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Can China Win a Trade War? Strategies Against US Tariffs and Economic Risks

April 10, 2025
Maddison Cooper

China is actively responding to US tariffs with a mix of strategies that could help it fight back and potentially emerge stronger, though success is not guaranteed due to the complexity of global trade dynamics. Here’s how it might work:

Fighting Back Against US Tariffs
China has imposed retaliatory tariffs, reaching up to 84% on US goods, and uses export controls on critical minerals like rare earths to pressure the US. It also adds US companies to an “Unreliable Entity List,” restricting their market access, and launches investigations into US products. These actions aim to make the trade war costly for the US, potentially forcing negotiations.

Coming Out as a Winner
China believes it can win by leveraging its control over resources like rare earths, targeting US interests like Tesla (which does 20% of its business in China), and preparing a $590 billion stimulus to support its economy. It also plans to decouple from the US, reducing reliance on American markets, and match US tariffs to show resolve. However, “winning” depends on whether the US backs down, which is uncertain given political pressures.

Saving Exports and Recovering the Economy
To protect exports, China can diversify to markets like Europe and Africa, offer export subsidies, and stimulate domestic demand with lower interest rates. A stimulus package worth 4 trillion yuan ($590 billion) could help, but a prolonged trade war might reduce global demand, impacting growth. Recovery seems possible if China manages internal demand, but risks remain if other countries join US tariffs.

This approach shows China’s determination, but the outcome is complex, with both sides facing economic challenges. For more details, see analyses at China’s Retaliation and Economic Strategy.

Survey Note: China’s Strategies in the US Trade War

The escalating trade war between the United States and China, marked by President Donald Trump‘s imposition of tariffs reaching 125% on Chinese imports as of April 10, 2025, has prompted Beijing to adopt a comprehensive strategy to counter these measures. This survey note explores how China could fight back against US tariffs, potentially emerge victorious, and safeguard its exports while recovering its economy, drawing on recent developments and expert analyses.

Background and Context

The trade conflict intensified with Trump’s tariff hikes, prompting China to retaliate with tariffs reaching 84% on US goods, as reported on April 9, 2025, by China’s Tariff Hike. This escalation follows a history of tit-for-tat measures, with China viewing US actions as “mistake on top of a mistake,” according to statements from Chinese officials in March 2025, as noted in Economic Analysis. The stakes are high, with China’s economy already facing slowdowns due to domestic issues like a property crisis, making the trade war a critical battleground.

China’s Retaliatory Measures

China’s response is multifaceted, combining traditional tariffs with non-tariff measures to protect its economy and pressure the US. Detailed actions include:

  • Tariff Escalation:
    China began with 15% tariffs on US coal and LNG in February 2025, escalating to 15% on agricultural products like chicken and wheat in March, and reaching 34% on all US goods in April, later raised to 84% effective April 10, 2025, at 12:01 p.m. Beijing time, as per Tariff Announcement. These measures aim to mirror US actions, impacting US industries like agriculture and energy.
  • Export Controls:
    China has imposed licensing requirements on critical minerals such as tungsten, tellurium, bismuth, molybdenum, indium, and rare earth elements like samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, effective April 2025, as detailed in Export Controls. These materials are essential for electronics, defense, and clean energy, giving China leverage over global supply chains.
  • Unreliable Entity List:
    China has added US companies to its “Unreliable Entity List,” restricting trade and investment. This includes 2 US companies in February 2025 for discriminatory practices, escalating to 11 more in April for defense and drone tech, as seen in Entity List Update. This targets sectors like biotechnology and unmanned systems, affecting US operations in China.
  • Investigations and Import Suspensions:
    China launched antidumping investigations into US X-ray tube assemblies in April 2025, covering January 1, 2024, to December 31, 2024, with potential conclusions by April 4, 2026, as per Antidumping Probe. It also suspended imports of US soybeans, poultry, and sorghum due to contamination, effective immediately, under food safety laws, as noted in Import Suspension. These actions disrupt US export sectors and signal regulatory resolve.
  • WTO Complaints:
    China filed formal complaints with the WTO after each US tariff action, challenging their legality, with the latest in March 2025, as seen in WTO Complaint. This seeks international legitimacy and could delay US measures.

These measures, detailed in China’s Retaliation, form a comprehensive strategy to counter US tariffs while minimizing domestic economic damage.

Strategies to Win the Trade War

China’s confidence in winning stems from several strategic advantages, as outlined in recent analyses:

  • Leverage on US Interests:
    China can target specific US interests, such as Tesla, which conducts about 20% of its business in China, as noted in Business Impact. It can also influence geopolitical issues like fentanyl cooperation, support for Ukraine, and TikTok’s US operations, pressuring Washington into negotiations.
  • US Economic Vulnerability:
    China believes the US cannot sustain inflation and economic discontent from tariffs, potentially forcing concessions. This view is supported by Economic Analysis, noting US consumers facing higher prices due to global tariff impacts.
  • Economic Stimulus and Support:
    To mitigate trade war impacts, China is preparing a stimulus package worth up to 4 trillion yuan ($590 billion), similar to its 2007-09 response, with interest rate cuts and export subsidies, as mentioned in Stimulus Plans. State firms buying stocks, boosting the CSI 300 index by 1.7% on April 8th, also stabilize markets, per Market Support.
  • Decoupling Strategy:
    Growing support for decoupling includes potentially suspending fentanyl cooperation, banning US poultry, soybeans, and sorghum, and initiating IP probes, reducing reliance on US markets, as discussed in Decoupling Plans.
  • Tariff Escalation and Resolve:
    China matches US tariffs, reaching 70% on US imports, while US tariffs on Chinese goods hit 104% from April 9th, showing resolve, per Tariff Match. This aims to make the trade war unsustainable for the US.
  • Control Over Critical Resources:
    China’s dominance in rare earths and minerals gives it leverage, with potential export restrictions disrupting US defense and tech sectors, as seen in Resource Leverage.

These strategies, detailed in Winning Strategy, suggest China believes it can outlast or pressure the US, though success depends on US responses and global economic conditions.

Impact on Exports and Economic Recovery

The trade war poses risks to China’s exports, particularly in electronics, consumer goods, and agriculture, with potential demand drops if other countries join US tariffs. However, mitigation strategies include:

  • Diversification of Export Markets:
    China can pivot to Europe, Southeast Asia, and Africa, leveraging free trade agreements, reducing reliance on the US market, as noted in Market Diversification.
  • Domestic Market Stimulation:
    With a population of over 1.4 billion, China can boost internal demand through lower interest rates and social welfare programs, absorbing export losses, per Domestic Boost.
  • Export Subsidies and Support:
    The stimulus package includes subsidies to keep Chinese companies competitive, supporting key industries, as seen in Subsidies Plan.
  • Supply Chain Relocation:
    While some firms like Apple shift production to India, China remains attractive for new investments, per Supply Chain Shift.

However, challenges include reduced global demand and potential retaliation from other nations, straining growth. Recovery seems possible if China manages internal demand, but prolonged conflict could exacerbate economic pressures, as discussed in Economic Risks.

Conclusion and Outlook

China’s response to US tariffs demonstrates a calculated approach, leveraging tariffs, export controls, and economic stimulus to fight back and potentially win. By diversifying markets, stimulating domestic demand, and using non-tariff measures, China aims to protect exports and recover its economy. However, “winning” remains uncertain, with both sides facing economic costs and global implications. The outcome will depend on negotiation willingness, US political pressures, and global economic conditions, making this a complex and ongoing battle.

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