Article content

(Bloomberg) — Never miss an episode. Follow The Big Take Asia podcast today.

Article content

Article content

As US President Donald Trump imposes new tariffs on China, Xi Jinping’s government has had a far more muted response than it did during the trade war in Trump’s first term.

On today’s Big Take Asia Podcast, host K. Oanh Ha is joined by Bloomberg editor Jenni Marsh and Bloomberg Opinion columnist Shuli Ren to unpack China’s response to Trump’s barrage of tariffs and discuss what’s at risk for both countries if they find themselves in another trade war.

Article content

Terminal clients: Click here to subscribe

Here is a lightly edited transcript of the conversation:

K. Oanh Ha: Soon after US President Donald Trump’s opening salvo of his second trade war, hitting more than $500 billion worth of Chinese goods with a 10% tariff, China retaliated with tariffs of its own.

Huang Feng (in Chinese): Starting from February 10, a 15% tariff… 

Ha: It imposed 10-15% levies on $14 billion worth of American goods including coal, crude oil, and cars with larger engines from the likes of GM and Ford. Those tariffs went into effect Monday, February 10.

Rebecca Choong Wilkins: China’s retaliatory tariffs on $14 billion of US goods also due to kick in today… 

Ha: And within hours, Trump slapped a 25% tariff on all steel and aluminum imports — industries dominated by China.

Donald Trump:  So if it’s made in the United States, there is no tariff. All you have to do is make it in the United States. We don’t need it from another country…

Ha: Jenni Marsh, who oversees Bloomberg’s coverage of Greater China economy and politics, says President Xi Jinping doesn’t appear to be flustered by the flurry of tariffs coming from Trump.

Article content

Jenni Marsh:  You know you saw Trudeau and Mexico’s leader both rushing to get on the phone, striking these deals, Xi Jinping sending a very sort of cool, calm, collected signal that like he isn’t going to be doing the same thing, like he’s a much bigger fish and China’s going to respond in his own way.

Ha: And Bloomberg Opinion columnist Shuli Ren says China’s response this time is very different from the first trade war in 2018. 

Shuli Ren:  China is in a much weaker position than 2018 when President Trump started his first trade war. What happened is that the Chinese economy has become more reliant on their exports than ever before. And China really doesn’t want to kill the only bright spot in its economy.

Ha: Welcome to the Big Take Asia from Bloomberg News. I’m Oanh Ha. Today on the show: We unpack China’s response to Trump’s barrage of tariffs. Can China avoid a full-blown trade war with the US? And what’s at stake for both countries going forward? 

Trump: We have one very big power over China and that’s tariffs.

Ha: In the past few weeks, President Trump has proposed – and delayed – 25% tariffs on Canada and Mexico. In comparison, the tariffs on China are much lower at just 10% – but Trump says, he’s just getting started.

Article content

Article content

Trump: That was just an opening salvo. If we can’t make a deal with China, then the tariffs will be very, very substantial.

Ha: Jenni and Shuli – thanks for joining us – let’s get into it. In the first trade war, the US and China imposed rounds of tit-for-tat tariffs on each other. Eventually, things calmed down a bit when the two signed a trade deal in 2020 where China basically committed to buying more goods from the US. Now what does Trump really want from China this time around? How is it different from the first trade war? 

Marsh:  Well he says he wants to rebalance trade. I think last time that meant getting China to buy more from the US, but this time it seems broader. It seems that what he actually wants is to get manufacturing back on American shores. He really wants to return America to this sort of like manufacturing powerhouse it used to be.  I think the interesting thing is that trade war one, it was all about China. Whereas this time around, that’s his goal, rebalance trade, but with everybody. To sort of take aim at all these different sort of partners and economies America trades with to bring manufacturing back to the US. So it’s sort of a much more ambitious and wide-ranging doctrine that he’s kind of trying to roll out this time around. 

Article content

Ha: Now after US tariffs of 10% on Chinese goods took effect last week, Beijing responded with its own round of tariffs. Shuli, can you walk us through China’s reaction? 

Ren:   It seems like China’s response is quite muted this time. Instead of a reciprocated 10% broad-based tariff back on the US, China basically targeted a few things like oil and natural gas. And it also launched a toothless antitrust probe into Google, which basically left China more than a decade ago. It really, compared to 2018, the response was very muted.

Ha: And what’s the rationale behind such a muted response, do you think? 

Ren:  I think the problem with China is that this time around 2025, China is in a much weaker position than 2018 when President Trump started his first trade war. China had a notorious Covid zero lockdown, right? And after China exited the Covid zero lockdown in late 2022, what the middle class discovered was that the economy had long Covid as well. You know, like we are four years into the property downturn and you still see those unfinished apartment buildings peppered across China. These developers, they have already gone defunct, right? And the government is now stepping in to finish those buildings and deliver pre-sold units to households. Basically, the Chinese people just say, okay, the government doesn’t care about consumer rights. And saving deposits basically doubled from 2018 to 2025, and youth unemployment is in double digits. People have money. They’re just not spending it. As a result, in 2018, consumption accounted for two-thirds of China’s economic growth. Now, it’s not even one-third.

