China steps up as the United States steps back

US President Donald Trump’s tariffs are having two broad impacts on the global economy. They are eroding international confidence in American leadership and disrupting global supply chains. They are also causing rapid geographic restructuring of international trade.

As the most aggressively targeted nation, China has been firm but measured. While the short-term shocks induced by the trade war put pressure on Beijing, they also propelled other countries towards deeper engagement with China’s initiatives. 

The “Liberation Day” tariffs and their subsequent escalation have deeply shaken global perceptions of the United States. 

During the past year, its global net perception rating dropped from +22% in 2024 to -5% this year, which is lower than that of China at +14% and similar to Russia’s -9%. The proportion of countries that viewed the US positively decreased from 76% to 45% during this same period.

In Trump’s first term, the trade conflict was a power struggle between two major economies. But the 2025 “reciprocal” 10% tariffs cast a wider net, drawing allies and rivals into the crossfire.

Under Trump 2.0, Washington has come to prioritise its interests explicitly above the collective good. The economic consequences of initial trade tensions were primarily borne by American consumers and Chinese exporters. Now they are being spread more widely. 

Prohibitive tariffs

The average effective tariff rate for American households reached 28% in April, the highest since 1901. Even after the US-China trade truce, it remained at 17.8% in May, the highest since the 1930s. 

For Beijing, the trade war has primarily manifested as a demand shock, with exporters being hit the hardest. With nearly all Chinese goods subject to prohibitive tariffs, direct exports to the United States have collapsed. 

Export-oriented businesses have suffered immediate revenue losses. Even though it is still too early to determine the full impact, estimates suggest the tariff war could reduce China’s GDP growth by 0.5% to 2% this year.

Yet global supply chains reveal some resilience. Many Chinese firms quickly redirected their exports to Latin America, Canada, Mexico and other parts of Asia – partially to access the American market indirectly. 

While the 90-day truce agreed upon in Geneva reduced the intensity of tariffs, it did not restore business confidence in China. Exporters across regions are now adopting trade strategies to hedge against future shocks and trying to diversify. 

Beijing’s policy response has been strong in rhetoric but the offsetting macroeconomic stimulus has so far been restrained. Still, it has pushed back against Washington’s tariff moves, responding with tit-for-tat retaliation. 

The Chinese government’s stance has earned strong public support, especially as the White House’s confrontational rhetoric stirred historical sensitivities linked to China’s “Century of humiliation.” Strategically, this hardline position enhances its leverage in future talks.

China also moved swiftly to counteract economic headwinds. During a Politburo meeting in April, Beijing pledged to accelerate key stimulus measures. 

These included issuing special local government bonds and “ultra-long special” treasury bonds. Supportive monetary and financial measures were introduced the following month. 

While these policies were already part of the central government’s broader policy agenda, the trade conflict brought their rollout forward. 

Stimulus measures

Depending on developments in Sino-US trade talks and the effectiveness of current policies, indications are that Beijing is ready to ramp up stimulus measures in the third quarter substantially.

Besides short-term macroeconomic policies, the trade war does not seem to have shifted China’s long-term policy direction. The authorities are still focusing on structural reforms, including strengthening domestic consumption­. 

The tariff war has revealed the fragility of global supply chains and the risks of relying too heavily on a single economic partner. 

In this context, Asian trade agreements and Beijing’s engagement through the Belt and Road Initiative, are the go-to frameworks for a more collaborative and resilient regional economy.

The shifting global landscape presents big challenges but also opportunities for Beijing. Still, the certainties of the global order have been deeply shaken. 

Even longtime US allies such as Japan, South Korea, the United Kingdom and Europe were unable to negotiate broad tariff relief.

They have instead been pressured into signing deals requiring them to provide market access and investment in return for lower tariffs imposed by Washington.

Beijing is trying to seize opportunities to deepen cooperation with Europe, other BRICS countries and the Global South through its bilateral diplomacy and pushing alternative collaborative frameworks. 

This would need to involve China taking a more active role in international standard setting, digital infrastructure development and financing the green transition across emerging and developing countries. 

It would need to become a trusted partner in these roles.

World stage

While the United States has announced a revised set of tariffs on a range of countries, bilateral talks with China are still ongoing.

It seems likely that Washington and Beijing will reach trade deals in areas including rare earth minerals and magnets, which are essential to electric vehicles and defence. 

But the strategic competition between the two great powers is here to stay.

While it’s unlikely that the Trump administration will return to international order and free trade any time soon, China seems set, despite the risks, to continue to align its domestic resilience with leadership on the world stage. 

Jiao Wang is an Assistant Professor of Economics at the University of Sussex Business School in the United Kingdom.

This edited article is republished from East Asia Forum under a Creative Commons license. Read the original article here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.