Why China has not retaliated more in Donald Trump trade spat

Published

4 hours ago

February 4, 2025

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China has, as expected, hit back at Donald Trump’s imposition of a 10% tariff on its exports to the United States.

Beijing has slapped levies of between 10-15% on a range of energy products that imports from the US.

But what has surprised observers – particularly when Mr Trump kicked off the trade war over the weekend – has been the president’s comparatively lenient treatment of China and, moreover, Beijing’s calm response.

While America’s two closest neighbours, Canada and Mexico, were hit with 25% tariffs (falling to 10% for Canadian energy exports) – since put on ice – China was merely hit with a 10% levy.

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That struck many observers as curious since China is regarded as a bigger trade adversary by the US than Mexico and Canada, with the latter traditionally seen as a close friend to the US, particularly through the pair’s involvement in the ‘Five Eyes’ security alliance along with Australia, New Zealand and the UK.

The big question raised by this is what motivated Mr Trump to do this.

The thinking is that the president was trying to bring China to the negotiating table and that, by initially hitting a close ally like Canada harder, he was trying to send a message to China’s leaders as to what they might face further down the line.

That impression was reinforced by Mr Trump’s overnight description of his 10% tariff on China as an “opening salvo”.

Why is China so calm?

That is not the only curiosity concerning this affair.

The other is the relatively calm response from Beijing. While Canada immediately responded with retaliatory measures and Mexico indicated that it would, China merely murmured in the first instance about taking “necessary countermeasures” and indicated that it would raise a complaint about the US with the World Trade Organisation.

Since then, Beijing has of course hit back with tariffs of its own on US energy imports, as well as launching an antitrust investigation into Google and adding the parent company of Tommy Hilfiger and Calvin Klein on a blacklist of “unreliable entities”.

That gives Chinese president Xi Jinping something to take back off the table if, as expected, he speaks to Mr Trump in coming days as the pair seek to de-escalate this row.

But it all feels relatively restrained and raises the question of why China has responded in this way.

There is certainly a view in Beijing that, with Mr Trump’s first moves, China got off rather lightly compared with the Canadians and Mexicans.

That sanguine response may also indicate that Beijing knows it has other weapons it can deploy other than retaliatory measures.

Cards in China’s back pocket

For a start, China owns $769bn worth of US Treasury bonds. Dumping some of those aggressively – while hurting the Chinese – would push up America’s implied borrowing costs.

Alternatively, Beijing could allow its currency, the renminbi, to weaken on the foreign exchange markets, just as it did during Mr Trump’s first term of office.

Either way, Mr Trump’s latest measures are unlikely to change the way Chinese businesses operate, particularly the country’s manufacturers.

They have become accustomed over several years, dating back to Mr Trump’s first term, to aggression from the US. They have adapted the way they do business accordingly, for example by shipping a lot of their exports to the US via third countries, most notably Vietnam.

Chinese businesses relieved

Even Chinese companies specifically targeted by Mr Trump – the e-commerce giants Temu and Shein – may not be too badly affected.

They were both singled out as the president closed the so-called “de minimis” loophole, dating back to 1938, which allows goods worth less than $800 to be sent directly to US consumers without incurring import duties or rigorous customs inspections.

This has been a constant thorn in the side of US retailers and its removal helps explain why, for example, shares of Walmart were on Monday spared the spanking meted out to other US stocks.

Yet Shein and Temu are said to be taking the news calmly.

They may even be calculating that this is a short-term squall that will soon blow over – or calculating that, such is the enormity of their buying power and supply chains, they can simply ship inventory elsewhere in the meantime or even just warehouse it.

It is also worth noting that Shein, having been banned by India in 2020, has just begun selling in the country again.

Overall, then, Chinese businesses have reacted with relief to what has happened. They know it could have been worse.

It explains why, even though the Chinese economy is presently misfiring, the authorities in Beijing have reacted relatively calmly to what Mr Trump has done.

US

Mexico and Canada agree to bolster US border security in return for tariff pause

Published

16 hours ago

February 4, 2025

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Mexico and Canada agree to bolster US border security in return for tariff pause

Both Canada and Mexico have agreed to strengthen border security with the United States in return for a 30-day pause in tariffs.

President Trump announced on Sunday he was imposing 25% taxes on goods from his country’s northern and southern neighbours.

Mexico was first to reach a deal with the White House. Its president, Claudia Sheinbaum, said she was sending 10,000 National Guard troops to the US border immediately in return for a tariff delay.

