Beijing’s Calculated Response: How China Gained the Upper Hand
Targeted Counterstrikes
When President Trump announced the first round of tariffs on Chinese goods in January 2018, Beijing’s response demonstrated remarkable strategic foresight. Rather than matching the US dollar-for-dollar across all sectors, Chinese officials crafted a precise retaliation targeting politically sensitive American products. Soybeans from Midwestern farm states, bourbon from Kentucky, and motorcycles from Wisconsin were hit with duties calculated to maximize political pressure on key congressional districts while minimizing domestic economic disruption.
The Chinese Commerce Ministry maintained a dual-track approach throughout 2018. While publicly condemning US actions as « trade bullying, » their countermeasures displayed careful calibration. For each $50 billion in US tariffs, Beijing responded with equivalent measures, but these were strategically distributed to affect Trump’s political base. This tactical precision contrasted sharply with the broader US approach of targeting Chinese manufacturing across multiple sectors.
Economic Buffer Zones
Before the trade conflict intensified, China had already established economic buffer zones that proved invaluable during the early exchanges. Years of maintaining substantial foreign currency reserves ($3.1 trillion in early 2018) provided Beijing with monetary flexibility unavailable to most nations. When the yuan depreciated against the dollar following the first tariff announcements, this currency movement functionally offset approximately 30% of the tariff impact on Chinese exports, creating an unintended advantage.
The State Council swiftly activated domestic economic stabilizers, including targeted tax reductions for affected exporters, accelerated infrastructure spending in vulnerable regions, and selective credit easing for impacted industries. These measures were implemented with minimal public discussion but had been prepared in advance as contingency plans. By mid-2018, these economic buffers had effectively absorbed much of the initial tariff shock.
Supply Chain Adaptation
Chinese manufacturers demonstrated remarkable supply chain adaptability during the first rounds of tariffs. Within six months of the initial measures, exports of affected products to countries not engaged in the trade conflict increased by 22%. Vietnam, Malaysia, and Mexico became transshipment points for goods ultimately destined for American markets. This « tariff laundering » process, while not entirely evading US duties, softened their impact considerably.
When Washington imposed 25% tariffs on electronic components in July 2018, Chinese technology firms rapidly modified their assembly operations. Final production stages were relocated to facilities in Southeast Asia, allowing products to receive different country-of-origin classifications. This supply chain restructuring required initial investment but yielded significant longer-term tariff avoidance and maintained market access.
Leverage Through Market Access
China’s most effective early advantage came from weaponizing access to its domestic market. American companies dependent on Chinese consumers found themselves caught between conflicting governmental demands. When China’s regulatory authorities delayed routine approvals for US firms in mid-2018, these actions sent unmistakable signals without requiring formal policy announcements.
Qualcomm’s proposed $44 billion acquisition of NXP Semiconductors became an early casualty of this approach. Chinese regulators simply allowed the deal’s approval deadline to expire without formal rejection, forcing Qualcomm to abandon the acquisition and pay a $2 billion termination fee. This demonstrated China’s willingness to exercise market leverage without explicitly connecting actions to trade disputes, maintaining plausible deniability.
Regulatory Pressure Points
Throughout 2018, Chinese authorities applied selective regulatory pressure that disproportionately affected American businesses. Health and safety inspections at ports increased for US goods, creating costly delays, while similar products from other nations moved through customs efficiently. These administrative measures provided China with deniable economic leverage that tariffs alone couldn’t match.
When American automotive manufacturers requested routine operating permit renewals, processing times doubled compared to European and Japanese competitors. These delays created significant operational uncertainty without technically violating trade agreements. The pattern established a clear message that regulatory discretion would be exercised differently for companies based on nationality during the dispute.
Information Control and Public Narrative
Beijing maintained strict information discipline throughout the early conflict phases. While American negotiating positions frequently leaked through media reports, creating market volatility, Chinese positions remained consistently unified. This information asymmetry allowed Chinese negotiators to maintain stable positions while US representatives adjusted to shifting political winds revealed through leaks.
The Chinese domestic narrative around the trade conflict was tightly managed. State media characterized the dispute as foreign interference in China’s legitimate development, resonating with historical experiences of national humiliation. This framing built public support for economic hardship as necessary resistance rather than policy failure, providing leaders with greater maneuverability during negotiations.
Long-Term Orientation
Perhaps China’s greatest early advantage stemmed from its governance structure, which permitted longer planning horizons than the US political system allowed. Chinese officials repeatedly signaled willingness to endure short-term economic pain, framing the trade conflict as a component of a longer struggle that might take years to resolve.
While US negotiators faced pressure for quick wins before midterm elections, Chinese representatives consistently expressed comfort with extended timelines. This fundamental asymmetry in time horizons gave Beijing leverage during early negotiation rounds, allowing them to wait out political cycles rather than make structural concessions.
