Initial exchanges in a trade conflict have begun. What are Beijing’s next steps?

The initial response in a new trade dispute between China and the United States was initiated on Monday, as Beijing implemented tariffs on nearly $14 billion worth of US imports.

These tariffs, which include duties on crude oil, liquefied natural gas, and various machinery and vehicles, were enacted shortly after US President Donald Trump introduced a blanket 10% tariff on hundreds of billions of dollars in goods imported from China annually.

There had been optimism that a phone conversation between Trump and Chinese President Xi Jinping last week might prevent an escalation of tensions that could result in a larger trade war. However, that discussion did not take place.

The pressing question for both nations now is the next steps to be taken and the extent to which each of the world’s two largest economies is prepared to jeopardize their closely intertwined commercial and trade relationships.

Despite the initial exchange of tariffs, both parties seem to be allowing for the possibility of a negotiated settlement.

“Beijing has shown restraint in its reaction to the new Trump tariffs, partly due to the limited impact on China and because Xi aims to keep avenues open for negotiation with Trump,” stated Andy Rothman, CEO of the advisory firm Sinology.

Is there potential for negotiation?

China’s tariffs include a 15% tax on specific types of coal and liquefied natural gas, along with a 10% tariff on crude oil, agricultural machinery, and certain vehicles, impacting approximately $13.86 billion in goods, as calculated by CNN based on China’s 2024 customs data.

This total represents less than 9% of China’s overall imports from the US. Last year, China exported over $524 billion to the US while importing more than $163 billion, according to its customs statistics.

Additionally, Beijing announced last week the immediate implementation of export controls on certain raw materials utilized in the defense and green technology sectors, along with measures targeting select US companies.

Trump’s latest tariffs are relatively modest when compared to the over 60% duties he had previously threatened to impose on China during his campaign. These new tariffs contribute to the existing levies on hundreds of billions of dollars’ worth of Chinese imports.

The US president ran on a platform aimed at leveling the economic playing field with China and has expressed a willingness to negotiate. Last month, at a gathering of political and business leaders in Davos, Switzerland, he remarked that he has “always liked” Xi and is eager to “get along with China.”

According to Rothman, “Trump seems to be in a deal-making mindset, utilizing tariffs as a bargaining chip. However, it remains uncertain what he seeks from Xi and what concessions he might be prepared to make in return.”

So far, analysts observing China’s elite political landscape suggest that Xi and his team are likely feeling relieved by the current tone of the Trump administration and the limited measures taken thus far.

“They were bracing for 60% tariffs and a complete economic separation… nothing has transpired that approaches the worst-case scenario,” noted Suisheng Zhao, director of the Center for China-US Cooperation at the University of Denver.

However, another deadline looms on April 1, when Trump has instructed his officials to complete an investigation into US-China economic relations, which could lead to further actions.

Officials in Beijing are now prioritizing the careful management of their communications with the Trump administration regarding diplomacy and trade policies, aiming to prevent a more severe trade conflict.

They are likely eager to capitalize on any opportunities to leverage the personal relationship between Trump and Xi to dissuade the U.S. president from imposing further sanctions on the Chinese economy, which experts warn could also significantly impact the U.S. economy.

This suggests that Beijing may be open to hosting the American president for in-person discussions in Beijing, a prospect that sources indicated Trump expressed interest in last month.

Chinese leaders are wary of escalating tensions, as their leverage is not as substantial as that of the United States. Therefore, they must seize every opportunity to appease Trump and encourage him to direct his frustrations towards other nations, according to Zhao.

Regarding penalties and concessions, while Beijing is focused on avoiding an intensification of the trade war, officials are nonetheless preparing for various contingencies, including potential penalties and concessions should Trump choose to escalate the situation further.

“Trump’s trade measures will compel Beijing to react, but this time the response will be more measured, rather than the broad retaliatory actions seen during the initial trade war from 2018 to 2019,” stated Nick Marro, principal economist for Asia at the Economist Intelligence Unit.

Last year, the country updated its export control regulations, enhancing its capacity to limit the trade of dual-use items, raw materials, and critical minerals, many of which the United States considers vital for its economic and national security. Analysts estimate that China accounts for 60% of global production and 85% of processing capacity for critical minerals.

According to observers, Beijing is weighing the potential benefits and drawbacks of imposing further restrictions on these goods and additional tariffs, while also seeking to safeguard its economy, which is currently grappling with slow growth, ongoing deflation, and weak consumer demand.

In some respects, China is now better equipped to handle trade tensions than it was during the initial term of the Trump administration, analysts note. Chinese companies have made efforts to diversify their export markets, and Beijing has initiated a campaign to strengthen or mend its relationships with other trading partners—an opportunity that increases for China whenever Trump escalates tensions with US allies.

However, a more complex issue arises regarding what concessions China might be willing or able to make in any meaningful negotiations with the US regarding a trade agreement.

Analysts point out that Beijing did not fully adhere to the phase one trade agreement established at the conclusion of Trump’s first term, while US concerns have expanded to encompass China’s industrial policies and economic framework.

“Considering the unsuccessful outcomes of previous negotiations, the US’s interest in a comprehensive deal—one that transcends minor discussions, such as the future of TikTok—appears to be quite limited at this time,” remarked Marro, referencing the Chinese-owned app that is facing a potential ban in the US. “This will likely reduce any chances for a viable resolution.”