Article content

Ha: So basically, in 2018, China was in a much stronger position economically to respond, where they could say to Trump’s tariffs – fine, we can take a hit on exports because we can rely on the strong Chinese consumers. But now in 2025, China’s economy is slowing, you’ve got Chinese consumers not spending, China’s domestic demand has shrunk so much that China has to rely on exports to absorb all that production, right?

Ren:  Yes.  So China thought it was prepared, right? It was trying to beef up its own self-reliance in the supply chain. But in fact, by ignoring the middle class and by failing to foster a strong consumer culture, China is actually more vulnerable than before because in the global trade war, the economy that has the most powerful consumer base basically wins. And Donald Trump knows that, right? He can threaten tariffs and say really nasty things on the global stage because he can basically shut off access to the world’s most resilient consumers: Americans. And China no longer has that. 

Ha: Jenni, on the US side, what do you see as the biggest difference between Trump’s latest trade war and the one in 2018?

Article content

Marsh: I think, for Trump, this is faster and more furious than it was the first time around. First time around, we had investigations, it was quite slow walking. First day in office, it’s bam, it’s coming quick and it’s broader. I think for China, I think they’ve been here before. And last time, during the last trade war, they unleashed this sort of “Wolf Warrior” tactic. That was going toe for toe with Trump on the rhetoric, swinging back to every tweet he said, and I think they realized that did them no favors. Because that wolf-warrior approach didn’t go down well with other countries. And it just meant that Trump hit back all that bit harder. And I think this time they have learned from it and they’re going to be very careful. So I think it was just, they’ve had four years to think about this. And how they do things differently this time around. And so I think they are coming back with a much more considered response. Last time, they were just responding to the chaos of Trump. When everyone was getting to know what Trump was like, and now they have a much better read on him. And sort of how to protect themselves. 

Article content

Ha: So how can China protect itself? I mean there’s been some talk about it behaving like the “more sensible adult” in the room. Will that help it to avoid a full-blown trade war? 

Ren:   I wouldn’t necessarily call China being the adult in the room. I guess this time around, they are just trying to play a little bit smarter. Instead of going in the hard boxing match with Trump, they are playing basically the Chinese Tai Chi. They’re just trying to play soft and elusive, in the hope that Trump will self-destruct in the meantime. 

Ha: If China’s approach is like slow Tai Chi on tariffs, Trump is taking the opposite tack. On Monday, Trump doubled down and slapped a 25% tariff on all steel and aluminum coming into the US. China doesn’t export a lot of these metals directly to the US, but it does dominate the global steel and aluminum industries and sells its products to countries like Canada and Mexico. They then process the metal, and sell it on to the US. So while the tariff is not directed at China, China and its trading partners do end up taking the hit. After the break, we’ll look at how Xi’s handling Trump’s tariffs, and what China’s trade war game plan could look like.

Article content

Ha: Even though China’s economy today is in a much more fragile state than it was in 2018, that doesn’t mean that it’s out of options when it comes to fighting a trade war. Bloomberg’s Shuli Ren says in the years since Donald Trump first launched his tariffs, Beijing has been working to prepare the Chinese economy for a second strike.

Ren: In 2018, the trade war that President Trump launched, basically was unexpected, right? And a lot of Chinese exporters, they were hurt for sure, but these days they are trying very hard to diversify. They are opening factories around the world, basically. They have moved all everywhere to Mexico to Vietnam.

Ha: Besides moving supply chains outside of China, Shuli says China has also reduced reliance on exports to the US. Back in 2018, the US accounted for close to 20% of China’s exports – now it’s only some 15%. Shuli – what more tools, or other tools, does China have in its kit to deploy against Trump’s trade war compared to 2018?

Ren: Well, China has TikTok this time (laughter). Basically, it could be a goodwill towards Trump because Trump has talked about wanting to have TikTok for cheap, and perhaps the social media can go IPO in New York, and the US government can make quite a big profit out of it. So that’s one tool that China could use and say, hey, let me give you a nice gift. How about making 100 percent return on a big social media platform? There are other tools that Xi Jinping could use, but none of them will be very palatable to him. For instance, the first time around, China did use the yuan it cheapened its currency to counter Trump’s 25% tariff. This time around, China could still do that, but the pressure of capital outflow is just that much stronger. The economy is not doing very well, investment returns in China are very dismal and people naturally want to pull money out of China and if you weaken your currency by another, say 10, 15%, the pressure out, outflow, it will just be that much greater. Another tool is perhaps using stimulus, the big one that China did after the global financial crisis. Again, it’s not a good option because China’s debt-to-GDP ratio is already at 300%. It’s one of the world’s most indebted nations. So if you, we’re talking about stimulus, we will have to talk about, perhaps 5% of GDP every year for years to come. And that’s going to add even more debt to the economy.

