How will China respond to Biden's tariffs? Look at Trump’s trade war.

The Biden administration’s recent trade actions imposing tariffs on a range of Chinese imports were defended as narrowly targeted and necessary to protect national security and prevent supply chain disruptions. Administration officials said they hoped any Chinese response would be moderate and equally narrow.

But there is no doubt that China will feel compelled to respond. Based on China’s reactions to the Trump-era trade war, the United States is likely to face three significant consequences this time. Chinese society is likely to take a deeper turn toward protectionism. China’s retaliatory measures might backfire politically for President Joseph R. Biden, Jr. And as China diversifies its trade away from the United States, the efficacy of any future tariffs will continue to erode.

Under the Trump administration, the United States raised the average tariff on a wide swath of Chinese imports from about 4 percent to 21 percent. Those higher tariffs remained untouched during the Biden administration. The recent import taxes unveiled by the Biden administration have been hiked on only a few narrow product categories, such as semiconductors, lithium ion batteries, and electric vehicles. But these are not ordinary industries; they are strategically important beyond their contribution to GDP. And the magnitude of the tariff increases is large. For example, tariffs on Chinese semiconductors shot up to 50 percent and electric vehicle tariffs are now 100 percent.

The direct economic impact of these tariffs won’t be as dramatic as the Trump actions in 2018, but they send a loud signal. Next month, suspended tariffs on hundreds of Chinese products are set to be reimposed. As the New York Times put it, the latest measures have “made clear that the United States has closed out a decades-long era that embraced trade with China and prized the gains of lower-cost products over the loss of geographically concentrated manufacturing jobs.” The administration’s claim of constraining itself to a “small yard, high fence” strategy on China has already been derided by the Chinese government. Its response is likely to be strong, economically and politically.

Chinese public opinion has become more protectionist since the Trump-era tariffs

One profound, albeit somewhat hidden, impact of Biden’s new tariffs is likely to be on Chinese society’s belief in the value of free trade. Having witnessed the dramatic raising of living standards in their country through trade liberalization, the Chinese public has been highly pro-trade in modern times. The Trump-era tariffs, however, dealt a body blow to these beliefs.

We ran a series of public opinion surveys in China in 2019, uncovering a significant rise in protectionist sentiments among Chinese after the Trump administration raised the value of tariffs from 10 percent to 25 percent on $200 billion of Chinese imports. Average support for free trade fell over 2 points on a 10-point scale, from 6.5 to 4.3. Another survey in 2021 during the Biden administration found that support for free trade remained depressed amongst the Chinese public, suggesting a durable shift toward protectionism.

Notably, our survey analysis found that US tariffs also suppressed enthusiasm for free trade as a general principle. A plausible explanation for that attitude is that the Chinese public saw the tariffs as reflecting a belief that the world’s hegemon was threatening the core principle of openness in the multilateral trading order.

Chinese elites might be urging the Xi administration to show restraint in order to protect exports needed to revive its economy. But the turn against free trade found in our surveys cannot be ignored by the government, which pays close attention to public sentiment and incorporates citizens' attitudes in its foreign policy decisions. As a result, this shift in ground opinion is likely to make it harder for China to justify continued trade with the United States. Instead, we are likely to see more support for China’s policy of dual circulation. While China will not abandon trade any time soon, and indeed is accused by the United States and European trading partners of using subsidies to pump out exports at low cost in steel and other sectors, the policy seeks to make external markets a secondary component of China’s economic growth in the long term, relying instead on the domestic economy.

China's retaliation in 2018 was politically targeted—and effective

China’s systematic responses to the Trump-era tariffs provide a lesson for what may happen after Biden’s actions. The tariffs that China imposed on US exports were calculated to broadly match the value of US tariffs, avoiding a spiral of escalation, but they were economically costly for the United States. Agricultural exports to China suffered, compelling Trump to channel tens of millions of dollars' worth of subsidies to farmers as he faced re-election. China’s commitment to purchase $200 billion in goods under the US-China Phase One agreement fell short of what was pledged, and American famers remain vulnerable and highly dependent on Chinese demand.

Beijing has already started to respond in kind to the Biden administration's tariffs. Immediately after the United States unveiled the latest measures, China’s Ministry of Commerce (MOFCOM) promised that "China will take resolute measures to defend its rights and interests." On May 19, MOFCOM initiated an anti-dumping investigation into American (and other countries’) exports of polyoxymethylene copolymer, a material used in consumer electronics and automobiles. China is also considering a 25 percent tariff on certain US automobile exports.

China’s future retaliatory tariffs could be even more politically damaging. Although the total value of any new tariffs from China might not be as large as in previous rounds, China is likely to select products strategically to maximize political impact in the US November elections. Research has found that in 2018, China’s retaliatory tariffs were carefully selected to target goods produced in counties supporting Republicans. This was especially the case for Congressional districts that were likely to face tight races in the midterm elections. This strategy turned out to be effective. As several studies show, districts targeted by China’s retaliatory tariffs were more likely to punish Republicans for the negative effects of the US-China trade war. Given that the US election is just about six months away, we can expect China to target its retaliatory tariffs to inflict costs on politically important industries.

China has diversified into other markets, making US tariffs less effective

China’s trade diversification away from the United States made up its third response to the Trump-era trade war. PIIE research shows that China has sought out alternative markets for its agriculture imports, even while the United States remains reliant on Chinese import demand. For instance, the average Chinese tariff rate on imports from countries other than the United States has fallen from 8.0 percent to 6.5 percent since the start of the US-China trade war in 2018, with most of that fall occurring right after the trade war began.

China has also ratified its participation in the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade area by market size, and applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), neither of which includes the United States as a member. The Chinese public supports this diversification strategy. Our surveys found that when informed about US tariffs, respondents indicated greater support for trade with third economies such as Brazil and the European Union.

In the short term, some in the United States may view this shift in Chinese trade patterns as a welcome development in “decoupling.” But China’s diversification into alternative markets also means that future US tariffs will have a much smaller bite and weaker leverage.

Biden may get a political boost with his actions on China, but lessons from the Trump administration’s experience in the trade war suggest that the measures might well end up being self-defeating: in terms of eroded overseas support for trade, increased political costs from retaliation, and in making tariffs an ever-weakening weapon against China.