On China and Trump’s Tariff War
The trade war between the U.S. and China flared up again in April 2025 after President Trump slapped a massive 145% tariff on Chinese products. In response, China hit back with an 84% tariff on American exports. This clash between the world’s two biggest economies has turned into a serious economic showdown. But China’s reaction isn’t just about fighting back right now — it also includes longer-term moves to protect its economy, depend less on the U.S., and boost its influence around the world. What follows is a closer look at how China is handling the situation, the strategies it’s using, the problems it faces, and what all this could mean for the global economy.
1.Reciprocal Retaliation and Strategic Defiance
China’s first move after Trump’s new tariffs was a careful mix of hitting back and standing firm, showing it’s trying to be both smart economically and strong politically. By raising its tariffs on U.S. goods from 34% to 84%, China is responding in kind, much like what happened during the 2018–2019 trade war—but this time, the situation is more serious. In 2024, trade between the two countries was worth $662 billion ($199 billion in U.S. exports to China and $463 billion in Chinese exports to the U.S.), and all of that is now under threat.
China’s Ministry of Commerce called the U.S. a “bully” and promised to “fight to the end.” This kind of tough talk plays two roles: at home, it stirs up national pride and helps shift focus away from China’s own economic troubles, like a struggling property market; internationally, it casts China as the one standing up for global cooperation, in contrast to the U.S.’s go-it-alone approach.
But hitting back comes with real dangers. China still relies heavily on certain American imports—like computer chips, farming equipment, and soybeans (worth $14.6 billion in 2024)—so these tariffs could drive up costs. On the other hand, U.S. tariffs of 125% on Chinese goods like electronics (which make up 28% of what the U.S. buys from China) threaten to cut off a key market for Chinese factories.
The World Trade Organization has warned that if this trade fight keeps going, it could slash trade between the two countries by 80% and shrink the global economy by 7%. That shows just how deeply connected both economies are—and how dangerous this standoff could be for everyone.
On a tactical level, China has fired back by blacklisting 18 American companies, including Sierra Nevada Corporation, showing it’s willing to use access to its massive market as a weapon. It’s also finding workarounds to U.S. tariffs by rerouting exports through countries like Mexico and Vietnam. In fact, 30% of what the U.S. now imports from Mexico are actually Chinese goods that have been relabeled to dodge the tariffs. But while clever, these tricks make global supply chains more tangled and expensive.
Economically, things could get rough. The Peterson Institute says the U.S. tariffs might slow down China’s economic growth by 2.4% in 2025—on top of existing issues like too much supply in the solar panel and electric vehicle industries.
Politically, China’s tough stance helps the Communist Party rally support at home and present a strong, unshaken image ahead of important leadership meetings. It also tries to win over developing countries through efforts like the Belt and Road Initiative. But this bold posture comes with risks. The European Chamber of Commerce in China has warned that this growing trade war could push European businesses to change how they source and manufacture goods, which would drive up prices for consumers worldwide.
So while China’s defiance sends a message of strength, it may ironically speed up the very economic separation from the West that it’s trying to avoid.
2.Diversification of Export Markets
To push back against U.S. tariffs, China is working hard to sell its products in new markets and reduce its dependence on Western countries. In 2024, trade with Southeast Asian nations (ASEAN) jumped by 7.1% to $472.45 billion, with Vietnam’s electronics trade alone growing by 20.6% to $123.77 billion. Trade with Latin America also rose 7.4% to $252 billion, mostly thanks to Brazil’s booming exports of soybeans and lithium, worth nearly $94 billion. Meanwhile, China’s exports to the U.S. and European Union shrank slightly—by 0.2% and 3.7%—highlighting China’s shift toward friendlier partners.
China is using its strong position in regional supply chains to make this pivot work. For instance, 80% of the parts used in Vietnam’s laptops come from China, and since 2017, Vietnam’s laptop exports to the U.S. have doubled. Initiatives like the Belt and Road Initiative (BRI) and the Regional Comprehensive Economic Partnership (RCEP) help expand China’s trade footprint, with BRI trade up 7.2% and RCEP trade reaching nearly $900 billion in 2024. But there’s a catch—many of China’s trading partners rely heavily on Chinese components, which became a problem during COVID-19 when supply chains broke down and factories had to pause operations.
