Tit-for-tat: Why China is not backing down in tariff war with US

China and the US, the two biggest economies in the world, are going head-to-head.

After US President Donald Trump announced that he would be increasing the tariff on China to 145 per cent, Beijing on Friday hit back at America.

Dismissing Trump’s tariff ploy as a ‘joke’, China imposed increased its own levy on US goods.

China had earlier vowed to ‘fight the US to the finish’.

But what happened? Why isn’t China backing down in tariff war? What do experts say?

What happened?

China on Friday increased its tariffs on US imports to 125 per cent.

This came after the US this week first imposed a tariff of 54 per cent on Chinese goods, increased it to 104 per cent and then finally raised that figure to 145 per cent, as per CNN.

China earlier had increased tariffs on US goods to 84 per cent.

“When challenged, we will never back down,” China’s foreign ministry spokesperson, Lin Jian, was quoted as saying by The Telegraph.

“The US side’s imposition of excessively high tariffs on China seriously violates international economic and trade rules, runs counter to basic economic principles and common sense, and is simply an act of unilateral bullying and coercion,” China’s Finance Ministry said in a statement.

However, Beijing says it would not continue to hike tariffs – even if Trump kept doing so.

“Even if the US continues to impose even higher tariffs, it would no longer have any economic significance and would go down as a joke in the history of world economics,” China’s finance ministry said in a statement.

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Chinese President Xi Jinping, in his first public remarks since Trump’s tariffs announcement last week, said on Friday that China and the EU should “jointly oppose unilateral acts of bullying,” in a clear swipe at Trump’s tariff policies.

“There are no winners in a trade war,” the Chinese leader told visiting Spanish Prime Minister Pedro Sanchez.

“If the US continues to play a numbers game with tariffs, China will not respond.”

Experts say the tit-for-tat increases stand to make goods trade between the world’s two largest economies impossible.

Import duties above around 35 per cent remove out Chinese exporters’ profit margins and make American goods in China similarly overly expensive.

However it left the door open for Beijing to turn to other types of retaliation, reiterating that China would fight the US to the end.

The commerce ministry said, “China will fight to the end if the US side is bent on going down the wrong path.”

Why China isn’t backing down

First, because the US is far more dependent on Chinese goods than vice-versa.

As per The Guardian, the US gets smartphones, computers and toys from China

Analysts at Rosenblatt Securities have estimated that the cheapest iPhones in the US would increase in price from $799 to $1,142 – at a tariff of 54 per cent.

“Trump cannot credibly deflect blame on to China for these economic hardships,” Diana Choyleva, founder and chief economist at forecasting firm Enodo Economics, told The Guardian.

China, on the other hand, gets industrial and manufacturing supplies such as soya beans, fossil fuels and jet engines from the US.

Second, because China is seemingly well prepared for the conflict.

As per The Guardian, China since 2018 has increased trade with other nations.

Its imports of Brazil’s soya bean between 2018 and 2020 increased over 45 per cent when measured against the 2015-2017 period.

Meanwhile, US exports declined 38 per cent over the same period.

While China remains the largest market for US agricultural goods, it is not as large as before.

In 2024, the US sent $29.25 billion worth of agricultural products to China.

That figure was at $42.8 billion in 2022.

“Xi has been very clear for a very long time that he expects China will enter a period of protracted struggle with the United States and its allies, that China needed to prepare for that, and they have quite extensively,” said Jacob Gunter, lead economy analyst at Berlin-based think tank MERICS, told CNN.

“Xi Jinping has accepted that the gauntlet is thrown down, and they are ready to put up a fight.”

China’s politicians, particularly Xi, and the upper echelon of the Chinese Communist party, are also uniquely insulated from public opinion in ways that US politicians simply are not.

As Victor Shih, director of the University of California San Diego’s 21st Century China Center, told CNN, “China can sustain that (situation) much more so than American politicians can,” he said.

“During Covid they shut down the economy (causing) untold employment, suffering – no problem.”

Trump and the Republicans, remember, are facing mid-terms next year.

Third, because Xi can’t afford to be losing face.

“For President Xi, there is only one politically viable response to Trump’s latest threat: Bring it on! Having already surprised domestic audiences with a forceful 34 per cent reciprocal tariff, any appearance of backing down would be politically untenable,” Choyleva added.

“What we are seeing is a game of who can bear more pain. We’ve stopped talking about any sense of gain," Mary Lovely, a US-China trade expert at the Peterson Institute in Washington DC, told the BBC.

China may “very well be willing to endure the pain to avoid capitulating to what they believe is US aggression,” Lovely added.

Trump already announced a 90-day pause on most tariffs after seeing the reaction of the bond market.

Chinese state media is already lining up behind Xi.

“In response to US tariffs, we are prepared and have strategies. We have engaged in a trade war with the US for eight years, accumulating rich experience in these struggles,” an op-ed in the People’s Daily noted on Monday.

Xi, in public, remained defiant.

“For over 70 years, China’s development has relied on self-reliance and hard work — never on handouts from others, and it is not afraid of any unjust suppression,” Xi was quoted as saying by state broadcaster CCTV.

“The ultimate outcome hinges on who can withstand a longer ‘economic war of attrition,’” economist Cai Tongjuan of China’s Renmin University wrote in another op-ed. “And China clearly holds a greater advantage in terms of strategic endurance.”

Trump, meanwhile, is being criticised even by his friends at Fox News.

What do experts say?

Experts say Beijing is in no mood to relent.

“It would be a mistake to think that China will back off and remove tariffs unilaterally,” Alfredo Montufar-Helu, a senior advisor to the China Center at The Conference Board think tank, told BBC.

“Not only would it make China look weak, but it would also give leverage to the US to ask for more. We’ve now reached an impasse that will likely lead to long-term economic pain.”

They also say the decoupling between the world’s two largest economies seems to have begun.

“This is probably the strongest indication we’ve seen pushing towards a hard decoupling,” said Nick Marro, principal economist for Asia at the Economist Intelligence Unit, told CNN.

“It’s really hard to overstate the expected shocks this is going to have, not just to the Chinese economy itself, but also to the entire global trading landscape” as well as on the US, Marro added.

Experts think things can get even worse.

“I do not remember ever being this pessimistic about the trajectory of US-China relations,” China analyst Bill Bishop was quoted as writing a newsletter as per The Guardian.

“The trade relationship is the linchpin between the two countries, and as it breaks we should probably expect other areas to see more stress.”

As Deborah Elms, Head of Trade Policy at the Hinrich Foundation in Singapore, told BBC, “You can only tariff so much for so long. But there are other ways both countries can hit each other. So you might say it can’t possibly get worse, but there are many ways in which it can.”

“So we are in a very different universe, one that is really murky.”

UBS analysts said in a note that China’s declaration that it would not retaliate in kind against any further tariff increases was “an acknowledgement that trade between the two countries has essentially been completely severed”.

“I think the US is overplaying its hand,” Elms added. “How will this end? No-one knows,” she says. “I’m really concerned about the speed and escalation. The future is much more challenging and the risks are just so high.”

With inputs from agencies