The Liberation Day “reciprocal” tariffs announced by US President Donald Trump were stayed for 90 days on 9 April for all countries except China. Trump announced that “I am hereby raising the tariff charged to China by the USA to 125 percent effective immediately” (a rate later raised to 145 percent) “based on the lack of respect that China has shown to the world’s markets.”
President Trump voiced similar concerns during his first term as well — the 2017 annual report to Congress on China’s compliance with World Trade Organisation (WTO) commitments noted that, “it seems clear that the United States erred in supporting China’s entry into the WTO on terms that have proven to be ineffective in securing China’s embrace of an open, market oriented trade regime.”
While tariffs imposed by the US on Chinese products in 2017 were way lower than the ones today yet what is fairly obvious is that Trump and his team members failed to take account of the significant difference between China eight years ago and today.
While China to this day lags behind the US in terms of Gross Domestic Product, yet it is projected to catch up due to a growth rate on average more than double that of the US. China’s rise has been meteoric. As per the WTO website in 2001, the year China joined the WTO, its GDP was 3 trillion dollars and by 2024 it had risen to 19 trillion dollars (the US registered a GDP of 10.5 trillion dollars in 2001 rising to 29 trillion dollars in 2024).
China is also a major destination for foreign direct investment – from 200 billion dollars in 2001 to more than 2.3 trillion dollars in 2023 – a feat that China achieved partly due to globalisation as it successfully attracted foreign capital by extending fiscal and monetary incentives for setting up manufacturing units in-country as well as by providing cheap labour.
Over the past 25 years China has emerged as an economic powerhouse through implementing its strategic carefully laid plans to achieve: (i) a steady increase in the value addition of products it manufactures — not by graduating from raw cotton to made up textiles as in the case of Pakistan but by becoming a global leader in electric cars and artificial intelligence though massive annual injections on education and research.
In contrast, Pakistan’s five-year plans were wish lists with no strategic plans ever implemented which in turn accounts for Pakistan’s value added exports consisting largely of the same products as half a century ago and still requiring fiscal and monetary incentives at the taxpayer’s expense (currently vetoed by the International Monetary Fund); (ii) steadily expanding its trade with neighbouring countries/blocs an example being the offer of free trade to ASEAN countries which led to a rise from under 50 billion dollars in trade to the present nearly trillion dollar trade (in contrast the US trade with ASEAN rose from 140 billion dollars to 500 billion dollars today) – statistics that make the Trump administration’s policy of Chinese containment not in the economic interests of ASEAN; (iii) President Xi’s one belt one road initiative envisages massive investment in the infrastructure of developing countries.
President Biden early on his presidency stated he too would launch such a programme but failed to do so; (iv) a lesson that China may have learned from the collapse of the Soviet Union was to ensure a steady rise in domestic income levels possible due to (i) and (iii) to pre-empt the possibility of an implosion; and (v) last but not least in 2017 academics and international relations analysts began referring to the emergence of a multipolar world (China and Russia as competing power centres).
This was acknowledged perhaps tacitly by the US at the time that may explain why the US government began its policy of Chinese containment China and Russia, though both members of BRICS, had yet to become allies. The US over-use of sanctions and freezing assets, increasingly used as a foreign policy tool, compelled these two superpowers to proactively seek an alternate to the dollar as well as an alternate to SWIFT (Society for Worldwide Interbank Financial telecommunications) perhaps by using digitization, an available technically more advanced system. This process has started and is unlikely to be reversed.
In April 2025 Trump confidently stated, though with the benefit of hindsight he and his team totally miscalculated the Chinese response, that “China will realise that the days of ripping off the USA and other countries is no longer sustainable or acceptable.”
China retaliated by imposing a tariff of 125 percent on US imports — a higher rate, the Chinese authorities pointed out, would not make a difference as trade would be choked at this rate — and instead of threats and warnings began quietly refusing to accept deliveries (aeroplanes), banning imports from the US and notifying exemptions after firms were requested to identify critical items they want to be levy free – items that include imports of microchips, pharmaceuticals, and aircraft engines.
On 30 April, Chinese foreign ministry spokesmen stated that “as far as I know there have been no consultations or negotiations between China and the US on tariffs.” The next day, 1 May, China confirmed on social media that the “US has proactively reached out to China through multiple channels, hoping to hold discussions on the tariff issue.”
The two countries in recent weeks have also sought to undermine the economic potential of the other – China behind the scenes and the US overtly. China holds about 761 billion dollars of US treasury bonds, making it the second-largest holder of US government debt, behind only Japan. Conventional economists argue that it is not in China’s interests to offload this debt as an exporting country, as it would make Chinese exports less competitive.
Regional Vice President of William Raveis Mortgage concurs and maintains that this action would “damage China’s own financial interests by devaluing its remaining holdings and destabilizing global currency markets.” However, China has shown consistently minimized the cost of the trade war on its economy and there are indications that the country perhaps engaged in such action though not too aggressively – a view that has some credence given that: (i) the spike in the returns on US treasury bills has generated concerns that US debt servicing costs may become unsustainable; and (ii) the rising gold prices internationally that many believe China is quietly purchasing.
The US is using its influence to contain China more overtly. Chairman of the House Select Committee on China John Moolenaar recently sent a letter to JPMorgan Chase and Bank of America demanding they withdraw from the Hong Kong initial public offering (IPO) of Contemporary Amperex Technology Co., Limited (CATL). The Department of Defence has designated CATL as a “Chinese military company” under Section 1260H of the National Defence Authorization Act.
And during the recent IMF/World Bank spring meeting in Washington DC, the Treasury Secretary Bessent urged the Asian Development Bank President to take concrete steps to end loans to China.
To conclude, the new trade world order is slowly but inexorably taking shape even if the Chinese and the Americans reach a trade deal in weeks or months to come.
Copyright Business Recorder, 2025
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