China’s Economic Countermeasures: How Beijing Responded to US Trade Pressure
Beijing’s Retaliatory Tariff Strategy
China’s response to the 2018 US tariffs came swiftly and strategically. Within hours of the Trump administration’s announcement of 25% tariffs on $50 billion of Chinese imports, Beijing unveiled its own package of equivalent tariffs targeting American goods. The Chinese Ministry of Commerce specifically selected products from states with strong Republican representation, demonstrating a political dimension to what appeared on the surface as purely economic retaliation.
Agricultural products bore the brunt of China’s initial response. Soybeans, which represented over $12 billion in annual exports to China, faced a punishing 25% tariff. This targeted America’s heartland directly, as farmers in Iowa, Nebraska, and other Midwestern states suddenly found their largest export market effectively closed. Additional tariffs hit pork producers, wheat farmers, and dairy operations across rural America.
Manufacturing sectors also faced substantial pressure. China imposed tariffs ranging from 15% to 25% on American automobiles, aircraft parts, and industrial machinery. These measures specifically affected states like Michigan, Washington, and Ohio, where manufacturing remains a significant employer.
Non-Tariff Barriers as Force Multipliers
Beyond direct tariffs, China deployed a sophisticated range of non-tariff barriers that proved equally damaging to American business interests. Beijing recognized that regulatory powers could create significant obstacles without requiring formal tariff announcements.
Chinese customs officials began subjecting American products to extended inspections at ports of entry. What previously took days now stretched into weeks. Perishable goods spoiled, contracts were missed, and American exporters faced mounting storage costs. These inspections disproportionately affected fresh produce and meat products, further compounding the agricultural sector’s losses.
Administrative reviews of American business operations intensified dramatically. Companies like General Motors suddenly faced unexpected tax audits, safety inspections, and environmental compliance reviews. While technically within China’s regulatory framework, the timing and intensity of these reviews suggested a coordinated campaign targeting American firms.
The newly established « unreliable entity list » provided Beijing with an additional pressure point. American companies deemed threatening to Chinese interests or sovereignty could be placed on this list, restricting their ability to operate in China. This mechanism created significant uncertainty for multinational corporations, as the criteria for inclusion remained deliberately vague, allowing Chinese authorities maximum flexibility in application.
Leveraging Supply Chain Dominance
China’s most potent economic countermeasure came through strategically exploiting supply chain vulnerabilities. Beijing identified sectors where American industries depended heavily on Chinese inputs and systematically applied pressure.
Rare earth elements emerged as the most visible example of this strategy. These 17 elements, critical components in everything from smartphones to fighter jets, came predominantly from Chinese mines and processing facilities. In May 2019, President Xi Jinping visited a rare earth processing facility, signaling the potential for export restrictions. Chinese state media explicitly discussed using rare earths as a countermeasure against « foreign pressure. »
Days later, export permits for rare earth shipments faced unexplained delays. While never implementing a formal ban, Chinese authorities created enough uncertainty to send rare earth prices soaring and pushed American manufacturers to begin stockpiling. This demonstration effectively communicated China’s ability to disrupt critical supply chains without requiring formal policy announcements.
Similar tactics affected pharmaceutical precursors, with over 80% of active pharmaceutical ingredients used in American medications originating from Chinese factories. Consumer electronics manufacturers also faced component shortages as Chinese suppliers prioritized domestic customers over American buyers.
Precision Targeting of American Vulnerabilities
Chinese countermeasures demonstrated sophisticated market analysis, focusing on sectors where American alternatives could not quickly replace Chinese suppliers. This approach maximized economic damage while minimizing domestic disruption.
For critical inputs like rare earth processing, China had built a near-monopoly position over decades. American production had largely ceased by the early 2000s, with most processing facilities relocating to China due to lower costs and less stringent environmental regulations. Reestablishing this capacity would require years and billions in investment, creating a significant asymmetric advantage for Beijing.
Medical supply chains revealed similar vulnerabilities. Antibiotics, pain relievers, and blood pressure medications all relied heavily on Chinese-manufactured precursors. When shipments slowed, American pharmaceutical companies had few alternatives, and regulatory approval processes made quick supplier changes impossible.
Financial Countermeasures and Currency Movements
China’s economic toolkit extended beyond physical goods to financial markets. As trade tensions escalated, the Chinese yuan depreciated significantly against the dollar, falling from 6.3 yuan per dollar to nearly 7 yuan per dollar by August 2019. This 10% devaluation effectively offset much of the impact of American tariffs on Chinese exporters.
While Chinese officials denied deliberately devaluing their currency, the timing of the moves suggested at minimum a policy of non-intervention. The People’s Bank of China, which traditionally maintained tight control over exchange rates, appeared to allow market forces to push the yuan lower precisely when such a move benefited Chinese export competitiveness.