At the same time, China is shifting what it exports, focusing more on advanced tech and high-value goods. Exports of integrated circuits rose by 25.6% in 2024, and China’s chipmaker SMIC now supplies 7% of the world’s chips, up from 3% in 2020. Electric vehicle (EV) exports jumped 22.2%, with Chinese company BYD overtaking Tesla in 2023. Heavy investment in research and development—2.6% of China’s GDP—is helping companies like Huawei break into Europe’s high-end tech markets.
Still, there are challenges. Rerouting goods through Mexico to bypass U.S. tariffs is putting pressure on Mexico’s infrastructure, and Vietnam faces a $60 billion shortfall in the infrastructure it needs to scale up production. Back home, China’s high-tech firms like DJI are gaining ground in Europe, but its lower-end industries—like textiles—are losing out to cheaper producers in Southeast Asia.
3.Supply Chain Restructuring and “China+1” Strategies
The “China+1” strategy—where companies keep some operations in China but move others elsewhere—has taken off due to rising costs and trade tensions. As a result, global manufacturing is shifting. Vietnam’s share of U.S. container imports doubled from 4% in 2017 to 8% in 2022, while China’s dropped from 40% to 31%. Big names like Apple plan to cut production in China from 95% to 75% by 2025, and Foxconn’s new $1.5 billion factory in Vietnam is expected to create 30,000 jobs. Samsung already moved half of its smartphone production to Vietnam by 2023, helping boost the country’s electronics exports by 25% in 2024. Rising wages in China—up 12% per year from 2010 to 2022—and supply chain issues during COVID-19, like port delays, have sped up this shift.
Other countries are also stepping up. India is gaining ground with government subsidies, helping Apple make 7% of its iPhones there, aiming for 25% by 2025—though its productivity still lags behind. Thailand, benefiting from trade deals with the EU, now hosts Toyota’s $700 million electric vehicle plant. Mexico is also becoming a key player due to its close location and because 30% of U.S. imports from Mexico are actually Chinese goods rerouted to dodge tariffs. Tesla’s new $5 billion Gigafactory there is a prime example. Still, challenges remain—Vietnam needs better infrastructure, and Trump’s 25% tariffs on Mexico and Canada complicate the picture. These issues are pushing companies toward a more spread-out “China+many” approach, which comes with higher costs.
Innovation is becoming more important. Companies that invest more than 5% of their revenue in research and development are 18% more successful in high-end markets. Hybrid models—like HanesBrands using robots in Chinese factories and manual labour in Southeast Asia—help manage both cost and scale. If trends continue, Southeast Asia could gain up to $1.2 trillion in manufacturing by 2030, but infrastructure gaps and unpredictable policies could still hold things back.
4.Leveraging Soft Power and Global Narratives
China is using soft power to push back against U.S. pressure and present itself as a reliable global player. Apps like TikTok, which has 1.5 billion users, along with state-run outlets like CGTN, are being used to highlight China’s tech achievements and the progress of the Belt and Road Initiative (BRI), painting a picture of openness and cooperation in contrast to the U.S.’s more inward-looking trade policies.
Trade deals like the Regional Comprehensive Economic Partnership (RCEP)—which includes major economies like Japan and South Korea, with $317 billion and $310 billion in trade with China respectively—show how China is strengthening its ties in the Asia-Pacific. Beijing is using this regional unity to take advantage of growing uncertainty in U.S. foreign policy, especially as Trump criticises NATO and keeps threatening new tariffs.
China is also reaching out to developing countries through initiatives like the Global Development Initiative and the BRI, which involves over 150 countries and over $1 trillion in investment. These efforts aim to promote a world where power is more evenly shared, not dominated by the West. But China’s soft power push isn’t without problems—issues like human rights abuses and territorial disputes in the South China Sea make it harder for Beijing to fully control the global narrative.
