What Trump’s Tariffs Will Mean for China

China

As the U.S. president-elect issues new threats, Beijing is already bracing for a shift.

Trump Threatens New Tariffs

On Monday, U.S. President-elect Donald Trump threatened new tariffs on China (an extra 10 percent) as well as Canada and Mexico (25 percent total)—framed as an effort to combat illegal immigration and “Crime and Drugs,” as he wrote in a Truth Social post. Trump technically will not have the authority to directly impose tariffs, but he has previously relied on existing laws that allow for presidential autonomy to do so.

In China’s case, that includes Section 301 of the 1974 Trade Act. Using Section 301, however, requires a preliminary and usually time-consuming investigation; Trump may turn to other measures this time around.

Still, Trump also says he will do a lot of things that never happen. In 2016, he campaigned on “Build the Wall,” but in his first term, only 49 miles of new barriers were constructed along the southern border. With the latest threat of tariffs, Trump may hope to intimidate the named countries into giving him a token political win.

That is unlikely to work with China, where the political leadership resents nothing more than being told what to do on domestic issues—in this case, the production and sale of precursor chemicals used in fentanyl production. Beijing’s position is that it has already taken sufficient action to combat the fentanyl trade and that Washington is pointing fingers.

Either way, tariffs on China—whether the 60 percent Trump promised during the campaign, the extra 10 percent suggested this week, or some lower figure—seem very likely. Unlike the threatened tariffs on Mexico or Canada, U.S. competition with China is taken for granted among the Republican Party now (and among most Democrats, too).

The Chinese response to any new tariffs will be multifaceted, though it will depend on how extensive the tariffs are. As Scott Kennedy writes in Foreign Policy, Beijing’s toolkit of trade restrictions and sanctions has grown in recent years. While the Chinese market is not as open to U.S. goods as the U.S. market is to Chinese goods, it might shock U.S. business just how closed it can get.

The Chinese public might not be as willing to eat bitterness over this as the Chinese Communist Party (CCP) leadership believes. Since 2020, Chinese consumers have taken a lot of pain; being more cut off from the world could really sting. Chinese companies will look to move production to countries closer to home or will take advantage of transshipment, moving goods through a third country to dodge trade barriers.

The United States theoretically imposes a tough metric to determine the country of origin of goods with multiple suppliers in the production chain. But in practice, companies can evade tariffs through loopholes such as the de minimis exemption or by simply relabeling Chinese-made goods. Some countries, such as Mexico, are already trying to avoid getting caught in the crossfire.

Some of China’s neighbors could be big winners from U.S. tariffs. Vietnam is well positioned not only to absorb foreign manufacturing but also to act as a channel for Chinese tariff evasion. Its exports to the United States have soared since 2018 and the first round of Trump tariffs. Manufacturing costs in Vietnam are about 7 percent higher than in China, making it a generally attractive alternative.

In the last six years, Chinese capital has flowed into Vietnam—as has U.S. capital, though in significantly smaller numbers. To be sure, there are limits on how much the country can absorb, but given Vietnam’s surprisingly good relationships with both China and the United States, it could be a big winner here. Washington is unlikely to risk its ties with Hanoi by going after tariff evasion too intensely.

Another country that might hit the lottery is Kazakhstan—not as a manufacturing center but as a transshipment destination. There is plenty of foreign direct investment in Kazakhstan; it is overwhelmingly in the energy sector, not manufacturing. But the country has already become an expert in sanctions-busting for Russia, and it has extensive freight infrastructure developed through China’s Belt and Road Initiative, including the world’s biggest dry port.

A third potential beneficiary is Malaysia, which is already a popular choice for multinational companies running a so-called China+1 strategy of broadening their options. Chinese logistics firms have invested heavily in Malaysia.

But for Chinese companies, the simplest route to an exemption may be reaching out to Trump himself. Despite his anti-China rhetoric, Trump has proved susceptible to lobbying from Chinese businesses, such as telecommunications giant ZTE. With exemptions almost certain for court favorites such as Tesla, Shanghai executive suites should bet on persistent lobbying in Washington.

What We’re Following

Climate dealmaking. China played a major role in negotiations at this year’s U.N. Climate Change Conference, or COP29, Bloomberg reports, keeping global south countries on board with the final $300 billion deal while avoiding specific financial commitments for itself. With Trump likely to take the United States out of the equation in climate negotiations, China is poised to take on a major leadership role.

This would help Beijing avoid embarrassing questions about its own contributions to combating the climate crisis. China is now not only the global leader in current greenhouse gas emissions (exceeding all developed nations combined) but also the second-largest cumulative emitter of all time, after the United States.

