By Keyu JIN
When US President-elect Donald Trump’s first administration launched its trade war against China in 2018, the goal was clear. Trump wanted to reduce America’s dependence on Chinese goods, protect domestic manufacturing, and curb China’s global ambitions.
Six years later, the results tell a different story: far from isolating China, US tariffs – many of which the Biden administration maintained – have inadvertently enlarged its global footprint. America’s strategy of containment became a springboard for Chinese firms to diversify, innovate, and expand.
This outcome helps to explain why China is calmer about renewed tariff threats than it was the first time around. Not only has China gained valuable experience from the previous negotiations with Trump; it also has been long preparing its own de-risking strategy, which entails a pivot away from the United States. Its strategic mantra now is “abandon illusions and prepare for struggle.”
The earlier US trade war already ignited a globalization frenzy in China, with many companies relocating their production in order to skirt tariffs. In doing so, they achieved greater cost efficiencies and leveraged regional trade agreements with other rapidly growing markets. Hence, China’s trade with Association of Southeast Asian Nations members has grown by 11% in recent years, and its imports and exports to ASEAN markets rose by 10% in the first eight months of this year alone.
Nor did the trade war diminish Chinese competitiveness. China’s global share of exports is increasing as the US share declines. Demonstrating its supply elasticity, China seamlessly reallocated its exports from the US to other markets. In an otherwise struggling economy, Chinese exports have been a rare bright spot, averaging 11.7% annual growth between 2019 and 2022. Some sectors, such as lithium batteries and photovoltaic modules, have even grown exponentially over the last three years.
Flagship companies such as BYD (which makes electric vehicles) and Xiaomi (consumer technologies) aggressively expanded into Southeast Asia, Mexico, and Africa. CATL (batteries) chose to ignore the American market and focus on Europe. Temu (low-cost e-commerce) bypassed traditional supply chains and penetrated new markets.
ByteDance (the owner of TikTok and other platforms) shifted its investments to Argentina, Denmark, and Kenya, while building research and development centers in Australia and investing billions of dollars in data centers in Europe.
Chinese companies fully embraced Nietzsche’s adage that “what doesn’t kill you makes you stronger.” Recent surveys indicate that 90% of Chinese enterprises are considering expanding overseas, with 86% of specialized small and medium-size enterprises already implementing concrete plans to do so. Between 2015 and 2023, 89% of Chinese automotive and parts companies began to operate globally, and the medical equipment sector is expected to have grown by more than 30% year on year in 2024.
Such figures raise obvious questions about whether the trade war is serving American interests. While Chinese companies adapted by upgrading their supply chains, American manufacturers have had to grapple with higher input costs and disrupted production networks. By forcing China to pivot away from the US, tariffs further eroded American leverage and influence, which is reflected in surging international use of the renminbi. Many of China’s trade partners now settle transactions in its currency.
Even more troubling for the US is China’s deepening influence in its own backyard. Chinese investment in Mexico doubled in 2018 compared to the previous year, establishing China as one of Mexico’s fastest-growing foreign investors and trade partners. Chinese outbound direct investment continues to surge – growing 10.9% year on year in 2024 – only now it is being redirected from the US to ASEAN, Eastern Europe, and the Middle East, where Saudi Arabia became its largest recipient in 2022. These regions increasingly see China as the more reliable partner.
To be sure, the tariffs inflicted harm on both economies. The diversion of Chinese trade to countries like Mexico and Vietnam has increased prices, and reduced interdependence between the world’s two largest powers implies greater risks to global economic stability. The timing for a further escalation in tensions could hardly be worse.
Inflation now poses a far greater challenge for the US than it did five years ago, and China’s economy is significantly weaker than it was in 2018. It has less capacity, and less of an appetite, to engage in aggressive retaliation. Imposing additional tariffs on US companies would simply increase Chinese businesses’ costs.
Thus, China’s only option for countering the effects of a new tariff war is to open up even more, as Premier Li Qiang has repeatedly stressed in recent weeks. That means eliminating tariffs on 100% of goods from the least developed countries, and positioning China as “the world’s opportunity” at a time when the US is turning inward.
This strategy could help China realize its global ambitions, or it could reveal its underlying vulnerabilities. Much will depend on its ability to address critical domestic challenges. While unilateral opening can temporarily alleviate external pressures, true economic resilience will require increased domestic consumption. The best thing that China can do for the rest of the world is fortify its own economic foundations.
Keyu Jin, Associate Professor of Economics at the London School of Economics, is a World Economic Forum Young Global Leader and the author of The New China Playbook: Beyond Socialism and Capitalism (Viking, 2023).