Mr Trump said the Mexican soldiers would be “specifically designated” to stop the flow of the synthetic opioid fentanyl into the US, as well as illegal migrants. Further negotiations will now be carried out, he added.

Ms Sheinbaum said she had a “good conversation” with him lasting at least 30 minutes just hours before the tariffs were due to begin.

She also extracted a concession from Mr Trump – after explaining the “seriousness” of high-powered weapons coming over the border from the US and getting into the hands of criminal groups.

“It gives them firepower,” she said. “We asked that the US also help our country by helping stop this arms trafficking… he agreed.”

Canada made similar moves. Prime Minister Justin Trudeau said almost 10,000 frontline personnel “are and will be working on protecting the border”.

He added on X that his country was appointing a “fentanyl czar”, drugs cartels would be listed as terrorists, and there would be “24/7 eyes on the border”.

There will also be a Canada-US joint strike force to “combat organised crime, fentanyl and money laundering”, Mr Trudeau announced.

Both Trudeau and Trump will view the deal as a win – Trump for seemingly forcing the US’s northern neighbour to act, and Trudeau for heading off sanctions with measures that for the most part (with the exception of the fentanyl czar) had already been announced in December.

Donald Trump said he was “very pleased with this initial outcome” and work will begin see how a “Final Economic Deal” with Canada can be structured.

Analysis: Has it all just been theatre?

First Mexico, now Canada. In another whirlwind day, both of America’s closest neighbours appear to have capitulated to President Trump.
The 25% tariffs on all goods from both countries were due to come into effect at midnight US Eastern time. But after calls between all three leaders, suddenly the tariffs were paused.

So what’s going on? Is this a clear signal of the power Trump wields? His blunt tool of using the threat of tariffs as a negotiating tool has paid off? Bullying tactics work? Well, maybe. At least that’s how Mr Trump wants everyone to think. Dance to my tune, or else.

And it’s absolutely the case that Mexico and Canada were in panic mode this weekend. But surely Donald Trump was panicking a little too when he saw the stock markets on Monday. He claimed this afternoon not to be taking any notice of their sharp falls. But we know he cares deeply about market reactions.

Here’s what’s interesting: the statement from Canadian Prime Minister Justin Trudeau sounded at first glance like it was announcing something new.
“Canada is implementing our $1.3bn border plan… nearly 10,000 frontline personnel are and will be working on protecting the border…”

But it’s not a new announcement. Look at the language – “are and will be”. In other words, “we’re doing this already Mr President, but if you want me to reiterate it to placate you, then I will…” All that Justin Trudeau has done today is reiterate a border plan he announced last December.

Mexico too has been doing an increasing amount in the fight against fentanyl though it could and probably now will do more.

So has it all been theatre this past 24 hours?

A show of brinkmanship from Donald Trump, which could have had a cliff-edge ending, but instead ended with him looking strong (and freaking out much of the developed world in the process) and his closest neighbours forced to reiterate their existing plans.

Regarding China, a 10% tariff – in addition to those already in place – is still set to go ahead, though the White House said Mr Trump is due to talk to President Xi Jinping.

The US president has, however, said 10% could be just the start.

“China hopefully is going to stop sending us fentanyl, and if they’re not, the tariffs are going to go substantially higher,” he said.

China has described fentanyl as America’s problem, and said it would challenge the tariffs at the World Trade Organisation, as well as taking other countermeasures.

But it also left the door open for talks.

What is the UK situation on tariffs?

President Trump hates trade deficits, and does not want to import more goods from another country than are sent there in return, says Sky’s economics and data editor, Ed Conway.

But Britain has bigger trade deficits than the US, Conway adds, and is one of the few countries in the world to import more goods from America than America imports from it.

In addition, because the UK is no longer part of the European Union, any tariffs imposed on Brussels will not affect London.

When asked about the UK, Mr Trump said: “I think that one can be worked out.”

Sir Keir Starmer said it was “early days”.

US

Why Trump has threatened to cut off all future funding to South Africa

Published

19 hours ago

February 4, 2025

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Why Trump has threatened to cut off all future funding to South Africa

As the geographical spread of US President Donald Trump’s pronouncements increases, so do the furrowed worry lines of leaders worldwide.

Day 14 of the Trump presidency brought threats of a global trade war and news of the likely demise of USAID – the US international aid and development agency.

But the 78-year-old also spent his time complaining that “South Africa is confiscating land” and “certain classes of People” were being treated “VERY BADLY” in a post on his Truth Social website.

