The ban issued by Beijing may be the beginning of export controls, which may be expanded to dozens of niche materials if trade frictions with Washington escalate. At this time, there are still more than 40 days before Trump enters the White House, and the tariff war is still in the stage of challenging each other. The real “war” will not begin until then.
US President-elect Trump is regarded as the “biggest disruptor” by the domestic and international communities. Many supporters believe that Trump’s imposition of tariffs on allies and competitors (a good name for enemies) is too unwise. But I think that if you really understand the tariff ideas of Trump and his bosom friend, the Treasury Secretary, you will know that “tariffs are a guideline, and the guideline is clear.” The “table menu theory” of the outgoing Secretary of State Blinken uses ideology as bait and draws the line between friends and enemies. If you agree with the extreme left theory of DEI (diversity, fairness, inclusion) of the Democratic Party of the United States, which is centered on various sexual minorities, you will buy an admission ticket and become a guest at the American table. Trump 2.0 is relatively simple: allies also need to be independent, and allies who like to take advantage of the United States are not good allies, and tariffs become admission tickets.
The tariff war has already begun, with China as the main target
On November 25, Trump posted two posts on his social media platform, Truth Social. One post stated that due to the influx of illegal drugs such as narcotics, the United States will impose an additional 10% tariff on Chinese goods on top of all existing tariffs. The other post claimed that after he takes office on January 20 next year, a 25% tariff will be imposed on all products imported from Canada and Mexico to the United States. China, Mexico, and Canada rank third, fourth, and fifth among the top five trading partners of the United States, respectively. The largest trading partner “Asia” has no response for the time being because it involves 39 countries and hides behind the “collective” card. The European Union, a senior ally and second largest trading partner, is worried and is preparing two plans. Mexico and Canada have taken the initiative to communicate with Trump on this matter, but have not received a satisfactory response.
Regarding the contacts between China and the United States, according to a report by Wall Street Journal reporter Wei Lingling on December 4, current and former officials, including Cui Tiankai, the former Chinese ambassador to the United States, have tried to open up channels through the relationship they established with Trump’s son-in-law Jared Kushner during Trump’s first term, but the contacts with Trump’s core circle have limited results. The article revealed that Beijing does not know whether Trump wants to get more goods from China or is determined to decouple completely? Although Trump said recently that he had a phone call with Xi Jinping, he did not mention the specific content, and the Chinese side did not report it, or even mentioned who took the initiative to call.
In fact, Beijing is not lucky about the tariff war. Beijing will accurately interpret the following two signals. First, Scott Bessen, who was nominated as the Secretary of the Treasury, as an important executor of economic and regulatory policies, wrote to Fox TV on November 15 to talk about his systematic views on tariff policies, claiming that the tariff war will be Trump’s main tool to control and regulate the economic relations between the United States and other countries in the world in the future. The reasons are as follows: Tariffs have three functions. They are a tool to increase revenue, a way to protect strategic industries in the United States, and a useful tool to achieve the president’s foreign policy goals. Tariffs can play a core role in getting allies to increase defense spending, opening foreign markets to U.S. exports, ensuring cooperation in ending illegal immigration and intercepting fentanyl trafficking, and preventing military aggression.
Second, on December 4, Trump announced that Peter Navarro would serve as the new government’s “Senior Advisor for Trade and Manufacturing” to “advance and communicate Trump’s manufacturing, tariff, and trade agenda.” Navarro has a tough stance on China’s trade policy. He advocates expanding the scale of U.S. manufacturing, raising tariffs, promoting the return of global supply chains, and reducing the U.S. trade deficit. In his book “Deadly China,” he accused the Chinese government of dumping goods into the U.S. market through currency manipulation and heavy subsidies, hurting the U.S. manufacturing industry and the middle class. He also criticized China for forcing U.S. companies to transfer intellectual property as a condition for market access, violating the principle of fair trade. These views have been repeatedly cited by Trump in public speeches and widely circulated.
Trump will impose tariffs on BRICS countries for de-dollarization, still targeting China. But all of this is not as good as his warning to BRICS countries. On November 30, he posted on the truth social media: “We need these countries to make a commitment that they will neither create a new BRICS currency nor support any other currency to replace the powerful US dollar.” Otherwise, they will face 100% tariffs and can say goodbye to “importing products into the beautiful American economy.”
