Xi Jinping urged to respond with caution to Joe Biden’s trade tariffs

China trade experts are urging caution on Xi Jinping as he plots the best response to Joe Biden’s tariffs on $18bn of Chinese imports, knowing that a tit-for-tat battle could hurt the slowing economy and escalate tensions during a politically charged US election campaign.

The US president on Tuesday sharply raised tariffs on Chinese products including electric vehicles and solar cells in a pre-election effort to protect American jobs.

China’s dominance of cleantech supply chains means that Beijing has the potential to retaliate in kind, curbing access to resources, materials and technologies critical to the US economy.

But former officials and government advisers in Beijing warned against exacerbating tensions with Washington just as Biden and his rival Donald Trump clash over who can be tougher on trade with China six months out from the US polls.

They are also wary that Washington might press Europe to follow suit in cracking down on Chinese cleantech exports. Brussels is carrying out its own investigations into China’s EV, solar and wind industries.  

“China has the moral high ground,” said Henry Huiyao Wang, a former senior government official and the founder and president of the Beijing-based Center for China and Globalization. “We would like to see China ‘go high’ rather than ‘go low’ with the US.”

Zhang Yansheng, lead researcher at the China Center for International Economic Exchanges, another government-affiliated think-tank, said China should be “very cautious” about imposing additional tariffs.

Zhang noted that Beijing’s previous retaliations — which were proportionate in dollar terms to the US moves — had been “ineffective” in slowing the trade war, while the impact of the latest tariffs on the real economy was “not substantial”.

“Last time both sides — by the US engaging in a trade war and imposing tariffs, and China retaliating — actually harmed the US, China and the world,” said Zhang. “However, I think morally criticising them and then urging the world not to follow this path might be the most important work to do.”

Biden’s latest move quadruples the tariff rate on Chinese EVs to 100 per cent, doubles the levy on solar cells to 50 per cent and more than triples the rate on Chinese lithium-ion EV batteries to 25 per cent.

Western experts said there would still be broad domestic expectations for Xi, China’s most powerful leader since Mao Zedong, to strike back.

Beijing will be searching for a “pain point” to show it is standing up to the US without undermining its own economic interests, said Benjamin Kostrzewa, a former trade official in Barack Obama’s administration and now a lawyer at Hogan Lovells advising on US-China trade.

“China has its own domestic political considerations,” he said. “They will want to be seen as standing up to what they view as US antagonism. Tit-for-tat countermeasures is China’s usual response in these situations, and they will not try to escalate, but undoubtedly, they will issue some sort of measures.”

Beyond the latest tariffs, the US has curbed sales of critical technological exports, including high-end computer chips, imposed sanctions on hundreds of Chinese companies and is forcing a sale or ban of the China-owned app TikTok, among other measures.

Trivium, a Beijing-based consultancy, has researched scores of critical minerals viewed as vulnerable candidates for Chinese retaliation. It said the likeliest were tungsten, which is used in military applications, as well as the car and aerospace industries; rare earth elements used in magnets, computer chips, batteries and lasers; and vanadium, which also has broad military, industrial and nuclear energy applications.

Analysts from Rhodium, a think-tank, said beyond export controls on critical material inputs and technology, Beijing could look to hit back through currency devaluation, disruptions to mergers and acquisitions or denying some multinationals access to the Chinese market.

Simon Evenett, a professor of international trade at the University of St Gallen in Switzerland, said China could surgically target exports from seven battleground states in the upcoming US presidential election.

“This is not a recommendation, but it does raise the question: how many jobs are at risk if China excluded exports from these states? And how large are those job losses compared to Joe Biden’s electoral margin in the 2020 presidential election?” he added.

In high-level meetings with their Chinese counterparts over the past year, US officials have stressed that Washington will not hold back from taking national security and economic measures even as the two countries try to stabilise relations.

Biden on Tuesday said China had engaged in “cheating” by employing unfair trade practices. But the new tariffs follow other recent moves to protect US manufacturing and blue-collar jobs.

Cui Fan, a government trade adviser, said while it was clear that the US elections were “an important factor” in the tariffs, Beijing also had to consider the impact of growing US trade restrictions on China’s economy.

“The step-by-step competitive squeezing along the industry chain . . . deserves our close attention for its medium- to long-term effects on China’s entire new energy industry,” he said.

Wang said the tariffs were “counterproductive” to global climate change ambitions. “This is really against what the US has been preaching for decades.”

The US-China trade war has affected about $450bn in annual trade, according to the World Bank, and experts from the organisation and the IMF, among other groups, have warned of significant pain to the global economy, as well as American and Chinese consumers and workers.

Hua Chunying, a foreign ministry spokesperson, said on X, which is banned in China, that “US protectionism in the end will hurt itself”.

She also posted a screenshot of Biden’s prior language bashing Trump’s tariffs as taxes borne by “the American people”, adding the caption “lesson on tariffs from 2019”.