China's worst nightmare is the US and EU uniting to kick their ass with high tariffs until they agree to play nice. You can expect Trump to threaten NATO states into beating China with the threat of US tariffs against their products. Will this work? Yes! Most in the Eurozone are already primed to retaliate against China.
Xi Jin Ping for the first time in his life is staring down the economic barrel of a loaded elephant gun.
China Courts U.S. Allies as Defense Against Trump’s Protectionism
Fearing a U.S. tariff barrage, Beijing hopes to use ‘proactive’ tariff cuts and investment offers to draw American partners in Europe and Asia
By Lingling Wei and Kim Mackrael, WSJ
Updated Nov. 10, 2024 12:01 am ET
With President-elect Donald Trump promising to inflict pain on the Chinese economy by shutting out Chinese goods from the U.S. market, Beijing is looking at ways to peel American allies away from Washington in response.
Trump’s campaign pledge to impose tariffs of up to 60% on imports from China threatens the very growth model promoted by Chinese leader Xi Jinping, one that centers on ramping up manufacturing and exporting the country’s way out of a downturn.
To offset the potential hit to the already wobbly Chinese economy, the Xi leadership is considering plans to shower American allies in Europe and Asia with tariff cuts, visa exemptions, Chinese investments and other incentives, according to people close to Beijing’s decision-making.
They say that while China is willing to engage in dialogue with Washington once the new Trump team is in place, it is also seizing on the opportunity to court America’s traditional partners to buy itself time and leverage in its intensifying competition with the U.S.
But Beijing is facing an uphill battle to make the strategy work. The European Union has hardened its stance on China in recent years and is angry with China’s support for Russia’s war in Ukraine, which it sees as an existential security threat. U.S. allies in Asia, including Japan, South Korea and the Philippines, are also increasingly wary of their assertive neighbor.
In recent months, China has already removed visa requirements for travelers from some two dozen countries including Australia, New Zealand, Denmark, Finland and South Korea—without requiring that the moves be immediately reciprocated.
The strategy, labeled “unilateral opening” in China’s policy circles, represents a tactical change for a leadership that has long favored quid-pro-quo economic and diplomatic deals.
He Lifeng, Xi’s economic czar, hinted in recent meetings with Western business leaders that Beijing is weighing “proactive” tariff cuts in various sectors to boost foreign investment and trade with Europe and other Asian countries, according to the people close to the decision-making.
The people say the sectors in focus include electrical and telecommunications equipment, as well as seafood and other agricultural products, depending on the countries Beijing is targeting.
European leaders are likely to be wary about offers from China and reluctant to be boxed into any position that deepens the rifts that they already fear will arise with the Trump administration. European officials have long said Beijing hasn’t come through on previous trade pledges. They also worry that increased market access could be a cover for Chinese companies to steal European technology.
At a big trade fair in Shanghai on Tuesday, Chinese Premier Li Qiang said China would pursue unilateral opening to offer opportunities for foreigners to access the Chinese market.
Beijing’s changing tack reflects the challenges it foresees in dealing with Trump, whose first four years in the White House reshaped Washington’s policy toward China by replacing decadeslong engagement with a more confrontational approach. A large-scale trade conflict during the first Trump term significantly strained bilateral ties.
Xi sent Trump a congratulatory message on Thursday but also gave a veiled warning to the incoming Trump administration about engaging in new economic fights with China. “History tells us that both countries stand to gain from cooperation and lose from confrontation,” Xi said.
With the new opening strategy, the people said, Beijing hopes to capitalize on fear in Europe and Asia that Trump will revive the often hostile rhetoric against U.S. allies he employed during his first term. During his campaign early this year, Trump said he would encourage Russia to attack North Atlantic Treaty Organization countries that don’t pay enough into the alliance—remarks that caused anxiety across Europe.
By taking the initiative, the people say, China intends to increase pressure on the U.S. and try to split its allies. China has an urgent need to diversify markets away from an America that may shut it out. It has made inroads in the developing world, but greater access to European or Asian markets could have a bigger impact.
Donald Trump during a visit to Beijing in 2017 during his first presidency. Photo: Thomas Peter/Reuters
Chinese leaders see an opening for China from Trump’s return to the White House. In their views, according to the people close to decision-making, Trump is an erratic dealmaker who could accelerate what Xi believes is the U.S.’s eventual decline as the singular world power, cause more political and social disarray in America and push away allies Biden has won over, potentially helping Beijing rebuild relations with the Europeans and others.
When Trump started setting tariffs on China in early 2018 to force Beijing to change its state-led economic practices, Beijing hit back in kind each time, figuring the businessman-turned-president would eventually back down.
Tit-for-tat escalation followed. The American levies on imports of Chinese goods ended up quadrupling from 3% to 12% on average during Trump’s first term.
Still, Chinese exporters benefited from robust demand from the U.S. during the Covid-19 pandemic, when American consumers were handed cash directly from the government and when a sharply weaker Chinese currency also made Chinese products cheaper overseas.
Boosted by Xi’s manufacturing-driven agenda, Chinese exports are one of the few bright spots in China’s economy these days. That means that if Trump follows through on his tariff pledges, the impact on the Chinese economy would likely be a lot greater than during his first term.
Some Republican strategists say that, once sworn in, Trump likely will start to fulfill his tariff pledge by focusing on China’s failure to fully comply with the so-called Phase One trade deal signed between Washington and Beijing in 2020, which required China to increase purchases of American goods and services by $200 billion over two years. The U.S. is entitled to raise tariffs on China for noncompliance under the deal.
Chinese leader Xi Jinping is shown on a screen outside a shopping mall in Beijing. Photo: Kevin Frayer/Getty Images
A recent report by Gavekal Dragonomics, an economic-research firm, shows that Chinese exports are 60% higher and the country’s share of global exports is 2 percentage points higher than in 2017, before the tariffs were imposed by the first Trump administration.
Larry Hu, China economist at Macquarie, estimates that a 60% tariff increase by the U.S. could reduce China’s economic growth by 2 percentage points in the 12 months following the implementation. “Trade war 2.0 could end China’s ongoing growth model, in which exports and manufacturing have been the main growth driver,” Hu said.
Chinese trade officials earlier this year engaged in a last-ditch effort to get the EU to back off from imposing tariffs on made-in-China electric vehicles. Still, the bloc this fall raised those tariffs to up to 45.3%, its toughest recent trade measure.
Beijing offered a combination of carrots and sticks to the 27-nation bloc in an effort to stave off the tariffs, including the possibility of new investments and the threat of tariffs on EU goods.
Both Beijing and Brussels have indicated that they would continue to negotiate to attempt to find an alternative to tariffs.
Europe’s economic ties to the U.S. are vital, with exports worth more than double the value of its exports to China. However, Chinese offers of greater market access might give the bloc some leverage in what will likely be difficult trade talks with Trump’s team.
To woo European leaders, China could offer some minor carrots, such as ending trade investigations launched in the past year into imports of European dairy and pork products, and recently imposed temporary tariffs on European brandy. Other steps could include easier access to Chinese procurement markets and a pledge to boost investment in European countries.
But any Chinese promises to increase investment in the bloc would risk creating division among European member states, said Abigaël Vasselier, head of the foreign-relations program at the Mercator Institute for China Studies.
The main things the EU wants from China, Vasselier said, are effective measures to curb the flow of low-cost products entering the European market and an end to China’s support for Russia. On both points, she said, “China does not have, at this stage, the capacity to respond.”
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