Some people in Tokyo anticipated Donald Trump’s self-control toward China this year.
While rival China avoided paying only 10 % of tariffs, North American allies Canada and Mexico are currently considering 25 %. Beijing politicians, who were feared the worst when Trump 2.0 hit the ground running, are no more surprising.
True, Ottawa and Mexico City managed to secure 30-day disruptions. But the taxes are coming. Trump didn’t stop the two countries from achieving their multi-decade aim of sticking it to nations he thinks mooch off of America because of their pledges to soften border security.
Xi Jinping’s more laid-back answer so much, by contrast, suggests China’s chief is keeping his hostile options available — and his flour clean.
Beijing did reveal a more restricted 15 % tax on certain kinds of fuel and liquefied natural gas, and a 10 % duty on crude oil, agricultural technology, large-displacement vehicles and pickup trucks. However, longer-lasting retaliation is still a possibility.
As the US president quickly extends his world pleasant, Xi has every reason to believe he already has the upper palm over Trump on a number of fronts.
According to Kelvin Wong, senior researcher at trading OANDA,” The Trade War 2.0 may lead to a downturn narrative because it involves not just US-China industry but also with other significant buying partners.”
Tony Sycamore, market analyst at IG Australia, thinks the chaos has only just begun.
The overnight lifting of tariffs on Mexico rekindles the cycle that has begun: calls and negotiations, declarations of victory, and then a new cycle, according to Sycamore. ” Ultimately the path leads to higher tariffs, slower growth, higher inflation and less certainty for risk takers and equities”.
For one thing, the goodwill is gone. Trump’s revenge tour is in full swing, as evidenced by his hard-hitting of Canada and Mexico.
Trump’s assault on the World Trade Organization order won’t soon be forgotten. And Trump has little faith in his actions given the speed with which he threatened to devastate Colombia’s economy with a minor diplomatic blunder.
For one, Xi is aware that, for the first time since Trump entered the White House, China is no longer dependent on the US. As Carlos , Casanova, economist at Union Bancaire Privée, points out, the impact of Trump’s tariffs is “manageable” for China so far.
” US exports account for only 3 % of]China’s ] GDP, compared to 15 % for the rest of the world”, Casanova says. Devaluation, he adds, “wouldn’t significantly improve trade terms while potentially causing tensions with other trading partners in Europe and Asia.”
Instead, according to Casanova,” China is likely to use a combination of deflationary measures and tax exemptions to offset the impact of expected tariffs, much like what we saw during the first trade war.” China’s trade ministry announced plans to file a case with the World Trade Organization and pledged to use unnamed” corresponding countermeasures” to defend its rights and interests.
Beijing believes that Trump is giving it the moral high ground, which fuels this latter instinct.
China stepped up efforts to present itself as the more stable and predictable power back in November, following Trump’s victory in the election, the keeper of the rules-based global order that Washington had turned against.
Team Xi has consistently defended China as the protector of free trade, globalization, and multilateral institutions. On November 15, for example, Xi declared that China stands ready to protect the “interdependent world” from” severe challenges” as a “new period of turbulence and change” approaches.
Then there’s the inflationary potential of what Trump is doing, warns Mohit Kumar, an economist at Jefferies. His tariffs and counter-tariffs” will be inflationary” while leading to “weaker growth prospects” and proving “negative for equities”.
All this has Asia rethinking ties to Washington.
In Seoul, where the political system is in abject chaos, officials are viewing Beijing with renewed affection. Ditto for Japan’s ruling Liberal Democratic Party. After months of trying, the LDP only recently gets some Trump facetime for Prime Minister Shigeru Ishiba.
Xi’s inner circle is clearly worried about the 60 % tariffs Trump has threatened. And odds are, taxes of that magnitude are coming, regardless of what Trump’s inner circle is signaling today.  ,
The kind way of explaining what’s afoot in Trumpworld is that a deliberate, well-calibrated strategy is unfolding. The arrival of Canada and Mexico allows for yet another reboot of the North American Free Trade Agreement ( NAFTA ).
That, in theory, enables Trump to consolidate power in America’s historic sphere of economic influence, reshaping supply chains closer to home and encouraging migrants to stay at home.
While this recalibration unfolds, Team Trump can prepare to aim Washington’s full financial arsenal at China. Admittedly, this affords Trump’s team the benefit of the doubt on many levels that it hasn’t earned.
If personnel is really what matters, then Xi’s Communist Party should be concerned about the characters with whom Trump 2.0 is surrounded by.