The Geneva Standoff
The May 12, 2025 Geneva negotiations revealed how these early advantages had shaped the conflict’s trajectory. After seven years of tariff exchanges, China entered these talks from a position of relative strength, having adapted its economy to the new trade reality while developing alternative markets. The US delegation arrived with greater urgency, pressured by domestic constituencies suffering from sustained economic disruption.
When negotiators agreed to temporarily lower tariffs—the US decreasing from 145% to 30% while China reduced from 125% to 10%—the asymmetry was striking. China’s proportionally smaller concession reflected both its negotiating leverage and the government’s continuing willingness to maintain economic pressure. The 90-day reduction period, rather than permanent changes, further demonstrated Beijing’s comfort with extended timelines.
Unresolved Core Issues
The Geneva agreement’s limited scope highlighted how China’s early tactical advantages had helped avoid addressing the fundamental US concerns. Industrial policy changes, intellectual property protections, and market access remained largely unaddressed in the temporary tariff reduction. These core structural issues—the original justification for US trade actions—remained effectively shielded by China’s first-round maneuvering.
By focusing negotiations on tariff levels rather than underlying practices, Chinese negotiators successfully redirected the conflict toward metrics they could more easily adjust without fundamental economic model changes. This represented perhaps the most significant strategic victory from their early response pattern—changing the effective terms of what would constitute resolution.
The Economic Scorecard
Statistical measures from the first seven years of trade conflict show China’s early strategic advantages yielding measurable results. While both economies experienced negative impacts, the distribution proved notably asymmetric. US agricultural exports to China fell by 74% from 2017 levels before partially recovering, creating concentrated harm in specific regions and industries. Chinese manufacturers, meanwhile, experienced broader but shallower effects, with export reductions largely offset by growth in alternative markets.
The Peterson Institute’s 2024 comprehensive analysis concluded that US tariffs had reduced average household purchasing power by approximately $1,280 annually through price increases and reduced competition. Chinese consumer impacts were more modest, estimated at $620 per household equivalent, reflecting both lower consumption levels and more effective government intervention to stabilize affected sectors.
Beyond Tariffs
China’s early advantage extended beyond direct tariff impacts. By 2023, 43% of American companies surveyed by the US-China Business Council reported experiencing non-tariff barriers that hadn’t existed before the trade conflict. These administrative measures—delayed licenses, extended inspections, and selective enforcement—proved both more difficult to address through formal complaints and more effective at creating leverage than tariffs alone.
When the Office of the US Trade Representative attempted to challenge these measures through the WTO, they encountered significant procedural difficulties. The informal nature of many barriers made them resistant to traditional trade remedy mechanisms, effectively insulating them from conventional diplomatic responses. This administrative flexibility represented a significant Chinese structural advantage throughout the conflict.
Strategic Adaptation
The ongoing conflict drove substantial economic reorientation within China that accelerated existing strategic priorities. Domestic semiconductor capacity, already a national objective, received dramatically increased investment following US technology restrictions. The « Made in China 2025 » initiative gained renewed urgency and public commitment, transforming from developmental aspiration into national security necessity in official communications.
When the US Commerce Department restricted technology transfers to Chinese telecommunications firms in 2019, Beijing responded by announcing its $29 billion Integrated Circuit Industry Investment Fund. This fund, larger than initial plans, demonstrated how external pressure accelerated rather than deterred key strategic initiatives, turning short-term disadvantage into catalyst for long-term priority implementation.
The Self-Reliance Doctrine
By early 2022, Chinese economic planning documents had formally incorporated « dual circulation » as guiding policy, emphasizing domestic consumption and technological self-reliance. This approach, while presented as natural economic evolution, directly addressed vulnerabilities exposed during early trade conflict rounds. The policy effectively transformed defensive reactions into proactive strategy, institutionalizing lessons from the conflict’s opening phase.
When President Xi addressed the Central Economic Work Conference in December 2022, his emphasis on « security and development » rather than « development and security » signaled this fundamental reorientation. The sequencing change reflected how early trade conflict experiences had permanently altered national economic priorities, creating long-term structural changes that outlasted specific tariff disputes.
Lessons from the First Round
China’s relative success during the trade conflict’s opening phase stemmed from coordinated application of multiple leverage points rather than simply matching tariff for tariff. By deploying regulatory measures, market access restrictions, and targeted retaliations simultaneously, Chinese authorities created a multidimensional response that proved difficult for US negotiators to address through conventional means.
The Geneva agreement’s asymmetric terms—with China reducing tariffs proportionally less than the US—reflected the cumulative impact of these early advantages. Seven years after the first tariffs, the fundamental negotiating dynamic established during the opening rounds remains largely intact, demonstrating how initial strategic positioning shaped the conflict’s entire trajectory.
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.
