The Journal. - China Unleashes a Trade War Arsenal

Episode Date: April 10, 2025

In the early days of President Trump’s second term, China was ready to negotiate on trade. Then came Liberation Day. Now China is ready with a trade war arsenal taking aim at U.S. companies. WSJ��s Lingling Wei explains how China is gearing up for an extraordinary conflict with no immediate exits. Kate Linebaugh hosts. Further Listening: - Trump’s Tariffs Force a New Era in Global Trade   - The Trade War With China Is On  Sign up for WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

In the last week, the U.S.-China trade war has spiraled. It started in the Rose Garden. So we're going to be charging a discounted reciprocal tariff of 34%. I think in other words, they charge us, we charge them. We do have some breaking news right now from China. And China hit back. China announcing retaliatory tariffs of 34% effective April 10th. Then the US countered China's counter retaliation.

Now a 104% tariff on Chinese imports. Then China countered the US's counter counter retaliation. An 84% hit on all US goods coming into China. And then yesterday, President Trump paused tariffs on most other countries, with one big exception. The tariff on China will now go up to 125% because China imprudently decided to retaliate against the United States. There has been quite a sense of shock, frustration and anger in Beijing. That's our colleague Ling Ling Wei. How far is China willing to go?

Well, it all comes down to who buckles from the pain first. For now, the Chinese leader Xi Jinping has shown no sign of backing down. If anything, he's doubling down. We have the world's two biggest economies now in a full blown massive trade war. How can this end and what will it mean for the global economy? Given how high the US tariffs on China are right now, basically the US market is closed to China.

So China will have a very, very hard time selling to the United States. That would obviously hurt China's growth even more. Both countries' economy is at stake, and also global economy is at stake as well. We're talking about two ginormous powers fighting against each other. The impact, the direct impact, indirect impact, ripple effects, you know, just everywhere. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbach.

It's Thursday, April 10th. Coming up on the show, how the U.S.-China trade war spun out of control. Okay, Martin, let's try one. Remember big. You got it. The Ford It's a Big Deal event is on. How's that? A little bigger.

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Going back to Inauguration Day this year, how was China feeling about its relationship to the US? The Chinese felt pretty good about the new administration. There was actually a sense of cautious optimism. That was because right before the inauguration day, President Trump actually invited President Xi Jinping to go to Washington to attend a ceremony. So, you know, that looked pretty good to Beijing. And at the same time, despite Trump's campaign

promise to hit China with 60% tariffs, he actually held off doing that on day one. So there were, you know, some really kind of warm and fuzzy signs at the very beginning. After Inauguration Day, China tried to open up communications with the Trump administration. They knew Trump had promised more tariffs, but China remained hopeful that they could negotiate on trade and still do business. and still do business. China's foreign minister, Wang Yi, made a phone call to his newly appointed American counterpart, Secretary of State Marco Rubio. Rubio is a known China hawk.

It was quite to the dismay of the Chinese leadership, Rubio was actually picked and confirmed as the Secretary of State. He's quite a foe and now he's taking a very important position in the administration. But you know, you just have to deal with it. Basically, you know, the message was, even though we don't like you, we're sort of like foes, but we're still willing to get down to business with you.

This simple diplomatic introductory call ended well. But it turned out there was something off. Based on the official readout, Chinese readout of the call, Wang Yi basically issued quite a warning to Rubio. The term Wang Yi used was Hao Zi Wei Zhi, that can be translated into something like behave yourself. So it was basically Wang Yi lectured Rubio during the call. That warning for Rubio to behave himself was touted in China, but it wasn't included in the English translation of the call. So the White House obviously took notice of that, and that really put the Chinese on a

bad start that really didn't go well with the administration. Then in early February, Trump hit China with 10% tariffs across the board. China's response was relatively mild, answering back with similar sized tariffs on specific US imports. The Chinese definitely were trying to engage with the administration at that point of time. In fact, they have been trying to get to the core team of the Trump administration. They really want to talk to cabinet level officials. However, they have had no luck whatsoever. Some lower-level communication has been taking place. However, higher-level communication really has gone dark.

Do you have examples? Sure. So in late February, the foreign minister, we just talked about Wang Yi, he flew to New York. On the surface, he was here to attend a United Nations Security Council meeting, but there was a much bigger goal for him, which was to have a meeting with senior officials at the Trump administration. In particular, Foreign Minister Wang Yi wanted to talk to National Security Advisor Mike Walz, but he had no luck.

He didn't get a meeting with him. He didn't even get a call with him. According to one of Lingling's sources, Walz didn't meet with Wang Yi, in part because of that warning that had been delivered to Rubio. The Chinese pursued other avenues into the administration and also had no luck. The Chinese ambassador to Washington had tried to engage with Elon Musk and failed.

