Hong Kong (CNN) —
What began as a sweeping, high-stakes trade war under President Donald Trump has now zeroed in on one primary target: China.
On Wednesday, Trump announced a 90-day pause on newly implemented “reciprocal” tariffs for most countries — with one key exception. China was left out, deepening a confrontation that threatens to unravel trade between the world’s two largest economies. Just one day later, Beijing followed through on its promise to retaliate with tariffs of its own.
The pace of escalation has been dramatic. In the span of a week, U.S. tariffs on Chinese imports surged from 54% to 104%, and now to 125% — building on levies first introduced during Trump’s first term. In response, China raised its retaliatory duties on all U.S. imports to 84%.
This intensifying trade war signals a potentially historic rift that could deliver economic pain on both sides — and inflame already tense geopolitical dynamics between Washington and Beijing.
“This is probably the strongest indication we’ve seen pushing towards a hard decoupling,” said Nick Marro, principal Asia economist at the Economist Intelligence Unit, referring to a scenario where the U.S. and Chinese economies separate almost entirely in trade and investment.
“It’s hard to overstate the shock this will send through the Chinese economy, the global trading system, and the U.S. itself,” he added.
Trump appeared to tie China’s exclusion from the tariff pause to its swift retaliatory response, telling reporters Wednesday, “China wants to make a deal, they just don’t know how quite to go about it.”
But from Beijing’s perspective, the situation looks starkly different.
Chinese President Xi Jinping — the country’s most powerful leader in decades — sees no room for capitulation to what officials have branded as U.S. “unilateral bullying.” Domestically, China has rallied public support through a surge of nationalism, framing its retaliation as a firm defense of sovereignty and fairness. It’s a posture Beijing has been preparing behind the scenes since Trump’s first term.
While China has consistently expressed interest in negotiations, Trump’s rapid tariff escalations appear to have reinforced Beijing’s belief that the U.S. isn’t serious about striking a deal. Instead, observers say Xi sees an opportunity: to frame this confrontation as a moment of resolve and leverage it to bolster China’s long-term position.
“Xi has made it clear for years that he expects China to enter a period of prolonged struggle with the U.S. and its allies,” said Jacob Gunter, lead economic analyst at the Berlin-based MERICS think tank.
“He’s prepared for that struggle — and now sees it as a fight worth having.”
A ‘War of Attrition’
Whether Trump would have extended the tariff pause to China had Beijing not retaliated so quickly remains uncertain. Canada, for example, also responded with countermeasures but was still granted a reprieve — though it does not affect the 10% universal tariff implemented last week.
Regardless, both Trump — whom the White House recently praised as having a “spine of steel” — and Xi appear entrenched in a war of attrition. The standoff threatens to destabilize a deeply intertwined yet imbalanced trade relationship valued at around half a trillion dollars.
For decades, China has served as the world’s manufacturing hub, powering global supply chains with increasingly automated and technologically advanced production. From basic household goods and footwear to electronics, construction materials, appliances, and solar panels, Chinese factories have supplied the world — and fueled mutual dependence between the U.S. and China.
For years, Chinese factories have met the demands of American and global consumers by delivering affordable goods — but that same system also fueled a massive trade imbalance. For many Americans, including Trump, globalization has come to symbolize the loss of U.S. manufacturing and jobs.
Trump’s latest tariff hike, which now exceeds 125%, could slash Chinese exports to the U.S. by more than half in the coming years, according to some estimates.
However, many of the goods currently sourced from China can’t be easily or quickly replaced. That means U.S. consumers may face rising prices for years, until alternative manufacturing hubs are established. Analysts at JPMorgan estimate that the tariff burden could effectively translate into an $860 billion tax increase for Americans — even before any substitutions take place.
In China, the consequences may be even more severe. Thousands of suppliers, already operating on razor-thin margins, could see their profits wiped out entirely. As companies rush to relocate manufacturing to other countries, a new wave of global factory reshuffling is likely to begin.
“The scale of these tariffs could result in millions of job losses and trigger a wave of bankruptcies across China,” said Victor Shih, director of the 21st Century China Center at the University of California, San Diego. At the same time, he warned, U.S. exports to China could “drop to nearly zero.”
“But China is far better positioned to endure this standoff than American politicians,” said Victor Shih.
One key reason: China’s Communist Party leadership isn’t constrained by frequent elections or public opinion polls.
“During the Covid pandemic, they shut down the economy, causing widespread unemployment and suffering — and yet faced no political consequences,” he added.
Beijing, for its part, also projects confidence in its ability to withstand the economic fallout.
“We are prepared and have strategies to respond to U.S. tariffs,” read a front-page commentary published Monday in People’s Daily, the official newspaper of the Communist Party. “We’ve been engaged in a trade war with the U.S. for eight years and have gained extensive experience in these battles.”
The piece also emphasized Beijing’s readiness to take “extraordinary efforts” to stimulate domestic consumption — a key weak spot in China’s economy — and to roll out additional policy measures to cushion the impact. “Our plans are well-prepared and plentiful,” the commentary said.
Despite the uncertainty surrounding how far this economic confrontation might escalate, Beijing’s tone remains measured.
“The final outcome depends on who can endure a prolonged economic war of attrition,” economist Cai Tongjuan of Renmin University wrote in a recent state media op-ed. “And China clearly holds a stronger hand when it comes to long-term strategic endurance.”
‘Preparing for This Day’
In recent weeks, Beijing has stepped up its outreach to countries across Europe and Southeast Asia, seeking to deepen trade ties and position itself as a more stable partner — even as it aims to win over U.S. allies frustrated by Washington’s unpredictable trade policies.
But China’s preparations for renewed trade tensions with the U.S. go back years. Trump’s initial trade war and his administration’s crackdown on Chinese tech giant Huawei served as a wake-up call, signaling that China’s economic ascent could face serious external challenges.
“The Chinese government has been preparing for this day for six years — they knew it was a real possibility,” said Victor Shih from the University of California, San Diego.
In anticipation, Beijing has backed efforts to diversify global supply chains, supported partner countries in expanding production capabilities, and taken steps to address domestic economic vulnerabilities — all aimed at strengthening its resilience in the face of sustained U.S. pressure.
Today, China is significantly better positioned to endure a prolonged trade conflict, according to experts. Since 2018, it has diversified its global trade partnerships, reducing its reliance on the U.S. — once accounting for about 20% of China’s exports — to less than 15%.
Chinese manufacturers have also expanded their footprint in third countries such as Vietnam and Cambodia, partly to benefit from lower U.S. tariffs by shifting production beyond China’s borders.
At the same time, China has strengthened key parts of its industrial base. It has expanded domestic supply chains for rare earths and other critical minerals, adopted advanced manufacturing technologies including AI and humanoid robotics, and accelerated development in strategic sectors like semiconductors. Domestically, Beijing has also launched initiatives — with mixed success — to boost consumer spending and manage mounting local government debt.
“China has its vulnerabilities, no doubt, but in a full-scale economic fight, those weaknesses are manageable,” said Scott Kennedy, a senior adviser at the Center for Strategic and International Studies in Washington.
“The U.S. alone won’t be able to push China’s economy to the brink,” he added. “As much as Washington might not want to hear it, when China says it can’t be economically contained, they’re not wrong.”
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