China could further ratchet up pressure on American companies in retaliation for US President Donald Trump’s tariffs as it holds back some firepower for negotiations between the world’s two biggest economies in an escalating trade war.
Beijing has already hit back, increasing levies on US goods by 34 per cent and taking a raft of other measures, including export bans on rare earths and an antitrust probe into the Chinese subsidiary of US chemical giant DuPont.
Unlike the previous two rounds of retaliation, which targeted specific categories of US imports, this time Beijing announced a blanket tariff increase to come into effect from April 10, a day after America’s “reciprocal” levies come into effect.
“The Chinese reaction to the first two tariff hikes was moderate and patient but we found out patience wasn’t helpful,” said Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing.
But while the “situation is bad; it could be worse”, said Cory Combs, associate director of Beijing-based consultancy Trivium China. “Beijing has strategically left itself space to continue ratcheting up retaliation wherever US or others’ actions threaten its economic interests.”
Some content could not load. Check your internet connection or browser settings.
The latest export controls — seven more were added to an existing list that included antimony, gallium and germanium — were the “most significant mineral controls yet”, he said, adding that Beijing still has room to more strictly enforce export controls and launch fresh investigations into companies with a presence in China.
Chinese officials told state media on Monday they were prepared to cut borrowing costs and lower cash reserve requirements for lenders. They also said there is “ample room” to expand the state’s fiscal deficit and use extraordinary measures to boost consumption.
Recommended
Trump’s trade offensive comes at a difficult time for Beijing, which is actively courting foreign investment to bolster a sluggish economy and battle deflationary pressures.
China had been working towards easing tensions with the new administration at the start of the second term, making the unusual move of sending vice-president Han Zheng to attend Trump’s inauguration in January.
But China’s restraint came to an end after it last week found itself one of the biggest targets of the “reciprocal” tariffs unveiled by Trump. The fresh tariffs will take average US levies on Chinese goods to 60 per cent, according to a Goldman Sachs analysis.
China has condemned the tariffs, which have led to a sell-off in global stocks. It also intervened at the last minute to halt the sale of US TikTok operations by Chinese social media group ByteDance to a consortium of American investors, seeking to renegotiate the tariffs before agreeing to any sale, one person familiar with the matter said.
The controls announced on Friday target so-called medium and heavy rare earth elements such as samarium, gadolinium and terbium, which can be critical for countless technologies including optical fibres, data storage and transmission.
American foreign reliance on these are “relatively limited”, said Combs. Chinese mines account for about 60 per cent of the world’s rare earths but the country processes nearly 90 per cent. However, light rare earth elements, also crucial to a wide array of high-tech products including medical equipment, electric vehicles and smartphones, loom as a possible future target for Beijing.
The Ministry of Commerce, which grants approvals for Chinese companies to export critical components and machinery, could toughen screening measures for US customers, experts say.
One Beijing-based middleman who sells Chinese intermediate goods and manufacturing equipment to the US said that in recent months regulators had dragged their feet in issuing approvals for items on its controlled list of goods that require an export licence, including critical minerals.
“They don’t give you a firm no,” the intermediary said. “They just don’t reply to your application. We’ve seen in the past during periods of geopolitical tension that these approvals get stuck.”
Another avenue Beijing could explore would be to bar Chinese companies from making any foreign investment in the US, preventing them from participating in Trump’s efforts to revive America’s manufacturing industry. Chinese companies, such as carmaker BYD and battery manufacturer Gotion, have invested in facilities in the US, but future investments in US-based manufacturing require Beijing’s approval.
China had already made it difficult for some engineers and equipment to leave the country, seeking to protect their supply chain dominance in electronics and batteries. Apple’s main manufacturing partner Foxconn has struggled to send machinery and technical Chinese managers to India, where Apple had been diversifying its supply chain.
Experts have warned that Beijing is likely to take retaliatory measures against US companies with operations in the country, after already initiating anti-monopoly probes into tech groups Google and Nvidia in recent months.
Ben Kostrzewa, a sanctions lawyer at Hogan Lovells, pointed to the heightened risk of US companies facing civil litigation for compliance with international sanctions under the Anti-Foreign Sanctions Law. The law, introduced in 2021, had until recently only been used to put sanctions on individuals such as then-senator Marco Rubio, whom Beijing saw as passing laws against China’s national interests.
US companies could also face civil litigation in China if they pull out of any contracts with Chinese counterparts due to international sanctions, Kostrzewa said. “There is a risk that foreign companies will face civil action in China under this law. We haven’t seen China use this law this way before,” he said.
China’s reaction has already been “very strong”, said Tu, the Beijing professor. “There is no need to add to the measures unless Trump increases tariffs or uses sanctions. Then the Chinese side will respond. We have already lost hope in the US.”
Additional reporting by Ryan McMorrow in Beijing and Cheng Leng in Hong Kong
