China Unleashes a Trade War Arsenal

0:04In 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 percent. 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 percent effective April 10th. Then the U.S. countered China's counter-retaliation. Now, a 104 % tariff on Chinese imports. Then China countered the U.S.'s counter-counter retaliation. An 84 % hit on all U.S. goods coming into China. And then yesterday, President Trump paused tariffs on most other countries, with one big exception.

0:57The 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.

1:36We 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 U.S. tariffs on China are right now, basically the U.S. 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.

2:32Welcome to The Journal. our show about money, business, and power. I'm Kate Leinbaugh. It's Thursday, April 10th.

2:45Coming up on the show, how the U.S.-China trade war spun out of control.

3:05Going back to Inauguration Day this year, how was China feeling about its relationship to the U.S.? 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 percent 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.

3:57After 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. 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.

4:46Basically, 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 haozi wei zhi, that can be translated into something like behave yourself, right? So it was, you know, 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.

5:42So the White House obviously took notice of that. And, you know, that really put the Chinese on a bad start. That kind of really didn't go well with the administration.

6:01Then, in early February, Trump hit China with 10 percent tariffs across the board. China's response was relatively mild. answering back with similar-sized tariffs on specific U.S. 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. However, some lower level communication has been taking place. However, higher level communication really has gone dark. Do you have examples?

6:49Sure. So in late February, the foreign minister who just talked about Wang Yi, he flew to New York. On the surface, you know, 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 Waltz. 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 Ling Ling's sources, Waltz didn't meet with Wang Yi, in part because of that warning that had been delivered to Rubio.

7:36The 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 U.S. Commerce Secretary and the U.S. Trade Representative. No response. Ling Ling says the White House wanted communication from higher levels in Beijing.

8:25But 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. Like 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.

9:18So 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. Waiting for a long time. Liberation Day. And I remember your tweet from that day. Oh, I better watch out what I tweet. Yeah. So now average U.S. tariffs on China are over 70 percent. Wow. Yeah. You were surprised, too. Like everyone else, I think everybody was surprised. On Liberation Day, Trump increased tariffs on China again.

10:13on 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.

11:02Trump'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 percent. 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.

11:51The Chinese allege that these American products have failed. 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.

12:15It 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 U.S. directly. What else is China doing to kind of undermine the U.S.

13:15on 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 Ling Ling yesterday, Trump's broader trade war took a dramatic turn. Trump has just posted on Truth Social, quote,

14:04What?

14:15Just now? Just now. And at the same time, he's going to pause the other retaliatory tariffs on all the other countries to 10 percent 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 U.S. has the upper hand? I do believe the U.S. has the upper hand with this move. The U.S.

15:10actually 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 cars as well, right? Its political system, you know, such an authoritarian system. That means its leadership doesn't 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 U.S. insists on its own way, China will fight to the end. What could be an off-ramp in this trade war?

16:10An 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.

17:05That'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 percent, not the 125 percent it previously indicated. That news sent U.S. stock markets down sharply.

17:44That'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 Bate.

17:59Thanks for listening. See you tomorrow.