China’s annual emissions per capita have grown rapidly: At 9.24 metric tons of carbon dioxide per person in 2023, it is still behind the United States (13.83 tons) but considerably ahead of the European Union average (5.66 tons). 

“Social stability” concerns. A spate of mass killings in China in the last two weeks has jarred leaders’ nerves. Security has been stepped up, as have ideological instructions. A recent Justice Ministry directive urged officials to “deeply investigate common disputes such as marriage and family, neighborhood relations, property inheritance, housing and land, and wage arrears.”

This is an impossibly wide brief. Both CCP officials and police in China must often function (usually incompetently) as social workers or mediators in the name of social stability. The default norms tend to be conservative and patriarchal. But this also illustrates how the revving up of the authoritarian state in China has taken a toll on officials, whose list of demands from the top is constantly expanding.

Tech and Business

Huawei launches mobile OS. This week, Huawei is set to launch the first phone using an entirely Chinese-developed and independent operating system, HarmonyOS. With the move, Huawei hopes to compete with global giants: Apple’s iOS and Google’s Android. Since Huawei is closely tied to the Chinese security state, there may be concerns from security experts—especially outside of China—about deliberate backdoors for Chinese intelligence.

However, it is unclear how widespread adoption of the new phone will be. Creating a new OS needs thousands of designers to get on board to create a thriving ecosystem that gives users the incentive to switch. It is possible that China will try to mandate use of HarmonyOS for government personnel, giving the market a boost.

China’s X problem. The post-U.S. election exodus from Elon Musk’s X (formerly Twitter) has so far made social media platform Bluesky a big winner. The shift is likely to be a problem for China’s global propaganda efforts. Beijing has poured huge amounts of money and time into X—and is now seeing that investment devalued.

China’s social media presence is very strong on X, Facebook, and other older platforms. The diversification of social media is likely to confuse Chinese state media organizations that are slow to accept new realities, but it also offers plenty of opportunities for enterprising nationalists to get rewarded for “telling China’s story well” in new spaces.

A Bit of Culture

In “Shanghai Foxtrot,” Mu Shiying (1912-40) draws on the then-new technique of cinematic montage to depict a city famous for its role in Chinese film as a dizzying collage of glamor, squalor, sex, and death.

Mu, who knew Shanghai’s cabaret scene well, married a Cantonese nightclub dancer and attempted domesticity in Hong Kong. He returned to Shanghai in 1939 to run a newspaper under the collaborationist Wang Jingwei government. He was shot and killed on his way home from work in 1940, probably by agents of the Kuomintang.—Brendan O’Kane, translator 

Excerpt from “Shanghai Foxtrot”
By Mu Shiying

Above the racetrack, the golden horse on the weathervane turns toward the crimson moon and breaks into a gallop. A sea of light bathes the grassy racecourse from every side, rippling with waves of sin. Moore Memorial Church kneels in the darkness, praying for all the hellbound men and women. The spire of the Great World Amusement Centre smirks unrepentant at the priest and blinks its rings of lights.

Blue twilight settles over the scene. A saxophone sticks out its neck, opens its mouth, starts wailing at the crowd. Skirts flutter over the glossy dancefloor. Hemlines. Heels, heels, heels, heels. Flowing hair and men’s faces. The white collars of men’s shirts and women’s smiles. Outstretched arms, emerald earrings brushing shoulders; round tables in neat rows, but the chairs are scattered everywhere.

A waiter in white standing in a quiet corner. Smells: drink, perfume, ham and eggs, cigarette smoke. … Over in a corner, a lone man sips a coffee to keep his energy up. … Roadside, empty lot. A high wooden scaffolding rises like the pyramids, stout pilings planted end-first in the mud. A floodlight shines down on the men working on the planks below. Shouts of Aiaiya! as a massive log falls from the top of the scaffolding and with a crash knocks three of the stout wooden pilings into the mud. Ditches crisscross the lot; rebar; heaps of tiles.

Men walk through the ditches, carrying a wooden column on their shoulders and dragging long shadows behind them. The man in front slips, falls; the column lands on his back. His spine snaps. A mouthful of blood.

The floodlight snaps on. Timbers continue rising up the scaffolding. A naked kid rolls a copper coin along the tarmac road. The floodlight like the moon above it all. A woman picks up bits of leftover coal. There are two moons. The Hound of Heaven swallows one. The moon is gone.

The body is carted away. Ditches crisscross the lot; rebar; heaps of tiles; a pool of blood. Cement is smoothed over the blood, then rebar, then a new hotel, a new dancehall, a new guesthouse, built atop his strength and his blood and his life, the same as any other hotel—such as the Hotel Hua-tung, which Liu Youde has just walked into.

Source: Foreignpolicy.com

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