An American government doesn’t entrust economic policy decisions to Peter , Navarro and Robert Lighthizer acolyte , Jamieson Greer , if a “grand bargain” trade deal with China is a top priority.
The same goes for the anti-China foreign policy team Trump assembled. If forging a more productive China relationship is the main goal, the White House doesn’t hire Marco Rubio, Mike Waltz, John Ratcliffe, or Pete Hegseth.
Case in point: Ratcliffe’s first act as CIA director was to amplify the theory that Covid-19 , most likely , started in a Chinese lab, not randomly in a wet market. It offers a glimpse into the mindset of Trump’s inner circle.
Even the cabinet hires are perceived as being less MAGA-ish than most people are learning their Trumpian talking points at the same time. Look no further than Scott Bessent, Trump’s Treasury secretary, accusing Beijing of flooding the globe with cheap goods to finance its military ambitions.
The hedge fund , billionaire claims that China has” the most imbalanced economy in the history of the world” and that it might be suffering a” severe recession/depression“. If so, wouldn’t he be advising Trump not to kick a US$ 18 trillion economy , when he supposedly thinks it’s on the verge of collapse?
Not that it would help. Trump has said that Asia is squandering American jobs and wealth, and that this should be stopped. His most consistent geopolitical position has been over the years. Back then, Japan was cast in the role of boogeymen, a nemesis that the” Tariff Man” superhero of Trump’s imagination sought to avenge.
The mid-1980s zeitgeist had Hollywood churning out films like , Gung , Ho. The film, which stars Michael Keaton, explored how Detroit auto workers were being abused by Japan Inc. It was a period that Michael , Crichton immortalized in his best-selling novel” Rising Sun” . ,
That was at the height of Japan’s “bubble economy” era, a time when academics like Harvard University’s Ezra , Vogel, author of” Japan As Number One — Lessons for America”, characterized Tokyo as an unstoppable economic force.
Washington pulled off the” Plaza Accord” currency deal to slam the dollar against a New York hotel that Trump had previously owned.
At the time, New York property mogul Trump was a regular on daytime talk shows complaining Japan had” systematically , sucked the blood out of America , – sucked the blood out! They have gotten away with murder. They ultimately prevailed in the war.
Today, China inhabits this role. It’s more complicated, though, given Trump’s oft-articulated affection for Xi. On January 23, for example, Trump said” I like President Xi very much. I’ve always liked him”. Trump added that he’s “always had a great relationship” with China’s strongest leader since Mao Zedong.
Yet Trump and Xi seem on a collision course, nonetheless. Xi has shown little inclination to bow before Trump after a dozen years in charge.
According to reports, China is actually developing an opening offer for trade talks. However, according to The Wall Street Journal and others, the majority of the items involve reviving the” Phase 1″ agreement Trump and Xi signed in 2020. That won’t satisfy Trump, who’s expecting big market-access wins.
China also has a greater opportunity to retaliate than it did for the first time since Trump entered the White House in 2017. Greater scope, too, than Japan had back in the 1980s.
Of course, China worries greatly about Trump’s 60 % tariff threat. According to UBS economists, taxes of that size will cut China’s annual growth by more than half, shaving 2.5 percentage points from its gross domestic product ( GDP ).
Nevertheless, Xi might edict a similar strategy from Canada and direct attacks against Trump-supporting red states. For example, China could exact great pain by altering agricultural purchases. And by taxing mainland goods sourced by Amazon, Costco, Target and Walmart.
China might levy surcharges on well-known American businesses, including Starbucks and Boeing. Or China could meddle with Apple, Microsoft, Nike and other household name companies.
Could Musk find himself in harm’s way? Musk’s Shanghai “gigafactory” is a major producer of electric vehicles going to third countries in addition to producing electric vehicles for China, which currently accounts for more than a third of Tesla sales.
For now, though, no one really knows what to expect from Trump.
According to Goldman Sachs strategist David Kostin,” These announcements have come as a shock to many investors who anticipated tariffs would only be imposed if trade negotiations failed.” Although the outlook is uncertain, our economists believe there is a good chance that the tariffs will be temporary, respectively.
The “macro-wise, we think the immediate channel where Asian equities might be impacted is is… a potentially higher US dollar,” Nomura Holdings strategists write in a note. We also think that investors are likely to consider which industries or regions in China might be more susceptible to these tariffs.
Yet only Trump and the China skeptics in his circle can be certain.  , This is leaving global markets in suspense in ways that might play into China’s hands.
Follow William Pesek on X at @WilliamPesek