Article content

Ha: Now, China has a reputation for playing the long game, while the US, on the other hand, seems to have a much shorter attention span. How do we think that tilts the balance in these trade negotiations?

Ren: I mean, President Xi Jinping, of course, thinks he has a lot more time to burn than President Trump, right? He’s only 71 years old and he doesn’t face term limits, not anymore, right? So he thinks he might have a long game, but I am worried that the government in Beijing could be a little bit too complacent. What if China’s economy just collapses over the next four years? There is systemic risks in China. 

Ha: Here’s Jenni Marsh again.

Marsh:  I think that’s right, I mean, I think Beijing’s strategy is just damage limitation. Let’s just try and get through the next four years with as little damage as possible. They know there are going to be tariffs. And I also wonder if they’re looking at where the opportunities might be for them. Because, this time around, they’re not the only target for Trump. He’s going to target the European Union, he said. He’s making these extraordinary expansionist claims, that he wants to buy Greenland and take over the Gaza Strip. That’s going to go down, you’d think, very badly in the global south. So for China, is there an opportunity there? One of the biggest things that Biden achieved was sort of getting the allies to come all in line with US policy and if that’s all going to fracture now, can Beijing draw Brussels closer? Can it make amends with South Korea and Japan? So I imagine they’ll sort of, be looking for like where they can actually win during this trade war. 

Article content

Ha: And how would Trump counterattack in this trade war if he senses that China is gaining the upper hand? Are we going to see him wield tariffs with more force this time around?

Marsh: All indications are yes, but then the caveat is Trump is so unpredictable. The amount of U-turns he’s already done, he’s given Mexico and Canada this reprieve. And he’s had four years to think about tariffs and what he didn’t achieve last term. And he’s got this sort of strong Cabinet around him. He’s got his loyalists, people who are singing from the same hymn sheet. And he has a much stronger mandate as well to do all of this.

Ha: Now Shuli, do you think there could be other ways that Trump could try to target China where it hurts?

Ren: Tariff is a very obvious choice for him, but there are other things that he can pinch China on. President Xi Jinping cares very much about upgrading China’s industrial sector, right? And he can impose more export controls on China. And that hurts the sentiments back in China. Basically, President Xi Jinping likes to portray himself as a big character on the world stage, and in China, people don’t call him directly by name. They call him “Da Da,” basically means Mr. Big. And he has talked a big game. He has talked about the “China Dream,” right? And China establishing a multi-polar world and not being dominated by this one big bully – the United States, basically, but I’m not sure that his deeds have been matched by his words. Let’s take a look at the economy. It’s not going anywhere, right? He tried to buffer China against the external shocks after the 2018 trade war and the Chinese economy is more vulnerable than ever.

Article content

Ha: Now what can we expect in the weeks and months to follow on tariffs? 

Ren: A lot of back-and-forth negotiations. And I suspect President Trump is going to pinch him.

Marsh: You know, there’s this April 1 deadline, the Trump administration to report back to Trump on the first trade war. And once that happens, then I think sort of formal negotiations will start with China. So we’ll have like a restart of those sort of trade war talks we had last time and it’ll be interesting to see who Xi Jinping puts forward this time.

Ha: Do you see any way for the US and China to avoid a full-blown trade war?

Ren: I don’t at this point. I think the deflationary pressure in China is so strong that Chinese companies will be very keen to export their products and services to the rest of the world, especially to the US because profit margins are just that high. And that if President Trump really cares about protecting US labor, he is going to use tariffs and the trade war to stop basically China eating the world.

Ha: What are the risks you see beyond trade? If the US is the instigator of trade wars with multiple countries, does this in any way leave room for China to step up on the world stage? 

Article content

Marsh: Trump is basically saying things which is so shocking to sort of the rules-based world order that America has been the custodian of for decades, talking about taking over the Gaza Strip or buying Greenland or even annexing Canada. This sort of does create some room, you think, for Beijing to sort of amp up its rhetoric around Taiwan. The US has been the leading figure in opposing Xi Jinping’s territorial kind of rhetoric around Taiwan, his ambitions to take Taiwan. And if you then have a US leader who himself has all this sort of empire-building aspirations, that makes it much harder for the US to sort of have the moral high ground to be trying to restrain China and restrain Xi. That doesn’t mean Xi Jinping is going to invade Taiwan anytime soon. But it just means he’s got a little bit more space now around that issue. And I think that could be a dangerous thing.

Ha: Jenni and Shuli – thanks so much for sharing your insights with us.

(Updated the transcript)

Article content