The volume of trade in goods between the US and China has grown rapidly since the beginning of China’s economic reforms in the late 1970s. The growth of trade accelerated after China’s entry into the World Trade Organisation (WTO) in 2001, with the US and China becoming one another’s most important trading partners. The US has consistently imported more from China than it has exported to China, with the bilateral US trade deficit in goods with China rising to $375.6 billion in 2017. This trade deficit is driven by a difference in saving rates between the US and China: Chinese households save more than 30% of disposable income on average, compared to 7% in the US.
Since the 1980s, businessman Donald Trump had advocated tariffs to eliminate the US trade deficit and promote domestic manufacturing, saying the country was being “ripped off” by its trading partners. Thus, imposing tariffs became a major plank of his presidential campaign in 2017 and 2024. Nearly all economists who responded to surveys conducted by the Associated Press and Reuters believed that Trump’s tariffs would do more harm than good to the American economy and some economists advocated alternate means to address trade deficits with China.
During his inaugural address on 20 January 2025, US President Donald Trump pledged to “immediately begin the overhaul of our trade system to protect American workers and families. Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”
Still, nobody was prepared for the seemingly drastic measures that Trump would take. On February 13, 2025, Trump directed his staff to research both monetary and non-monetary trade barriers imposed by other countries and to develop custom “reciprocal tariffs” for each one to counter and penalize them. He instructed them to consider factors such as existing tariffs, exchange rates, and trade balances in their analysis.
China, the EU and Canada announced that they were retaliating against Trump’s tariffs. Other countries like Japan, Vietnam and South Korea were negotiating. The response from China was especially strong-worded. China had already planned a 34% retaliatory tariff last week. In response, Trump ratcheted up tariffs on Chinese goods to 104%.
The Chinese government responded by raising its levy on U.S. goods to 84%.
“The U.S.’s practice of escalating tariffs on China is a mistake on top of a mistake, which seriously infringes on China’s legitimate rights and interests and seriously damages the rules-based multilateral trading system,” China’s Ministry of Finance said.
Barely a week had passed and on 9 April 2025, Trump made what seemed like a dramatic U-turn.
Of course, that was hardly a U-turn. It’s a dirty trick called 声东击西。Donald Trump gave China a taste of its own medicine. The target is now obvious and the US has gained new allies, both eager and reluctant ones.