Chinese sovereign wealth funds simultaneously reduced their holdings of US Treasury bonds. Though stopping short of a major selloff that might destabilize both economies, China reduced its position by approximately $60 billion over six months, sending a clear signal that financial interdependence could become another battleground.
Diversifying Economic Relationships
While implementing countermeasures against American interests, China simultaneously accelerated efforts to reduce dependence on US markets. The Belt and Road Initiative received increased funding and emphasis, creating alternative export destinations and supply sources throughout Asia, Africa, and Europe.
Trade delegations to Southeast Asian nations, Australia, and Latin America expanded significantly during this period. New purchasing agreements for agricultural products from Brazil and Argentina directly replaced American soybeans and corn. Indonesian and Malaysian palm oil producers received preferential access to Chinese markets, further reducing reliance on American agricultural products.
Technology partnerships with European firms intensified, particularly in fields where American companies previously dominated. German industrial automation, French aerospace, and Dutch semiconductor equipment manufacturers all reported increased Chinese engagement. These relationships provided China with alternative technology sources while creating divisions between the United States and traditional allies.
Domestic Market Expansion as Trade Buffer
China’s response included accelerating domestic consumption programs to reduce export dependence. Tax incentives for households, expanded consumer credit, and government subsidies for domestic appliances and vehicles all aimed to strengthen internal markets. These policies served dual purposes: reducing vulnerability to future trade actions while stimulating economic sectors hit hardest by American tariffs.
The « Made in China 2025 » initiative, which initially provoked American trade concerns, received increased emphasis. Semiconductor manufacturing capacity expanded rapidly, with over $15 billion in new investments announced in 2019 alone. Similar efforts targeted aerospace, biotechnology, and advanced materials – all sectors where China had previously relied heavily on American suppliers.
Strategic Pause: The 90-Day Suspension
By mid-2019, economic damage from the trade conflict affected both nations significantly. American farmers faced bankruptcy rates not seen since the 1980s farm crisis. Chinese manufacturing hubs reported rising unemployment and slowing export orders. These mutual pressures created space for negotiation.
The resulting 90-day suspension of certain countermeasures represented tactical flexibility rather than strategic retreat. China agreed to pause some non-tariff barriers, particularly those affecting American technology firms and defense contractors. The « unreliable entity list » implementation slowed, with no new American companies added during this period.
However, this pause came with significant conditions. China demanded reciprocal tariff reductions and continued to advance domestic alternatives to American suppliers. Chinese purchases of American agricultural products resumed, but at volumes well below pre-trade war levels.
The suspension strategically divided American business interests. Agricultural exporters saw immediate benefits and pressured Washington for further concessions, while technology and manufacturing sectors remained concerned about intellectual property protection and market access. By creating these divisions, Beijing effectively weakened the American negotiating position.
The Long Game: Building Economic Resilience
Throughout the implementation of these countermeasures, Chinese officials consistently described their actions as defensive responses to American aggression. State media emphasized China’s commitment to global trade while portraying the United States as pursuing isolationist policies harmful to the international economic order.
This narrative found receptive audiences, particularly among developing nations similarly concerned about American trade practices. By positioning itself as the defender of multilateral trade systems, China created diplomatic leverage that complemented its economic countermeasures.
More importantly, the trade conflict accelerated China’s existing plans to reduce economic vulnerabilities. Self-sufficiency in critical technologies received increased funding. Supply chain diversification progressed rapidly. Domestic consumption grew as a percentage of GDP. These structural changes, once complete, would make China substantially less vulnerable to future trade pressures.
The results of these efforts became visible within months. By early 2020, China had established new rare earth processing facilities with enhanced environmental controls. Semiconductor manufacturing capacity had expanded significantly. Agricultural import sources had diversified across multiple continents. Each of these developments represented not just a countermeasure to immediate pressure but a strategic reorientation of economic relationships.
Lessons from China’s Economic Response
China’s response to American trade pressure demonstrated several critical insights about modern economic conflict. Beijing showed that in an interconnected global economy, vulnerabilities run in multiple directions. While China needed American markets, American industries had become equally dependent on Chinese suppliers, creating mutual points of leverage.
The effectiveness of non-tariff barriers proved particularly significant. Regulatory powers, selectively applied, created substantial economic disruption without requiring formal policy announcements. This approach provided maximum flexibility while minimizing potential WTO violations.
Finally, China’s countermeasures revealed a sophisticated understanding of American political dynamics. By targeting products from politically sensitive regions and creating divisions between industrial sectors, Beijing effectively weakened the American coalition supporting continued trade pressure.
As both nations moved toward negotiation, China entered those discussions having demonstrated both the capacity and willingness to impose significant economic costs. More importantly, Beijing had accelerated structural changes that would reduce its vulnerability to similar pressure in the future, establishing a stronger position for the next round of economic competition.
This article is an excerpt from the book The First Round – Inside the US-China Trade War and China’s Early Edge by Olivia Brown -ISBN 978-2-488187-20-6.