The Chinese commerce minister wrote letters to the US Commerce Secretary and the US Trade Representative. No response. Lingling says the White House wanted communication from higher levels in Beijing. The Trump administration, to their credit, they know China pretty well these days. They know who in China is more important than others. And they basically told the Chinese, okay, you want to talk? Sure. But we want to talk to the people who are really close to Xi Jinping.

But to the Chinese, that demand was something they couldn't really agree to, because that's not how China works. You know, they have very established ways of doing things and they didn't want to improvise or they do not have the ability to improvise. So basically what China is offering for conversations is not in line with who the Trump administration wants to talk to.

But it seems like it's going both ways. Both sides are making efforts to communicate, but those efforts weren't going anywhere. Especially on China's part. They definitely made quite a big effort. China remained hopeful that negotiations were possible. So in March, when Trump laid another 10% tariff on Chinese imports, again, Beijing didn't retaliate much. And then last week, any glimmer of hope that Beijing had that the bilateral relationship could

be maintained went out the window. My fellow Americans this is liberation day. Liberation day. And I remember your tweet from that day. Oh I better watch out what I treat. Yeah, so now average US tariffs on China are over 70%. Wow. Yeah. You were surprised too. Like everyone else.

I think everybody was surprised. On Liberation Day, Trump increased tariffs on China again, on top of the already existing tariffs. What was Beijing's experience of that day? That was quite a shock to people in Beijing. And they did expect the Trump administration to do something to increase tariffs even further, but the magnitude of the tariff increase completely surprised the Chinese leadership. How China responded is after this break. Trump's so-called Liberation Day tariffs sparked a huge response from China.

This time around, they also hit back quite hard. They put retaliatory tariffs on all American products with no exception. China is raising its retaliatory tariffs against the U.S. to 84%. They've added some defense companies to their so-called blacklist. DuPont, according to the market regulator, is now under investigation for allegedly violating the country's anti-monopoly law. China now saying it's not going to be sending some of the rare minerals over to the United States. The Chinese have suspended imports of five agricultural firms.

The Chinese allege that these American products fail. And they have done quite a lot. It's not just one thing. So what Beijing is doing right now is kind of deploying a very broad set of countermeasures to engage in this economic warfare with the United States. It sounds like they had a playbook ready to go. Yes, they definitely do. And they started to put together this playbook ever since Trump left office in 2020. So Xi Jinping's government has been preparing for another Trump-like assault for all those

years and all sorts of tools are all aimed at hitting the United States where it hurts. A lot of people just cannot produce stuff these days without Chinese components, right? For medicine that we consume here, for iPhones, right? And for chips, they all require components from China. That's what China is doing to the US directly. What else is China doing to kind of undermine the US on the global stage? Right now, because Trump's trade war is much broader than just with China, right? The risk is that a lot of other countries will be pushed into the arms of the Chinese. So China definitely has an opportunity to try to win over some of the traditional allies and partners of the United States.

Lingling, we have some breaking news here. As I spoke with Lingling yesterday, Trump's broader trade war took a dramatic turn. Trump has just posted on True Social, quote, based on the lack of respect that China has shown to the world's markets, I am hereby raising the tariff charged to China by the United States of America to 125%.

What? Just now? Just now. And at the same time, he's going to pause the other retaliatory tariffs on all the other countries to 10% for 90 days. This is the worst-case scenario for China, Kate. That makes very clear who is the main target for the Trump administration is China and that makes it very very very difficult for China to negotiate with other countries to try to have any kind of alignment to confront the United States.

So it's really the worst case scenario for Beijing right now. Does this mean the US has the upper hand? I do believe the US has the upper hand. With this move, the US actually has quite some leverage over China, mainly based on how strong the U.S. economy is. Who buckles from the pain first? I think right now, still too early to say. Both of them have shown their resolve and capacity to hit back at each other.

But China has its own cards as well, right? Its political system, you know, such an authoritarian system, that means its leadership doesn't to be held accountable. They definitely are in a better position to play the long game. China's Commerce Ministry struck a defiant tone, saying, quote, if the US insists on its own way, China will fight to the end. What could be an off-ramp in this trade war?

An off-ramp for Xi Jinping would be pausing the tariff increases or even just Trump picking up the phone to call Xi Jinping. I bet if Trump takes the initiative, makes a call, Xi Jinping would pick it up. Because after all, economic pressure in China is building even before the trade war started, and now even more so. So Xi Jinping definitely still has incentives to deal, to negotiate, to have dialogue. What Xi Jinping wants to avoid at the end of the day is to get isolated by Trump's policies. And I guess we're going to have to find out what China does after this.

Yes, I think China will retaliate. That's my bet. Today China announced it would reduce imports of American movies. In response, President Trump said, I think I've heard worse things. The administration also said today the new tariffs on China add up to a total of 145%, not the 125% it previously indicated. That news sent US stock markets down sharply. That's all for today, Thursday, April 10th.

The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Gavin Bade. Thanks for listening. See you tomorrow.