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Why China has not retaliated more in Donald Trump trade spat

Published

5 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.

Business

Treasury Committee demands HMRC answers on sanctions regime after Sky News investigation

Published

3 hours ago

February 4, 2025

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Treasury Committee demands HMRC answers on sanctions regime after Sky News investigation

The Treasury Select Committee has sent a formal notice to HM Revenue & Customs demanding answers to critical questions about how it has been enforcing trade sanctions on Russia, following a Sky News investigation into the government department.

Last month Sky News reported that while HMRC had issued six fines in relation to sanction-breaking since 2022, it would not name the firms sanctioned or provide any further detail on what they did wrong. HMRC also admitted it had no idea how many investigations it was currently carrying out into sanction-breaking.

The admissions raised questions about the robustness of Britain’s trade sanctions regime, described by government ministers as the toughest in British history.

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While the UK has introduced rules preventing the export of certain goods to Russia, banned items are still flowing into the country via third countries in the Caucasus and Central Asia. Some suspect that part of the reason these flows continue is that HMRC is not enforcing the rules as robustly as it could be.

Following Sky News’ investigation, the chair of the Treasury Select Committee (TSC), Dame Meg Hiller, has written a letter to the chief executive of HMRC, Sir Jim Harra, with 10 questions about HMRC’s conduct in the enforcement of sanctions.

Among the questions, the TSC chair asks: “Why doesn’t HMRC publish information on breaches in sanctions in a similar way to the Office for Financial Sanctions Implementation (OFSI), which gives the details of the company, how it breached sanctions and the amount of penalty issued?”

Many other countries around the world – most notably the United States – routinely “name and shame” those who break sanctions, in part as a deterrent and in part to inform other businesses about what it takes to break the rules. But HMRC instead protects the privacy of those who break sanctions.

The TSC has been scrutinising the sanctions regime in recent months, examining loopholes in the legislation and its enforcement. HMRC has been asked to respond to the letter by 17 February.

Business

Millions face council tax rise of more than 5% after government gives green light to bigger hikes

Published

3 hours ago

February 4, 2025

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Millions face council tax rise of more than 5% after government gives green light to bigger hikes

Millions of people face council tax hikes over normal thresholds after the government allowed six areas to boost rates above the usual 5%.

More than two million people will be hit by increases of between 5 and 10%.

Windsor and Maidenhead Council wanted to increase council tax by 25% but the plan was blocked – instead it will go up by 9%.

Newham Council will go up by the same amount, while Bradford Council will put up taxes by 10% and Birmingham, Somerset and Trafford councils will all put up rates by 7.5%.

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Speaking to Sky News’ Kay Burley, health and social care minister Karin Smyth defended the above normal increases – saying “many more councils” asked for permission to hike taxes, but were refused.

She said the ones given the nod “are particularly desperate” and need the money to keep “basic services running”.

The Labour MP was quick to blame the Conservatives, saying local government was left in a “really, really dark state” by the previous government.

How do councils increase tax?

In order to keep up with demands, councils are allowed to raise council tax usually by up to 5%, broken down into 3% core spending with an additional 2% for social care.

At the moment, a principle exists which prevents more than a 5% increase to council tax without a referendum, mostly to protect taxpayers from excessive increases.

But if a council is already in conversation with government on exceptional financial support, and if the government agrees to allow the council to raise tax above the cap as part of this, the council doesn’t necessarily have to take that to a local public vote.

Deputy prime minister Angela Rayner – who is also the secretary of state for local government – confirmed the move on Monday.

She said the average council tax increase across the country would not surpass last year’s total of 5.1%.

She also said more than £69bn in central funding would be made available to regional administrators, a rise of 6.8% compared to the 2024-25 period. Close to £4bn has also been put aside to help councils with social care.

The Conservatives accused Labour of “pushing the burden on to taxpayers after they promised to freeze council tax”.

Shadow communities secretary Kevin Hollinrake said: “Their Local Government Finance Settlement will mean that councils will have to raise council tax to accommodate Labour’s jobs tax.

“This means that local people will pay more for less when it comes to local services, especially in rural areas which are losing the Rural Services Delivery Grant that Labour have abolished.

“The Labour Party have made false promises to local people, promising to freeze council tax while many councils will now have to raise it due to Labour’s political choice to raise council tax.”

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The County Councils Network, which represents 37 administrations, said they are facing pressure from the government’s decisions to increase national insurance contributions for employers, and increases to minimum wage.

Barry Lewis, the network’s finance spokesperson said: “More than four in five CCN members say they are in a worse position than before the autumn budget and this finance settlement, and one-third say their service reductions next year will now be severe.

“Considering there is very little fat left to cut from many of these services already, a further reduction will have a material impact on our residents.”

Ms Rayner confirmed allocations worth £502m to assist councils with the impact of increases to employer national insurance contributions.

Business

China hits back after new US tariffs take effect – as those against Mexico and Canada are paused

Published

3 hours ago

February 4, 2025

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China hits back after new US tariffs take effect - as those against Mexico and Canada are paused

China has retaliated after the US imposed 10% tariffs on its goods.

Not long after the US taxes began at 5am British time, China said it was imposing 10% tariffs on American crude oil, agricultural machinery, large-displacement cars and pickup trucks.

There will also be 15% tariffs on coal and liquefied natural gas, as well as an investigation into Google.

China also said it is imposing export controls on rare earth metals such as tungsten, tellurium, ruthenium, molybdenum and ruthenium-related items – the country controls much of the world’s supply of such metals, which are critical for the transition to clean energy.

They will not come into effect until Monday 10 February, however.

President Trump said his actions were in response to what he described as Beijing’s failure to stop the flow of fentanyl, a synthetic opioid, into the US.

Mr Trump added that the tariffs on China could just be the start, though the White House said he was due to talk to President Xi Jinping.

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

The issue of fentanyl is only one part of Mr Trump’s issue with China. He has long railed against the trade imbalance between the first and second-largest economies in the world.

Tariffs paused

Earlier, the imposition of 25% tariffs on Mexico and Canada was paused after agreements were reached on border security.

Mexico was first to make 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 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.”

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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”, drug 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 Mr Trudeau and Mr Trump will view the deal as a win – Mr Trump for seemingly forcing the US’s northern neighbour to act, and Mr 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.

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

Tariffs are designed to show China’s mettle

Nicole Johnston

Asia correspondent

@nicole_reporter

China has made it clear it’s not taking Donald Trump’s 10% tariff lying down.

Despite the country still being on its New Year’s spring break, China has announced retaliatory measures.

Its tariffs of 10-15% hit exports of US coal, liquified natural gas (LNG), agricultural machinery and pick-up trucks to China.

However, these tariffs would not take effect until 10 February, giving Mr Trump and Chinese President Xi Jinping time to possibly hammer out a deal.

Canada and Mexico have been given a 30-day reprieve from the threatened 25% US tariffs.

China may be hoping it can also avert the start of a trade war by engaging in direct talks.

It’s believed Mr Trump and Mr Xi will speak on the phone in the coming days.

Chinese countermeasures extend beyond just tariffs though.

They have also restricted a handful of critical minerals like tungsten, launched an antitrust investigation into Google and sanctioned two US companies.

The Chinese government is strengthening its language against the US and its tariffs.

It is still open to negotiation in the spirit of the phase one US-China trade deal during Mr Trump’s first term, but it has a domestic audience to consider.

Beijing insists it is a peer competitor to the US and its rival on the world stage. These tariffs are designed to show China’s mettle.

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”.

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.