce said it was open to engaging and communicating with the economic and trade teams of the Trump administration.
However, Beijing also has sticks to beat Washington with, if the US side feels China’s failure to meet its previous purchase commitments means it would gain more from tariffs than talks.
US firms are already feeling the squeeze, American Chamber of Commerce in China president Michael Hart said.
“US companies and other foreign companies have really been concerned about whether they actually have access to this market,” Hart said. “Can we even sell into China anymore? Is there an outright ban on us?”
Business sentiment among US firms in China is at its lowest since 1999, a September survey by the American Chamber’s Shanghai chapter showed.
There are also non-economic factors at play. Trump has pledged additional tariffs of 10 percent on Chinese goods to push Beijing to do more to stop fentanyl flows into the US.
“Using political justifications for the imposition of trade restrictions ultimately makes the tensions much more intractable,” Neumann said.
The fentanyl tariffs also mirror China’s import curbs on trading partners that displease Beijing over issues such as human rights, Taiwan and the South China Sea.
“It’s taking a leaf out of China’s manual of coercion,” Magnus said. “I think they would see it as a slap in the face.”
Whether in terms of market commonality or resource similarity, South Korea’s Samsung Electronics Co is the biggest competitor of Taiwan Semiconductor Manufacturing Co (TSMC). The two companies have agreed to set up factories in the US and are also recipients of subsidies from the US CHIPS and Science Act, which was signed into law by former US president Joe Biden. However, changes in the market competitiveness of the two companies clearly reveal the context behind TSMC’s investments in the US. As US semiconductor giant Intel Corp has faced continuous delays developing its advanced processes, the world’s two major wafer foundries, TSMC and
The first Donald Trump term was a boon for Taiwan. The administration regularized the arms sales process and enhanced bilateral ties. Taipei will not be so fortunate the second time around. Given recent events, Taiwan must proceed with the assumption that it cannot count on the United States to defend it — diplomatically or militarily — during the next four years. Early indications suggested otherwise. The nomination of Marco Rubio as US Secretary of State and the appointment of Mike Waltz as the national security advisor, both of whom have expressed full-throated support for Taiwan in the past, raised hopes that
Authorities last week revoked the residency permit of a Chinese social media influencer surnamed Liu (劉), better known by her online channel name Yaya in Taiwan (亞亞在台灣), who has more than 440,000 followers online and is living in Taiwan with a marriage-based residency permit, for her “reunification by force” comments. She was asked to leave the country in 10 days. The National Immigration Agency (NIA) on Tuesday last week announced the decision, citing the influencer’s several controversial public comments, including saying that “China does not need any other reason to reunify Taiwan with force” and “why is it [China] hesitant
We are witnessing a sea change in the government’s approach to China, from one of reasonable, low-key reluctance at rocking the boat to a collapse of pretense over and patience in Beijing’s willful intransigence. Finally, we are seeing a more common sense approach in the face of active shows of hostility from a foreign power. According to Article 2 of the 2020 Anti-Infiltration Act (反滲透法), a “foreign hostile force” is defined as “countries, political entities or groups that are at war with or are engaged in a military standoff with the Republic of China [ROC]. The same stipulation applies to
RSS