China's Tough Stance Against US Tariffs: A Tale of Face, Fear, and Finding Off-Ramps

Strategic Insights -

China's decision to match US tariffs with its own marks a significant escalation in the trade war between the two nations. The US tariff on goods from China now stands at 145%, while China's tariff is at 125%. The Chinese government's actions are driven by a complex mix of factors, including a perceived need to save face, fear of a prolonged trade war, and a desire to mitigate the economic costs of US tariffs. To understand China's stance, it's essential to examine the three plausible reasons behind its actions.

Key Takeaways:

  • China's leaders believe that negotiation at this stage will not produce a satisfactory outcome due to the US approach, which they consider akin to a kidnapper.
  • The Chinese government has already shown restraint by not responding to two earlier rounds of incremental US tariffs, but this did not prevent the US from adding another 34% levy.
  • China considers it unfair for the US to refuse to sell them goods that they really want while compelling them to buy more of the goods that they could obtain at a better price elsewhere.
  • Saving face is essential in Chinese culture, and the Chinese may suspect that Trump looks down on foreign leaders who come to beg for lower tariffs.
  • China may worry about an unfavourable spillover effect from making concessions to the US, as high US tariffs could cause Chinese producers to divert some of their exports to other markets.
  • China is hoping that the turmoil in US financial markets will persuade Trump to change course but its strategy could also trigger further US escalation.
  • The bipartisan anti-China sentiment in Washington may be strong enough to allow the administration to stay the course, even if it proves painful to US households and firms.
  • China can follow the Europeans in offering zero tariffs on US goods, committing to policy reforms if the US does the same, and proposing a third-party monitoring mechanism.

Statistics:

  • The US tariff on goods from China is 145%, while China's tariff is 125%.
  • The US has added 34% tariff on April 2.
  • China is the world's second-largest importing country.
  • The International Import Expo could promote more imports from countries that refrain from erecting new barriers.

Sources:

  • Chinese officials' statements to Reuters, 2020, also citing the article "US-China Tension on Trade Escalates" in other external news sources.