Made in China: How Beijing Seized the Early Advantage
The 301 Investigation: Opening Salvo
On August 14, 2017, President Trump signed a memorandum directing the United States Trade Representative (USTR) to investigate China’s laws, policies, practices, and actions related to intellectual property, innovation, and technology transfer. This Section 301 investigation marked the beginning of what would become the most significant trade conflict of the 21st century. Within six months, the USTR concluded that China had indeed engaged in unfair trade practices, including forcing American companies to transfer technology as a condition for doing business in China and conducting cyber intrusions into U.S. commercial networks.
What followed was swift and decisive. In March 2018, the Trump administration imposed tariffs on $50-60 billion worth of Chinese imports. China responded with equivalent tariffs on U.S. goods. By September 2018, the U.S. had implemented tariffs on $250 billion of Chinese products, while China countered with tariffs on $110 billion of American exports. The escalation had begun, but what was not immediately apparent was how thoroughly China had prepared for this moment.
Strategic Preparation: China’s Decade-Long Groundwork
While the trade war appeared to erupt suddenly, China had been laying the groundwork for economic confrontation for nearly a decade. Following the 2008 global financial crisis, Chinese leadership recognized the vulnerability inherent in their export-dependent economy and began transitioning toward a consumption-driven model. The « Made in China 2025 » initiative, launched in 2015, aimed to reduce dependence on foreign technology by developing domestic capabilities in key sectors such as aerospace, robotics, and biotechnology.
These efforts gave China a strategic advantage when the trade war began. With less reliance on exports to the U.S. than in previous decades and growing domestic consumption, China’s economy was better insulated against external pressure. Additionally, China’s position as the primary supplier of rare earth elements—critical components in everything from smartphones to military hardware—provided leverage in negotiations.
Tactical Response: Precision Targeting
China’s response to U.S. tariffs demonstrated careful calibration. Rather than matching the U.S. dollar-for-dollar, Beijing strategically targeted industries in politically sensitive regions of the United States. Soybean farmers in the Midwest, automobile manufacturers in Michigan, and energy producers in Texas all felt the impact of Chinese countermeasures. This approach aimed to maximize political pressure on the Trump administration by affecting constituencies crucial to the president’s support base.
The timing of China’s responses also revealed tactical acumen. Announcements often came at moments calculated to influence U.S. financial markets, with several major counter-tariff declarations occurring just before U.S. market opening hours. This coordination suggested a sophisticated understanding of how to leverage market psychology to amplify economic impact.
The Currency Lever: Maintaining Competitive Balance
When the renminbi depreciated beyond 7 yuan to the dollar in August 2019—a psychologically important threshold—the U.S. Treasury Department labeled China a currency manipulator. This designation, while largely symbolic, highlighted another dimension of the trade conflict: exchange rates. A weaker yuan effectively offset the impact of U.S. tariffs by making Chinese exports cheaper in dollar terms.
Whether this depreciation resulted from market forces or deliberate policy remains debated, but the outcome provided China with a buffer against tariff impacts. Estimates suggest that the 10% depreciation of the yuan between April and September 2019 effectively neutralized about two-thirds of the economic impact from the 25% U.S. tariffs imposed during that period.
Domestic Messaging: Mobilizing National Sentiment
Perhaps China’s most effective early-stage maneuver was crafting a cohesive narrative for domestic consumption. State media characterized the trade dispute not as a consequence of China’s trade practices but as an attempt by the United States to contain China’s rise. This framing transformed economic hardship into a matter of national dignity and resilience.
Daily coverage in People’s Daily, China’s largest newspaper, emphasized the theme of « fighting for a new Long March »—invoking the Chinese Communist Party’s historic year-long military retreat that later became a symbol of perseverance against overwhelming odds. This messaging prepared the Chinese population for potential economic hardship while simultaneously strengthening public support for the government’s position.
Supply Chain Reconfiguration: Staying One Step Ahead
Chinese manufacturers demonstrated remarkable agility in reconfiguring supply chains to circumvent U.S. tariffs. By shifting final assembly operations to third countries not subject to U.S. tariffs—particularly Vietnam, Malaysia, and Mexico—Chinese companies maintained access to American markets while technically complying with tariff restrictions.
This approach worked particularly well for products with distributed manufacturing processes. A mobile phone might have its components manufactured in China, undergo final assembly in Vietnam, and ship to the United States as a « Vietnamese » product, avoiding the tariffs while preserving much of the economic value for Chinese industry. U.S. Customs and Border Protection struggled to keep pace with these rapidly evolving supply chain adjustments.