He threatened to cut off all future funding to the country until a full investigation is carried out – so, what is actually going on?

Well, Mr Trump has decided to re-energise a far-right cause celebre which rests on the allegation that white people in South Africa are being marginalised – and subjected to “genocide” at the hands of the country’s black majority.

Examples of this alleged behaviour take various forms – including a bill recently signed into law by President Cyril Ramaphosa, which gives the government the power to expropriate land without financial compensation.

The law is designed to help redress the impact of decades of white minority rule in South Africa under the apartheid regime.

Three decades after Nelson Mandela led the country into the democratic era, white farmers still own the vast majority of farmland nationwide.

White landowners possess three-quarters of South Africa’s freehold farmland, compared with 4% for black landowners. Black people make up about 80% of South Africa’s total population while about 8% are white.

The new legislation limits land expropriation to circumstances where it is “just and equitable and in the public interest” to do so – for example, situations where the property is not being used – or attempts to reach a financial settlement with the owner have failed.

In response to the president’s missive, Mr Ramaphosa mounted the following response: “The South African government has not confiscated any land.

“The recently adopted Expropriation Act is not a confiscation instrument, but a constitutionally mandated legal process that ensures public access to land in an equitable and just manner.”

The second part of the genocide claim is fuelled by the number of violent attacks on landowners in rural areas.

Right-wing groups in South Africa say white farmers are targeted because of their race while the authorities do little – or nothing – to protect them.

However, analysts say farm attacks reflect the country’s desperately high rates of violent crime.

One thing is certain – Mr Trump’s comments on South Africa land ownership reflect the influence that South Africa-born billionaire Elon Musk has on the US president.

Responding on X to Ramaphosa’s statement, Mr Musk said South Africa had “openly racist ownership laws,” suggesting white people are the victims.

US

Donald Trump set to call Mexico and Canada over ‘trade war’ and warns ‘we can play the game all they want’

Published

2 days ago

February 3, 2025

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Donald Trump set to call Mexico and Canada over 'trade war' and warns 'we can play the game all they want'

Donald Trump is set to speak to the leaders of Canada and Mexico later but warned them against retaliating to his tariffs, saying: “We can play the game all they want.”

The US leader has announced that he is imposing 25% tariffs on imports from Canada and Mexico.

The two countries then hit back with retaliatory tariffs.

However, the US president returned to Washington from Mar-a-Lago on Sunday night and brushed aside the reprisals.

“I love the people of Canada. I disagree with the leadership of Canada. And something’s gonna happen there.

“If they want to play the game, I don’t mind. We can play the game all they want.”

Mr Trump also threatened to impose steeper tariffs elsewhere, telling reporters import taxes will “definitely happen” with the European Union.

When asked about potential tariffs on the UK, Mr Trump told reporters “we’ll see what happens”.

He said the UK “is out of line” on trade with US, but was confident the situation “can be worked out” without tariffs.

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Later on he posted on his Truth Social platform: “Anybody that’s against Tariffs, including the Fake News Wall Street Journal, and Hedge Funds, is only against them because these people or entities are controlled by China, or other foreign or domestic companies.

“Anybody that loves and believes in the United States of America is in favor of Tariffs. They should have never ended, in favor of the Income Tax System, in 1913. The response to Tariffs has been FANTASTIC!”

The Trump administration had said the tariffs are aimed at stopping the spread and manufacturing of the opioid fentanyl, as well as pressuring America’s neighbours to limit illegal immigration to the US.

But it risks a trade war and higher prices for American consumers.

Shares on Asian markets tumbled in early trade on Monday and US equity futures pointed sharply lower in the wake of Mr Trump’s imposition of tariffs.

Japan’s Nikkei opened down 2% this morning, with large falls also reported on Taiwan and South Korea’s indices.

“Trump’s trade war has started,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets in Singapore.

Earlier on Sunday, Mr Trump said any potential pain caused by the trade war would be worth it.

“Will there be some pain? Yes, maybe (and maybe not!). It will all be worth the price that must be paid.”

Meanwhile, Canada’s high commissioner to the UK Ralph Goodale, speaking to Sky News’ Kamali Melbourne, had a warning for allies.

He said: “I would just say to our allies around the world watch this closely, you could be next, and in the meantime, stand by your friends.”

He added Mr Trump’s words were a “salesman’s pitch” and despite the historically close relationship between the countries “we don’t want to be each other”.