US-China trade tensions heat up ahead of president Trump’s tariffs

Trade between the world’s two largest economies is on the brink of chaos again. The outgoing Biden administration has turned up the heat in its final days, handing Trump a loaded gun in the form of sweeping restrictions directed at Beijing.

According to a Bloomberg report, they’ve slashed China’s access to advanced semiconductors, targeted the country’s shipbuilding subsidies, and restricted major Chinese companies. The official statement said that China’s shipbuilding subsidies provide an unfair edge in global markets, further fanning the flames. 

These actions are setting the stage for Trump’s promised tariffs, which he plans to roll out as early as February. And Beijing isn’t taking any of it lightly.

China hits back

China has responded with a fury. On Thursday, President Xi Jinping’s government added over a dozen U.S. companies to its version of a blacklist, restricting their activities in China. Beijing also tightened export controls on key minerals, including rare earth elements critical to industries like electronics and defense.

On top of that, Chinese regulators intensified their investigation into PVH Corp., the company behind Calvin Klein. Beijing accused the U.S. of flooding global markets with cheap semiconductors and offering subsidies that unfairly prop up American chipmakers.

While China scrambles to defend itself, Trump’s team is preparing to hit the ground running. Bloomberg reported that his economic advisors are considering a plan to steadily increase tariffs by 2% to 5% monthly. This is a loophole because it adds pressure on Beijing without affecting financial markets.

Trump’s Treasury nominee lays out strategy

Scott Bessent, Trump’s pick for Treasury Secretary, gave lawmakers a preview of the administration’s tariff strategy during his Senate confirmation hearing yesterday, as was reported by Cryptopolitan.

Scott explained that tariffs under Trump would serve three purposes: correcting unfair trade practices, raising revenue, and using tariffs as leverage for broader negotiations.

“Opening markets is good, but free trade must also be balanced against fair trade,” Bessent told the Senate Finance Committee. He then called China’s economy the “most unbalanced economy in the history of the world.”

He claimed that Beijing is trying to “export its way out” of deflation rather than fixing its own structural problems. Bessent also shared that Trump plans to revisit the 2020 trade deal between the U.S. and China.

He accused China of failing to meet its agricultural purchase commitments under the agreement, saying the administration may push for a “make-up provision” to recover lost revenue.

The idea of tariffs up to 60% is also there, though economists say immediate actions will likely focus on specific sectors. For instance, Trump could impose a 10% tariff on Chinese fentanyl exports, invoking the International Emergency Economic Powers Act to justify the decision.

China’s economy is still holding up nicely

For Beijing, the timing couldn’t be worse. China’s economy grew by 5% last year, meeting government targets thanks to a stimulus boost and record-breaking trade surpluses. But those gains are fragile. New tariffs could disrupt China’s export-driven recovery, especially as other countries in the European Union discuss similar trade measures.

And China’s currency, the yuan, has already dropped over 5% against the dollar since September as markets brace for Trump’s tariffs. The Bloomberg report suggests that Beijing could allow further currency devaluation to keep its exports competitive, but that risks destabilizing the broader economy.

Chinese companies are also in the firing line. Texas Instruments and Analog Devices, both leaders in lower-end chip production, are among the U.S. firms caught up in China’s crackdown.

Tencent, the world’s largest gaming company, and Contemporary Amperex Technology, a major supplier of EV batteries to Tesla, are under scrutiny after Biden’s administration labeled them “Chinese military companies.”

Both companies denied the designation last year, but the restrictions could disrupt their global operations. Despite it all though, Beijing is offering an olive branch. Vice President Han Zheng will attend Trump’s inauguration next week, an unusual thing to do for such a high-ranking Chinese official.

Events like this are typically attended by ambassadors, not vice presidents, which tells us Beijing is interested in keeping lines of communication open with President Trump.

In a statement on Wednesday, China’s Foreign Ministry said it hopes to “step up dialogue with the new government” while pushing for “stable, healthy, and sustainable development” in U.S.-China relations. Whether Trump will reciprocate remains to be seen.

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