Alternative Market Development: Reducing U.S. Dependence
While negotiating with the United States, China simultaneously accelerated efforts to reduce its reliance on American markets. The Belt and Road Initiative (BRI)—a massive infrastructure development program spanning Asia, Europe, and Africa—took on renewed importance as a vehicle for expanding Chinese export markets. Between 2017 and 2019, Chinese exports to BRI countries grew at twice the rate of exports to the United States.
Domestically, the Chinese government implemented tax cuts and increased infrastructure spending to stimulate consumption. Consumer incentive programs, particularly for automobiles and home appliances, helped offset the decline in export-driven manufacturing activity. These measures demonstrated China’s multi-layered approach to economic resilience during the trade conflict.
Technology Decoupling: The Huawei Factor
When the U.S. Commerce Department added Huawei to its Entity List in May 2019, restricting the company’s access to American technology and components, the trade war expanded beyond tariffs into technological decoupling. Rather than capitulating, China accelerated its drive for technological self-sufficiency. Huawei rapidly developed alternatives to Google services for its smartphones and invested heavily in developing its own semiconductor capabilities.
This episode illustrated China’s readiness to accept short-term economic pain for long-term strategic advantage. While Huawei’s international smartphone sales declined following U.S. restrictions, domestic sales surged as Chinese consumers rallied behind the company. More importantly, the « Huawei shock » galvanized China’s broader technological self-sufficiency campaign, with state-backed funds directing over $100 billion toward semiconductor development in subsequent years.
Negotiation Strategy: Masterful Delays
Throughout the early phase of the trade war, China demonstrated exceptional patience in negotiations. Chinese representatives consistently pushed for comprehensive agreements rather than piecemeal solutions, knowing that delay often works to the advantage of the party with greater economic resilience. Each round of talks was preceded by careful management of expectations through unofficial channels and strategic leaks to international media.
When the « Phase One » trade deal was finally signed in January 2020, it represented more of a pause than a resolution. China committed to purchasing an additional $200 billion in U.S. goods and services over two years—a target that economic analysts widely viewed as unrealistic even before the COVID-19 pandemic disrupted global trade. More importantly, the agreement left untouched the fundamental issues that had triggered the trade war: industrial subsidies, state-owned enterprise reform, and technology transfer practices.
Broader Global Positioning: Divide and Influence
As the bilateral conflict intensified, China worked to prevent the formation of a unified front against its trade practices. European and Asian nations found themselves courted by both sides, with China leveraging its market access as incentive for neutrality. The signing of the Regional Comprehensive Economic Partnership (RCEP) in November 2020—creating the world’s largest trading bloc without U.S. participation—exemplified China’s success in maintaining and expanding its economic integration with regional partners despite U.S. pressure.
Chinese diplomats emphasized the contrast between China’s commitment to multilateralism and what they characterized as U.S. unilateralism. This narrative found receptive audiences in countries already concerned about American trade policies, particularly following U.S. steel and aluminum tariffs that affected even longstanding allies.
The Scoreboard: Early Advantage China
By early 2020, the initial round of the trade war had produced mixed results for both sides, but China had secured several strategic advantages. While U.S. tariffs reduced bilateral trade volume, they failed to significantly alter the trade deficit or change fundamental Chinese economic practices. More importantly, China had accelerated its transition toward technological self-sufficiency, reduced its proportional dependence on U.S. markets, and strengthened economic ties with other major economies.
For American industries, the results were uneven. Some manufacturing sectors benefited from reduced Chinese competition, but many others faced higher input costs and retaliatory tariffs that restricted access to the Chinese market. American farmers saw exports to China plummet by more than 50% in 2018-2019, necessitating $28 billion in government subsidies to offset losses.
Perhaps most tellingly, surveys of American companies operating in China showed that fewer than 6% planned to relocate production to the United States as a result of the trade war. Most either absorbed the additional costs, shifted to third countries, or accelerated automation to maintain competitiveness.
The early advantage in this economic contest went to the side that had prepared most thoroughly and could sustain pressure most effectively. China’s multi-dimensional response—combining economic, diplomatic, and domestic policy instruments—demonstrated strategic foresight that would shape the conflict’s subsequent evolution and set the stage for a protracted struggle that extends well beyond tariffs into the fundamental question of technological and economic leadership in the 21st century.
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.
