China Warns Against Protectionism as Trump Vows Tariffs

China has warned against protectionism and trade war at a time when US President Donald Trump has vowed tariffs on several countries including China. Trump slapped a 25% tariff on most Chinese imports in his first tenure and threatened a 60% tariff on Chinese goods during his election campaign.

Meanwhile, while Trump signed a flurry of executive orders on his first day in office, he is yet to formally announce additional tariffs. However, he is contemplating a 10% tariff on Chinese imports which might be levied as soon as the next month.

China’s Trade Surplus Has Risen to Record High

China runs a trade surplus with many countries and its total trade surplus almost reached $1 trillion last year. The US is China’s biggest trading partner and the country had a massive $361 billion trade deficit with the Communist nation last year. Despite Trump’s tariffs in the first tenure and additional tariffs announced under the Joe Biden administration, China’s exports and trade surplus with the US have increased over the last four years.

Trump incidentally sees tariffs as a tool to not only bridge the US budget deficit – which is running at record highs – but also a strategic ploy. He has given TikTok a reprieve of 90 days and suggested that he might use tariffs to get China and ByteDance to make a deal on the popular short video app.

“If we wanted to make a deal with TikTok, and it was a good deal, and China wouldn’t approve it, then I think ultimately they’d approve it, because we’d put tariffs on China,” said Trump. He added, “I’m not saying I would, but you certainly could do that.”

Tariffs Could Lead to Uncertainty

Trump’s tariffs rattled global markets in 2018 as he went about imposing tariffs on China and other countries. There are risks that Trump’s trade war could push up prices. While in his first tenure, Trump claimed that the tariffs are borne by exporting countries, economists disagree and say that they are borne by the US consumer.

In one of his interviews, Trump said that he cannot “guarantee” that his tariffs won’t hurt Americans.

Former Treasury Secretary Janet Yellen also believes that tariffs would be destabilizing. According to Yellen, “So it would have an adverse impact on the competitiveness of some sectors of the United States economy and could significantly raise costs to households.” She added, “So this is a strategy I worry could derail the progress that we’ve made on inflation and have adverse consequences on growth.”

Trump Gave a 90-day Reprieve to TikTok

Trump had a call with Chinese President Xi Jinping where he said they discussed trade and TikTok. Among others, Tesla CEO Elon Musk is touted as a potential buyer for TikTok. The billionaire – a self-proclaimed “free speech absolutist” also owns Twitter which he renamed X.

Musk is among the key Trump advisors and heads the Department of Government Efficiency which is tasked with advising the president on cutting excess government spending.

China Has Cautioned Against Trade War as Trump Vows Tariffs

Meanwhile, both Trump and Xi are not attending Davos this year. However, Chinese Vice Premier Ding Xuexiang addressed the World Economic Forum Annual Meeting at Davos where among others he cautioned against protectionism and trade war.

“Economic globalization will bring some tensions and disagreements on distribution. These issues can only be resolved in the process of promoting economic globalization. Protectionism leads nowhere. Trade war has no winners,” Ding said at Davos.

He cited WTO data which shows that global trade rose at an annualized pace of 5.8% between 1995 and 2022. Ding added, “Developed countries did not lose out from this (global trade). Their growth rates and the well-being of their peoples have also been effectively boosted. Economic globalization is not a “you lose, I win” zero-sum game, but a universally beneficial process where all can benefit and win together.”

Ding said that China is open to importing more products and services and does not seek a trade surplus. However, China’s trade surplus with the West has only been increasing in recent years. The growing anti-West sentiment in China is not helping matters either as companies ranging from Apple to General Motors seem to be struggling in the world’s second-largest economy.

Trump Has Also Vowed Tariffs on Europe

Meanwhile, Trump has also talked about tariffs on the EU which the bloc has vowed to fight. “If there is a need to defend our economic interests we will respond in a proportionate way,” said EU’s commissioner for the economy Valdis Dombrovskis.

He added, “It’s important to maintain this trade and investment relationship because of this global economic fragmentation would set in, and there is a real risk of this happening, and the IMF estimates that it would mean a reduction of the world GDP by up to 7%.”

Meanwhile, European Central Bank President Christine Lagard has said that Europe must be “prepared” for Trump’s tariffs even as she termed Trump not announcing tariffs on his first day as a “very smart approach.”

The Fed is Also Worried About Tariffs and Immigration Policies

The minutes of the Federal Reserve’s December meeting show that the US central bank is worried about the trade and immigration policies that Trump might even as it does not mention him by name. The Fed is worried that Trump’s proposed policies could fuel inflation.

“Almost all participants judged that upside risks to the inflation outlook had increased,” said the minutes. They went on to add, “As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.”

Given the uncertainty over the geopolitical situation and Trump’s tariffs, the Fed might take a more cautious stance toward rate cuts at least in the first half of the next year.