USA NEWS – As former President Donald Trump gears up for a possible return to office, China is preparing for what some economists and analysts warn could be a revival of the trade war that started in 2018. The Chinese economy, once poised to overtake the United States as the world’s largest, now faces numerous challenges, including a sluggish property market, mounting debt, and persistent deflationary pressures. However, despite these economic hurdles, China is not backing down from a potential trade confrontation. Armed with strategies honed during the first trade war, China’s leadership is confident in its ability to withstand another economic clash with the US.

During the 2018 trade war, China was heavily reliant on the US as one of its largest trading partners. However, the landscape has changed dramatically in recent years. In response to tariffs imposed by the Trump administration, China began diversifying its trade partnerships, a strategy that has borne fruit. As of 2023, China’s exports to the US had fallen by 20%, with Mexico surpassing China as the top exporter of goods into the United States. This shift has allowed China to reduce its dependency on the US, signaling that it is no longer as vulnerable to trade shocks from its former partner. The share of China’s exports to the Group of Seven (G7) countries has dropped significantly, from 48% in 2000 to just under 30% last year, according to Matthews Asia. Despite this decrease in exports to the US, China’s overall share of global exports has risen, now standing at 14%, up from 13% before the onset of the trade war.

Should Trump fulfill his promise of imposing aggressive tariffs on Chinese goods, experts predict that China’s retaliation will likely be more strategic than the broad measures seen in the past. Economic analysts do not anticipate a drastic move such as the selling of US Treasury bonds, a tactic once speculated to be a potential weapon in China’s arsenal. Given China’s substantial holdings of US debt, such a move could destabilize both economies. Likewise, devaluing the yuan, a measure that could make Chinese exports cheaper, seems unlikely due to the negative economic consequences it would entail.

Instead, experts believe that China’s response will involve more targeted and asymmetric actions. For example, China has already started tightening its grip on foreign businesses operating within its borders, a strategy that could be intensified against American companies. In 2023, Beijing launched investigations into PVH Corp, the parent company of Calvin Klein and Tommy Hilfiger, for its refusal to source cotton from the Xinjiang region, an area embroiled in human rights controversies. This move signals that China could increasingly target US businesses that operate in or rely on its market. Similarly, the Chinese government has taken action against American consulting firms, including Bain & Company and Capvision, in recent years, showing that foreign companies could face punitive measures if tensions escalate.

Trump’s proposal to impose tariffs ranging from 10% to 20% on all imported goods could drastically increase the cost of US imports, which would likely hurt both consumers and businesses. The impact on China’s economy could be severe, with some economists predicting that the tariffs could reduce China’s economic growth by half. For American consumers, the increase in tariffs could raise the cost of living by more than $2,600 per household annually, according to the Peterson Institute. However, China is not without its own countermeasures. The country has a vast domestic market, with 1.4 billion people, and boosting domestic consumption could help mitigate the blow from weaker exports.

While external pressures are mounting, China is focusing on stimulating its domestic economy. The government is hoping to restore confidence among Chinese entrepreneurs, who are responsible for the majority of urban employment and innovation. A stronger domestic economy could offset some of the negative effects of falling exports. According to economists, boosting domestic consumption is key to China’s long-term stability in the face of external shocks.

Despite efforts to boost domestic demand, China’s economic recovery remains sluggish. The country’s GDP grew by just 4.6% in the third quarter of 2024, below the government’s target of 5%. The ongoing difficulties in the property market, combined with weak consumer spending, have prompted the government to introduce stimulus measures aimed at reviving economic growth. These measures have primarily focused on monetary policies, with some analysts suggesting that more drastic steps may be needed if Trump’s tariffs are imposed. Historically, China’s government tends to respond to economic conditions reactively, rather than taking preemptive action. However, as Trump’s policies become clearer, Beijing may have to escalate its efforts to stabilize the economy further.

China’s leadership is taking a calculated approach to the potential return of a trade war with the US. The country’s strategy of diversification, targeted retaliation, and bolstering domestic consumption suggests that Beijing is preparing for a sustained economic rivalry. While the country’s economy faces numerous challenges, including weak consumer spending and an unstable property market, China is positioning itself to weather the storm. As Trump prepares for his possible return to office, it remains to be seen whether China’s economic resilience will be enough to withstand another round of tariffs and trade hostilities. However, with a more diversified trade network and a domestic market that offers some cushion, China is better prepared than it was in 2018.