When Donald Trump first started a trade war with China in 2018, Beijing found itself on the back foot and unsure of how to respond. This time President Xi Jinping is better prepared for a fight, even as he has more to lose, Bloomberg reported.
Trump has threatened to put tariffs of as much as 60% on Chinese goods – on top of a range of export controls on advanced technology the Biden administration has tightened since Trump left office.
Since Trump was in the White House, China has taken strategic steps to ensure it’s more resilient and well positioned to strike back. Key to that has been expanding its toolkit, which now includes export controls on critical raw materials, in addition to tariffs on agricultural goods and an entity list that can target key American companies.
Still, Chinese President Xi Jinping would much prefer to avoid a tariff battle that risks proving much more devastating than the first round. Potential options for Xi, said Scott Kennedy, a senior adviser at the Washington-based Center for Strategic and International Studies, include targeting American companies with sizable interests in China, selling U.S. treasuries, devaluing the yuan and doing more outreach in Europe and Latin America. If China chooses to devalue its currency to make exports cheaper there are risks of irking other trading partners around the world, who might in turn put their own tariffs on Chinese goods.
If a trade war erupts, U.S. ag exports may again be the first target. Since Trump’s first term, Brazil has strengthened its position as the largest soybean supplier to China and is now also the biggest source of China’s corn imports, replacing the big spike of U.S. exports to China as part of the 2020 Phase 1 trade deal. In 2016, the U.S. supplied more than 40% of Chinese soybean imports, but that had fallen to less than 18% in the first nine months of this year. Demand for pork — as well as corn and soybeans to feed pigs — has also slumped. That means China is less reliant on imports and can more easily shift purchases from the U.S. to other nations.
China is more equipped to fight a trade war this time around, but ultimately, Beijing would prefer to strike a deal with Trump. The incoming president has signaled he would be open to Chinese investment in the U.S., which could potentially form the basis for some sort of agreement, according to Henry Wang Huiyao, founder of the Center for China and Globalization research group in Beijing.
Xi called Trump on Wednesday to congratulate him on the victory, CNN reported.
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