Still, China is making gains. The expansion of BRICS+ to include countries like Egypt, Iran, and the UAE, along with the spread of Confucius Institutes that promote Chinese language and culture, are helping China boost its cultural and political influence and slowly chip away at Western dominance.
5.Financial and Currency Adjustments
China is using financial strategies to keep its economy steady. In 2025, the yuan has weakened to 7.2 against the U.S. dollar, which makes Chinese exports cheaper and more attractive—helping boost trade with ASEAN and Belt and Road countries by 10%. But Beijing is being careful not to let the currency fall too fast, remembering the panic of 2015–2016 when foreign reserves dropped by $1 trillion due to capital flight.
To calm financial markets—especially with ongoing troubles in real estate and tech—China’s government stepped in, buying $42 billion worth of stocks in 2024 to stop things from spiraling.
The central bank is also loosening monetary policy to encourage investment. It has lowered the reserve requirement ratio to 7% and reduced lending rates. But unlike the U.S. or Europe, China is avoiding large-scale stimulus spending to prevent creating dangerous bubbles. Strict capital controls are in place to stop money from flowing out of the country too quickly.
At the same time, China is pushing for the yuan to be used more internationally. According to SWIFT, it’s now the fourth most-used currency in global payments, and BRICS+ countries are increasingly trading in their own currencies instead of the U.S. dollar. Still, there are risks—like rising inflation from a weaker yuan and falling foreign investment due to tight capital controls. But for now, Beijing is putting economic stability above everything else.
6.Long-Term Structural Reforms
The trade war is pushing China to change how its economy works—shifting away from being export-heavy and focusing more on getting people to spend at home. To make that happen, the government is strengthening the social safety net. In 2024, China boosted its pension system with $420 billion, now covering 95% of the population. The goal is to reduce the high household savings rate (currently around 45%) by making people feel more financially secure, so they’re more willing to spend. Healthcare reforms under the current Five-Year Plan also support this shift.
At the same time, China is working to steady the troubled property sector, which makes up 25–30% of the economy. After the Evergrande crisis, the government rolled out $28 billion in credit support and subsidies for homebuyers. Now, the focus is on building more affordable housing—40 cities have started rental housing projects as part of that plan.
To fund all this and deal with $5.3 trillion in local government debt, China is issuing special-purpose bonds. But while these moves support a long-term strategy to build a stronger, more self-reliant economy, they’re also putting pressure on government finances.
Challenges and Risks
China is producing far more than the world needs in key industries like solar panels (making 80% of the global supply), electric vehicles (exporting 1.3 million in 2023), and batteries. This oversupply could cause prices to crash and lead to sanctions from the U.S. and EU. At the same time, global tensions—especially U.S. moves like the CHIPS Act—are cutting off China’s access to Western markets and advanced technologies.
Foreign investment in China has dropped by half since 2017, while countries in Southeast Asia are attracting more capital. As a result, China and other countries are building separate supply chains, which increases costs. The IMF estimates that this kind of economic “decoupling” could shrink global GDP by 2%.
China’s push to support key industries through local government spending and subsidies is also becoming harder to afford, especially with rising debt. Meanwhile, the G7 and EU are teaming up to limit China’s access to sensitive technologies, making it even harder for China to climb up the tech ladder.
If China doesn’t find a way to manage this overproduction, it could end up stuck—flooding the world with cheap goods that few want, while being shut out of key global markets. To avoid this, China will need smarter planning and better cooperation with the rest of the world.
Conclusion
China is dealing with Trump’s tariff war by standing its ground, adjusting where needed, and rethinking its global strategy. It’s hitting back with its own tariffs to respond right away, but it’s also working to depend less on the U.S. by finding new trade partners, moving parts of its supply chains, and using soft power to shape its global image.
At home, it’s using financial tools and policy reforms to keep the economy steady. But challenges like producing too much in key industries and being cut off from Western markets are real risks. In the end, China’s ability to succeed will depend on how well it can manage its own internal problems while still staying connected to the world—a tough balancing act in an increasingly divided global economy.
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Rajeev Ahmed
The Editor of Geopolits.com and the Author of the book titled Bengal Nexus
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