US-china Trade War: Trump Administration’s Strategy and China’s Objectives

The Trump administration intensified trade tensions with china by twice increasing tariffs on Chinese imports by 10%. This action, reportedly due to China’s role in supplying fentanyl precursors to the United States, triggered retaliatory measures from Beijing. These measures include imposing export controls on critical minerals,levying tariffs on U.S. agricultural products, placing U.S.companies on china’s unreliable entities list, announcing investigations into other U.S. firms, and filing suit at the World Trade Institution (WTO). These coordinated responses appear designed to demonstrate China’s resolve while keeping the door open for potential negotiations with the Trump administration.

China’s Strategic objectives in the Trade War

While an escalation that derails the relationship is not Beijing’s primary goal, the most meaningful risk for Washington lies in a negotiation culminating in a “grand bargain” that extends beyond trade to encompass technology and security issues. China’s overarching objective is to minimize U.S. interference as it accumulates power, wealth, and influence. In forthcoming trade war negotiations, Beijing is likely to pursue the rollback of competitive U.S. policies that have been central to both the Trump and Biden administrations’ approaches to China.

Firstly,Beijing aims to ease the scrutiny of Chinese investments in the United States,which intensified during the Trump administration,and the restrictions on U.S.investments in China, implemented by the Biden administration. China seeks a return to the Obama era, characterized by a surge in two-way foreign direct investment.

Secondly, Beijing is expected to address trade-adjacent issues by seeking the removal of technology restrictions imposed initially by the Trump administration and afterward expanded by the Biden administration. Despite these restrictions, Chinese companies like DeepSeek continue to challenge U.S. dominance in critical technologies such as artificial intelligence, highlighting China’s resilience as a competitor despite its economic slowdown.

thirdly, with the goal of minimizing U.S. involvement in its affairs, Beijing may seek to undermine U.S. security commitments in the region, particularly in contested areas like the Taiwan Strait and the South China Sea. Beijing might attempt to exploit Trump’s skepticism toward U.S. security commitments, possibly trading U.S.pledges to defend partners for Chinese promises of future economic actions.

China’s Approach to Trade Negotiations

Despite economic challenges, Xi Jinping possesses certain advantages in negotiations with the Trump administration. He will likely assume the familiar role of a Chinese ruler considering a supplicant’s petition.Over the past 25 years, the U.S.-China relationship has been characterized by a basic imbalance, with the United States frequently seeking China’s assistance on various issues, including North Korea’s and Iran’s nuclear ambitions, the flow of fentanyl precursors, Russia’s war on Ukraine, and China’s nonmarket economic practices.As China’s global influence expands, the list of U.S. requests continues to grow, yet China rarely takes substantive action.

The Trump administration shoudl anticipate a continuation of this pattern in the upcoming negotiations. China is expected to revive the defensive principle of “no concessions; no escalation.” During the initial trade war, Beijing made few significant concessions to Washington and failed to fulfill the limited commitments made in the Phase One trade deal. Simultaneously, Beijing largely prevented the trade war from substantially impacting China’s macroeconomic trajectory.

Xi Jinping can afford to prolong trade negotiations and may perceive that the Trump administration desires a deal or “win” before the U.S. midterm elections next year. Xi and his team are likely aware that the first trade war concluded with Trump insisting on a deal. Unlike the first trade war, U.S. officials are unlikely to have a Chinese counterpart like Liu He,who was educated in the United States and advocated for economic reforms. The likely Chinese negotiator,Vice Premier He Lifeng,a Xi acolyte,is more focused on implementing Xi’s economic policies than reforming them.

It remains uncertain whether more extensive tariffs will compel Xi to alter course and implement the reforms sought by the Trump administration to address U.S.-China trade imbalances. Trump’s campaign rhetoric about potentially imposing 60% tariffs on China has likely hardened China’s stance against the smaller tariffs announced thus far. Given Xi’s reluctance to implement necessary economic reforms in the face of existing headwinds, external pressure is unlikely to compel him. Xi may be even more resistant to changing course in response to outside pressure now that he is well into his third term. The demographic, debt, and deflation challenges facing China’s economy are rooted in decades of domestic dysfunction, not U.S. trade actions.

Navigating the Challenges: Recommendations for Washington

Given these challenges, the Trump administration should adhere to four best practices as it prepares for negotiations with Beijing:

1. Be clear about your key objective. While China’s objective is to minimize U.S. pressure on trade issues,the Trump administration’s goals remain unclear.Various rationales have been offered, ranging from curbing fentanyl precursors to rectifying the trade imbalance and pushing Beijing to undertake structural reforms that contradict Xi’s economic policies. This uncertainty has likely contributed to China’s reluctance to have Xi engage directly with Trump on these issues. The administration’s consideration of additional tariffs may appear as tactics without a clear strategy. Identifying clear, concise, and mutually compatible objectives will help focus the administration’s approach.
2. National security is non-negotiable. The administration should clearly communicate to its chinese counterparts that national security issues, including the U.S. regional military presence and restrictions on high technologies that could advance China’s military modernization, are not open for discussion.This approach aligns with the administration’s stated policy of “peace through strength.” Initial executive orders (EO) have indicated the administration’s position on key issues that China might raise in negotiations. For example, the EO on American First Investment policy calls for enhanced scrutiny of Chinese investments, while the EO on America First trade Policy tasks the Departments of Commerce and State with identifying loopholes in existing export controls. However, Trump’s commitment to these positions may be less firm than that of his staff, as evidenced by his statement welcoming more Chinese investment and his rollback of sanctions on Chinese telecommunications firm ZTE during the first trade war.
3. Be prepared to walk away. Despite Trump’s affinity for making deals, he has demonstrated a willingness to abandon unfavorable ones, as he did in Hanoi during his meeting with North Korean leader Kim Jong un.Rather than pursuing additional iterations of the Phase One trade deal, which was limited in scope and execution, Trump and his team should be prepared to walk away from the table. Demonstrating this willingness will challenge Beijing’s assumption that the Trump administration needs a “win” from the trade war before the U.S. midterm elections, thereby increasing U.S. leverage.
4. Leave the haggling to staff. A significant risk is that Xi is not Kim: if Trump were to walk out of a meeting with him, Xi may perceive it as a personal affront, leading to a prolonged collapse in bilateral diplomacy. This pause would likely destabilize world markets and be even more protracted and tense than the hiatus following the Biden administration’s downing of a Chinese spy balloon in 2023. To mitigate this risk and preserve the U.S.’s ability to withdraw from negotiations without more risky consequences, the administration should delegate the details to Trump’s advisors and staff while maintaining the president’s direct line to Xi to finalize the deal. While Trump may prefer to negotiate directly with Xi, Xi is unlikely to reciprocate, fearing that the conversation could devolve into an embarrassing episode or mutual recrimination.

Conclusion

The Trump administration should recognize that in negotiations with China, even a “win” can be a loss. The risk is that the United States will secure a series of Chinese promises to reform its nonmarket practices, similar to those made upon entering the WTO. By the time it becomes clear that China has failed to implement these promises, the Trump administration’s term will be over, and China will begin the cycle anew with a new administration.