The U.S.-China trade war is back, and it doesn’t look like either side is in a hurry to calm things down. Advisers to the White House say Trump’s in no rush to sit down with Xi, thanks to his confidence in the U.S.’s economic clout.
The U.S. raised tariffs on Chinese imports to 20% on March 4. In response, China imposed additional tariffs of up to 15% on U.S. agricultural products on Monday.
Adding to the uncertainty is the fact that, as with Canada and Mexico, it’s unclear what China could even concede to get Trump to back down.
What does the U.S. actually want? Beyond the usual demands about fentanyl, insiders claim the Trump administration is pushing for some serious “structural changes” in the Chinese economy. Good luck with that.
“If they really think they can force these changes this time, then they are not being well advised,” wrote China expert Bill Bishop in his Sinocism newsletter. “They also need to be careful about overestimating how much leverage they have.”
China’s Stance
Beijing, for its part, is also not backing down. Foreign Ministry Spokesperson Lin Jian declared, “If war is what the U.S. wants … we’re ready to fight till the end.” Strong words – and perhaps not entirely bluster.
China is now more prepared to handle U.S. tariffs than it was when the first trade war began in 2018.
The country has massively diversified its trade partners since then, partly due to those initial tariffs. By 2024, for the first time ever, more than 50% of China’s total foreign trade was with its Belt and Road Initiative (BRI) partners, while trade with other free trade partners jumped to 34%.
Meanwhile, America’s slice of China’s trade pie has shrunk significantly – from 15.7% in 2018 to just 10.9% now.
Both sides are feeling mighty, which means we’re not likely to see a quick resolution.
But let’s be clear: this escalating trade war is already stinging many American companies and their Chinese suppliers.
Chinese factory gate prices have been on a descent for a while now. The Producer Price Index (PPI) has been sliding consistently since October 2022, and in February, it dropped another 2.2% compared to last year,according to the official numbers.
Worse still, some American firms are now squeezing their Chinese suppliers for lower prices. Walmart, for instance, has reportedly been pressing its suppliers to slash prices by up to 10% per tariff round. This essentially means that suppliers will absorb the full cost of Trump’s duties. Understandably, this hasn’t won over much goodwill; Bloomberg noted strong pushback from suppliers facing these demands.
Meanwhile, plenty of American companies are hightailing it out of China.
The American Chamber of Commerce in China reported last January that 30% of its members were either planning their exit or already moving.
New Partnerships
With U.S. firms pressuring for price cuts and others abandoning ship for more alluring options in Thailand, Chinese suppliers are keen to latch onto new partners — increasingly from the EU and the U.K.
“A lot of factories currently supplying the U.S. may lose that business, and with factory prices already low, this could create opportunities for U.K. and EU companies to form new partnerships with Chinese suppliers,” said Mark Clayton, chairman of the British Chamber of Commerce South China.
A prominent industry insider, speaking anonymously, revealed that certain Chinese factories – once tough to work with because of their U.S. focus – are now “rolling out the red carpet” for British and European clients.
But it’s not just about the dollars and cents. An easing of China-Europe tensions is also playing a big role in making these new partnerships more feasible.
As Trump cranks up the pressure, he’s pushing Europe and China into each other’s arms, according to Katja Bego over at Chatham House.
The more tariffs Trump imposes, the more crucial Europe becomes as an export market for China. At the same time, EU officials say engaging with China will allow Europe to counterbalance its reliance on the U.S.
Diplomatic Shifts
Brussels is already easing off the throttle, with European Commission President Ursula von der Leyen now advocating for agreements that could boost trade and investment ties with China.
The U.K. is following suit. In January, Chancellor Rachel Reeves restarted economic talks after a six-year break, securing 600 million pounds in new deals.
Chinese officials have welcomed these overtures. Foreign Minister Wang Yi told reporters last Friday that “China remains confident in Europe and believes Europe can be our trustworthy partner” in what might be the diplomatic equivalent of “we’ve been waiting for you to call.”
China’s envoy to the EU, Lu Shaye, who previously served as ambassador to France and was known for his assertive “wolf warrior” approach, recently said he was “appalled” by Trump’s treatment of Europe.
On the Ground Impact
The impact of these diplomatic shifts is already being felt on the ground in both Europe and the U.K.
The impact of these diplomatic shifts is already being felt in both Europe and the U.K.
“There have been significant increases in diplomatic visits over the past couple of months, which has been brilliant for both British businesses in China and Chinese businesses investing in the U.K.,” said Clayton. “We’ve seen more engagement in the past few months than we’ve seen in the past six years.”
Meanwhile, in Europe, over 300 Chinese companies descended upon the Mobile World Congress last week, making up more than 30% of exhibitors — a notable increase from previous years.
Future Prospects
There’s always a risk that Europe might be pressured into adopting a more aggressive China policy with the U.S. However, for now, that’s not the case.
Currently, it’s a good time for companies with supply chains in China to reconnect with local suppliers and explore potential deals. With prices already low and diplomatic relations between China and the EU/U.K. warming up, it’s a buyer’s market.
Our advice? Get back on the ground, reconnect with your suppliers, and see firsthand what’s available.
