China’s capacity to retaliate against Trump in a trade war is massive

President Donald Trump has started a trade war with China, but Beijing has plenty of ways to hit back. Since retaking office in January, Trump has raised tariffs by 20 percentage points on Chinese imports.

He promised to push that to 60% or more. Beijing has answered with selective countermeasures, but if Trump escalates, China has an arsenal of economic weapons waiting.

China strikes back with tariffs and trade barriers

The U.S. has more room to impose tariffs. In 2024, America imported $440 billion worth of Chinese goods but only exported $144 billion in return. That trade gap means Washington’s tariffs sting harder. In response, China hit back with 10-15% tariffs on $21 billion in U.S. agricultural products, directly targeting soybean farmers who shipped more than half of their exports to China that year.

Beyond tariffs, Beijing has moved to block key U.S. exports. On March 4, Chinese regulators suspended import licenses for three major U.S. soybean suppliers, including CHS, citing the discovery of harmful fungus. Authorities also banned U.S. lumber imports, saying pests were detected in shipments. Meanwhile, pork and poultry suppliers saw their customs registrations temporarily lapse, and hundreds of beef exporters are still listed as “expired” in China’s import database.

Beijing has used similar tactics before. In 2020, Australian lobsters were held up at customs after the Australian government pushed for an investigation into COVID-19’s origins. Trump’s latest tariffs could lead to the same treatment for U.S. goods. If China starts delaying shipments or blocking key American exports, the trade war could quickly intensify.

China turns the screws on U.S. tech and manufacturing

Beijing is not stopping at agriculture. American tech giants that rely on China’s market are next in line. In February, just after Trump’s latest tariff hikes, Beijing launched antitrust investigations into Google and Nvidia. The impact was limited, but China showed it was willing to go after Silicon Valley. Then came a harder hit—on March 4, Beijing banned imports of gene sequencers from Illumina, a U.S. biotech firm. Its stock dropped 35% this year, even though China made up just 7% of its revenue.

Tesla is even more vulnerable. The company is worth $800 billion, and China is its biggest foreign market. Last year, Tesla’s Shanghai mega-factory produced nearly half of its global supply, even as U.S. sales fell. Meanwhile, China’s own BYD has surpassed Tesla in EV sales. If Beijing decides to target Tesla with new regulations, Elon Musk’s company could take a serious hit.

Another American giant in the crosshairs is Apple. Despite expanding production in India, Apple still relies on China for most of its iPhone manufacturing. The company made $27 billion in operating income from China in 2024—more than 20% of its global total. If China restricts Apple’s business operations or puts pressure on its suppliers, the impact could be devastating.

Beijing knows that cracking down on American companies could make China look hostile to foreign business. But given how Trump’s tariffs have strained relations with other U.S. allies, China’s retaliation may not trigger as much international backlash as it once would have.

China’s markets climb as U.S. stocks slide

While the U.S. stock market struggles, Chinese equities are surging. On March 9, the MSCI China Index had climbed 19% since the beginning of the year, making it the best first quarter in history, according to Goldman Sachs. Meanwhile, the S&P 500 fell into correction territory, marking its first decline of this scale since 2023.

For years, investors believed the U.S. market was uniquely strong while China’s economy was too risky. But now, the situation has reversed. Richard Harris, CEO of Port Shelter Investment Management, said: “The U.S. had a good run, but Trump’s policies are anti-growth, while China is bouncing back.”

The tech-heavy Nasdaq Composite has also slumped, weighed down by the Magnificent Seven stocks—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—as fears of a trade war-induced recession grow.

Ken Wong, equity specialist at Eastspring Investments, said the era of “American exceptionalism” ended in early 2025. With U.S. GDP growth expected to drop below 2%, the risk of stagflation—a mix of slow economic growth and high inflation—is growing.

The U.S. economy expanded 2.8% in 2024, but Trump’s fiscal policies and tariff war are worsening America’s debt crisis. Meanwhile, James Sullivan, JPMorgan’s head of Asia Pacific equity research, said China’s market now offers better investment opportunities. The MSCI China Index trades at 13.38x projected earnings, while the S&P 500 is at 20.72x.

“China’s market was undervalued for a long time, but momentum is shifting,” said Harris.

China can weaponize the yuan and rare earth metals

If Beijing wants to escalate, it could weaken the yuan. So far, the People’s Bank of China has kept the currency stable. But if Trump follows through on his 60% tariff threat, Beijing could allow the yuan to drop by 10%. Mansoor Mohi-uddin, Bank of Singapore’s chief economist, believes China will control the fall to prevent chaos, but it could let the currency slide to 8.2 yuan per dollar—the level before China abandoned its fixed exchange rate in 2005.

The nuclear option? Cutting rare earth exports. These minerals are essential for semiconductors, electric vehicles, and military technology. In 2024, China controlled 70% of global rare earth production, according to the U.S. Geological Survey.

Beijing has already tested this strategy. On December 3, 2024, it blocked all gallium exports to the U.S. after Biden’s administration imposed chip restrictions on China. That pushed global gallium prices up 20% to $663 per kilogram, but the direct impact was limited because most of China’s gallium goes to Japan and South Korea, who then ship parts to U.S. companies.

A full ban on Chinese gallium would only reduce U.S. GDP by $3.1 billion—about 0.1%. But the real threat is the disruption to global supply chains, which could cripple industries from defense to electric vehicles.

In any case, Trump started this trade war, but China has made it clear that it can fight back.

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