Supply Lines: China Takes Cautious Approach in Latest US-China Trade Friction

Introduction

The resumption of trade tensions between the United States and China has sparked concerns, but Beijing's response suggests a more measured approach compared to previous conflicts.

Xi Jinping's Diversified Strategy

President Xi Jinping has diversified China's import sources since former US President Donald Trump's first term, reducing its dependence on American imports. This has made Beijing less inclined to engage in a full-blown tariff war.

Targeted Retaliation

In response to US tariffs, China imposed limited tariffs on $14 billion worth of American goods, avoiding a tit-for-tat escalation. Additionally, Beijing launched an antitrust investigation into Google, tightened export controls, and added two US companies to its blacklist.

Domestic Stimulus as Response

Instead of relying solely on tariffs, China is expected to prioritize domestic stimulus measures to mitigate the economic impact of US actions. This cautious approach aims to avoid market disruptions and excessive losses.

Talks and Trump's Priorities

Both US President Joe Biden and Xi have expressed willingness to negotiate. However, Trump's priorities include balancing trade, resolving the Ukraine crisis, and securing the ownership of TikTok.

China's Limited Bargaining Power

China's massive trade surplus with the US constrains its ability to retaliate with tariffs. Furthermore, its symbolic measures, such as targeting Google despite its limited presence in China, underscore its limited maneuverability.

Potential Concessions and Wild Cards

China's concessions could include purchasing more US energy, maintaining the stability of the yuan, and fulfilling commitments under the Phase One trade agreement. Panama Canal influence is a potential wild card that could be used as a bargaining chip.

Balancing Act

China is balancing assertiveness with self-restraint, as both sides test each other's resolve and appeal to domestic audiences.

Conclusion

President Xi Jinping's cautious approach in the latest US-China trade friction reflects China's diversified economy and desire to avoid excessive economic disruption. Negotiations and potential concessions will shape the future of the trade relationship between the two superpowers.