China’s strategy in the tariff wars

Editor’s note: Chinese President Xi Jinping during the period April 14-18 is paying state visits to Vietnam, Malaysia and Cambodia. It is Xi’s first overseas visit this year, following the Central Conference on Work Related to Neighboring Countries held in Beijing from April 8 to 9. Asked what was the core message of this meeting, Professor Jin Canrong of Renmin University, a prominent Chinese analyst often cited in Western media, told the Chinese website “Observer” (guancha.cn) that Beijing would reach out to its Asian trading partners to buffer the impact of US tariffs. China would continue its Belt and Road Initiative investments in Asia, Jin said, but would also expand domestic demand to buy more from is Asian trading partners. ASEAN countries could buy Chinese government bonds denominated in RMB, and China could use the proceeds to import more, replacing to some extent the US demand. Below are Jin’s remarks:

This meeting on work related to neighboring countries was held against a severe global situation caused by the United States’ wanton tariff war. It showed that we hope to make such work a still higher priority in our country’s global strategy.

China and the United States have entered into a state of confrontation. In this situation, China’s relations with neighboring countries have grown further in importance. Actively developing and maintaining such relations has unique and far-reaching significance for China. 

As long as we can do a good job in both domestic work and neighborhood diplomacy, we can maintain our country’s solid position in the Sino-US strategic game.

Over the past few decades, despite the numerous global problems and highly complex situations, China and its surrounding areas have remained relatively stable. 

In the next stage, China’s surrounding areas will become a rare “island of stability” and enjoy strong economic development momentum. The region will see excellent prospects and exceptional value in the future.

At the same time, the population of the countries surrounding China is also huge: Both China and India have populations exceeding 1.4 billion. Indonesia, Pakistan, and Bangladesh also have large populations of 290 million, 250 million, and 180 million respectively. China and its surrounding countries account for about 56% of the world’s total population.

Overall, we have handled our relations with neighboring countries quite well, but there are  shortcomings related to our development level. We have not yet fully achieved modernization. Our per capita GDP is approximately $13,000, while that of the United States is over $80,000.

Although mankind’s overall goal is to move toward modernization, China is currently only in the initial stage of success and has not yet become a setter of modernization standards.

From the perspective of comprehensive national strength, our development still has limitations, especially in soft power. If our country’s per capita GDP exceeds $50,000, and we have a population of 1.4 billion, we will make a huge impact. However, we have not achieved it at this stage. If the United States is a postdoctoral fellow in terms of the level of modernization, China is only a fresh graduate.

From now on, we must adjust our development strategy, boost our consumption capacity and improve people’s living standards. To achieve this, we must effectively increase people’s income level and provide them with complete social security. 

In the past, many of our country’s fiscal expenditures were used for investment and development. Now, the government should spend more on improving people’s livelihoods, using resources that are not related to key industries. 

By allocating and adjusting public resources, we can fundamentally solve problems in four key areas: housing, medical care, education and pensions. By improving welfare and boosting people’s livelihood investment, we can create domestic demand and achieve internal circulation.

From a regional perspective, the continuous expansion of China’s domestic market will enhance the country’s attractiveness to neighboring countries, improve the region’s job markets and development environment and help neighboring countries reduce their dependence on the US and Western markets.

Our practical work should focus on soft cooperation in the economy and technology. First, China needs to consolidate the regional economic cooperation platform and push for implementing the Regional Comprehensive Economic Partnership (RCEP). Although the agreement took effect on January 1, 2023, its impact has not yet been fully demonstrated. Under the RCEP framework, we should strengthen economic ties with ASEAN, Japan, South Korea, Australia and New Zealand.

We should also continue to promote the Belt and Road Initiative, focus on promoting subregional cooperation platforms such as the China-ASEAN Free Trade Area, the China-South Asia Dialogue, and the China-Central Asia Dialogue and strengthen economic ties with neighboring countries.

Guancha.cn: Regarding Trump’s tariffs, most of China’s neighboring economies agreed not to retaliate but to start tariff negotiations with the United States. How should China explore its economic and trade potential with neighboring countries?

Trump’s recent announcement to suspend the imposition of “reciprocal tariffs” on 75 trading partners for 90 days and to focus on dealing with us can be attributed to two reasons: On the one hand, it is to punish China because many countries have shown an attitude of surrendering and kneeling to the US. (Although Canada and the European Union vowed to retaliate, most others chose to compromise.) On the other hand, it is also intended to appease different opinions at home.

Under this situation, China’s external trade situation is undoubtedly  severe. 

Some experts pointed out that when the tariff level between China and the United States exceeds 54%, most of the commodity trade between the two countries will no longer have room for profit. The United States further raised its tariff level to 104% and 145%, but it did not make much difference.

We must fully prepare psychologically and be ready to pay a certain price. Some scholars estimate that the impact of this tariff war on China may be as significant as that of the 2008 global financial crisis and the 2020 Covid-19 pandemic.

China significantly adjusted its policies during the 2008 financial crisis and the 2020 pandemic. In 2008, the central government spent 4 trillion yuan ($547 billion), plus local government loans, to overcome the crisis. In 2020, our country used its “whole-of-nation” system, similar to military mobilization, to overcome the pandemic. 

Today, we must recognize the severity of the United States’ tariff war and prepare as we did in 2008 and 2020. 

Exports account for about 19% of our GDP, while 14.5% of China’s total exported goods go to the US. The actual proportion may be even higher as some of our products are exported through third-party channels.

In the last round of tariff war, large-scale capital outflows from the mainland involved mainly Taiwanese and US firms, while the outflow of domestic capital was relatively low.

Let’s assume that exports to the US account for about 20% of our total exports. If the trade between China and the US completely stops, we will need to take measures to alleviate the pain caused by a reduction in exports to the US, which accounts for 4% of our GDP.

Based on common sense, we can take three measures:

• expand domestic demand through fiscal stimulus and strive for internal consumption;
• promote re-export via countries that are facing only 10% US tariffs;
• explore new markets such as Southeast Asia, the Middle East and Latin America.

After the United States realizes that China will not give in, China and the United States could start negotiating. 

In the negotiations, we can strive for tariff exemptions on some products exported to the United States, such as Tesla and Apple, which are produced in China and then shipped to the United States. [This has already been decreed by the US. – eds]

After a confrontation, we will force the other party into negotiations. After all, fighting a trade war aims to create bargaining chips so that China can retain certain exports. If we can reach an agreement, all products made by American companies in China for the US market can be exempted from tariffs. This can reduce pressure on China to diversify its markets.

With all the above measures, the overall impact of the tariff war on China’s GDP will decrease from 4% to less than 2%.

At the strategic level, I remain optimistic about China’s overall outlook. We can use this tariff war to prompt local companies to make adjustments, accelerate the construction of a unified domestic market, and implement internal circulation and dual circulation, turning “bad things into good things.”

I also have another suggestion. Faced with a 10% US tariff, many countries will see a decline in their trade surplus to the US and receive fewer US dollars, which may cause a global shortage of US dollars. 

China can seize this opportunity to issue renminbi bonds on a large scale in politically stable countries.

The international market has a specific demand for renminbi. The large-scale issuance of renminbi bonds can help China attract overseas funds and encourage holders to shop and invest in China. 

Such a move will also help promote the use of the renminbi in global transactions and agreements, creating favorable conditions for its internationalization.

Originally published April 14, 2025 by guancha.cn, this article is republished with permission.