When Donald Trump pulled back on his plan to impose eye-watering tariffs on trading partners across the world, there was one key exception: China. While the rest of the world would be given a 90-day reprieve on additional duties beyond the new 10 per cent tariffs on all U.S. trade partners, China would feel the squeeze even more. On April 9, Trump raised the tariff on Chinese goods to 125 per cent – bringing the total U.S. tariff on some Chinese imports to 145 per cent.

The move, in Trump’s telling, was prompted by Beijing’s “lack of respect for global markets.” But the U.S. president may well have been smarting from Beijing’s apparent willingness to confront U.S. tariffs head on. While many countries opted not to retaliate against Trump’s now-delayed reciprocal tariff hikes, instead favoring negotiation and dialogue, Beijing took a different tack. It responded with swift and firm countermeasures. On April 11, China dismissed Trump’s moves as a “joke” and raised its own tariff against the U.S. to 125 per cent. The two economies are now locked in an all-out, high-intensity trade standoff. And China is showing no signs of backing down. And as an expert on U.S.-China relations, I wouldn’t expect China to.

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Unlike the first U.S.-China trade war during Trump’s initial term, when Beijing eagerly sought to negotiate with the U.S., China now holds far more leverage. Indeed, Beijing believes it can inflict at least as much damage on the U.S. as vice versa, while at the same time expanding its global position. There’s no doubt that the consequences of tariffs are severe for China’s export-oriented manufacturers – especially those in the coastal regions producing furniture, clothing, toys and home appliances for American consumers.

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But since Trump first launched a tariff increase on China in 2018, a number of underlying economic factors have significantly shifted Beijing’s calculus. Crucially, the importance of the U.S. market to China’s export-driven economy has declined significantly. In 2018, at the start of the first trade war, U.S.-bound exports accounted for 19.8 per cent of China’s total exports. In 2023, that figure had fallen to 12.8 per cent. The tariffs may further prompt China to accelerate its “domestic demand expansion” strategy, unleashing the spending power of its consumers and strengthening its........

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