There are currently nine BRICS countries, and China’s total GDP accounts for about 70% of the BRICS countries; among the nine countries, China has the closest economic and trade exchanges with the United States. The renminbi is one of the world’s five major reserve currencies designated by the International Monetary Fund (IMF). The internationalization of the renminbi is Beijing’s dream. At present, the renminbi is the most used currency in the BRICS countries. Trump’s claim of “supporting any other currency to replace the powerful US dollar” refers to this. However, the creation of the BRICS currency is far from a consensus within the BRICS countries, and it has not even been put on the official agenda.
Regarding the so-called “BRICS de-dollarization”, I specifically checked the relevant information. The actual situation is as follows: The Russian-Ukrainian war kicked Russia out of the international funds clearing system “Society for Worldwide Interbank Financial Telecommunication” (SWIFT), mainly to provide opportunities for the RMB to expand its space as an international trade settlement currency. Since November 2023, the RMB has become the world’s fourth largest payment currency for 10 consecutive months. In August this year, the RMB accounted for 4.69% of global payments. However, as a reserve currency of various countries, the proportion of the RMB has declined compared with before the Russian-Ukrainian war. According to the latest data from the IMF’s official foreign exchange reserve currency composition (COFER), the RMB accounted for 2.15% of the world’s US$12 trillion in foreign exchange reserves in the first quarter of this year, a significant drop from the peak of more than 2.8% in the first quarter of 2022, less than half of the Japanese yen’s 5.69%, and only at the level of the Australian dollar.
Realizing the internationalization of the RMB and breaking the monopoly of the US dollar is China’s long-term basic strategy, and China has been making efforts in this regard. However, China’s current monetary strategy is not to de-dollarize, but to focus on developing a cross-border trade settlement system denominated in RMB. For a period of time after the start of the Russian-Ukrainian war, Beijing may have fantasized about dollarization, but the above reality, as well as concerns that the United States may impose similar financial sanctions on Russia, including the possibility of financial risks caused by the relaxation of capital controls, has led China to make strategic adjustments. Now it has not implemented a comprehensive de-dollarization strategy, but is focused on expanding the role of the RMB in international settlements.
China’s response is both soft and hard
China is well aware that it cannot be spared from the tariff war. If it sticks its head out, it will be cut. Now its attitude is both soft and hard. On the one hand, it releases the willingness to communicate. On November 22, Wang Shouwen, Vice Minister of the Ministry of Commerce of China, said that China has the ability to resolve external shocks; but he also emphasized that he looks forward to “active dialogue” with the United States, expanding areas of cooperation, managing differences, and promoting the stability of bilateral economic and trade relations. But he also said that China will firmly safeguard its sovereignty, security and development interests.
While the leaders of Canada and Mexico are busy talking with Trump to find a way out, the Chinese leaders have not made similar moves, and were described by the Wall Street Journal article as “more cautious but eager for dialogue.” This does not affect Chinese President Xi Jinping’s continued search for entry points and actions. On December 3, China said it would begin to ban the export of certain rare minerals to the United States, immediately stopping the sale of gallium, germanium, antimony and so-called superhard materials to the United States on the grounds that they are dual-use items. The export of graphite will also be subject to stricter scrutiny.
The day before, the Biden administration tightened restrictions on China’s access to advanced American technology.
This is an escalation of the technology war between the world’s two superpowers. The ban shows that the Chinese government is willing to fight a supply chain war by blocking the export of important components used to manufacture weapons and important products such as semiconductors. Since the key minerals needed to manufacture advanced technology products such as semiconductors worldwide are almost all from China, Bloomberg pointed out in its December 4 article “China’s trade retaliation measures may extend to minerals such as rare earths” that China’s retaliatory actions are just the beginning. China has no shortage of options when it comes to key minerals that can be used to fight the US trade war. The ban issued by Beijing may be the beginning of export controls, which may be extended to dozens of niche materials if trade frictions with Washington escalate.
At this time, there are still more than 40 days before Trump takes office in the White House. The tariff war is still in the stage of confrontation. The real “war” will not begin until then. Whether China is really prepared and fully prepared depends on the US’s calculation of losses and determination of where to set the stop loss point.
