As Mexico and Canada hit back, China pulls punches on Trump’s tariffs

Taipei, Taiwan – Within hours of United States President Donald Trump announcing tariffs on China, Canada and Mexico over the weekend, his Canadian and Mexican counterparts hit back with their own levies on US goods.

The response from China, Washington’s biggest strategic rival, was notably more restrained.

China’s Ministry of Commerce did not announce specific tariffs in its response on Sunday, stating only that it would take “corresponding countermeasures to firmly safeguard its rights and interests”.

The ministry also said it would challenge the tariffs at the World Trade Organization, a largely symbolic measure since its appellate body has been non-functioning since late 2019 due to Washington’s refusal to support the appointment of new judges.

Beijing’s relatively muted response comes as US-China ties have gotten off to a surprisingly friendly start under Trump’s second administration.

Asked at the Davos economic forum on January 23 about his first call with Chinese?leader Xi Jinping, Trump said he believed the countries would have?“a very good relationship”.

In a Fox News interview that aired the same day, Trump said he would “rather not” impose tariffs on China and expressed his interest in reaching a deal with Xi.

It is “very plausible” that Trump and Xi see an opportunity for a deal, said Julien Chaisse, a professor who specialises in international economic law at City University of Hong Kong.

“Not necessarily because their broader objectives align but because both operate in a world where political and economic leverage are constantly recalibrated, where tariffs are as much about signalling power as they are about shifting trade balances – and where the broader geopolitical climate often dictates short-term economic moves far more than any conventional trade logic would suggest,”?Chaisse told Al Jazeera.

“The lower tariff rate on China compared to the sweeping 2 percent tariff on imports from Canada and Mexico suggests a strategic rather than purely economic calculation,” Chaisse added.

While Trump’s imposition of 25 percent tariffs on Canadian and Mexican goods is a major shock to the system of trade between the three countries – which have been operating under a free trade agreement since the signing of NAFTA in 1994 – China has been grappling with levies on its exports since his first term in office.

Trump’s announcement of a 10 percent tariff also fell well short of the 60 percent tariff he had threatened to impose on Chinese goods during his re-election campaign.

Added to existing tariffs, the new measures bring the average tariff on Chinese goods from about 20 percent to 30 percent, according to Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore.

Elms said Beijing’s decision to go to the WTO allowed it to make the dispute about the “principles” of global trade.

“Joining the WTO was challenging for China, as it involved a host of economic reforms and significant cuts in tariff rates,” Elms told Al Jazeera.

“But China kept making the case domestically that it was worthwhile as the benefits of being part of the global trading system were substantial. I think this is why China is now turning to the WTO as one part of its strategy to counter Trump.”

Steve Okun, the founder and CEO of APAC Advisors in Singapore, said Beijing may also be biding its time before rolling out other measures.

“It’s an opening salvo,” Okun told Al Jazeera.

“It’s not being done to influence US behaviour. The Chinese had to do something. If they do this, they can show both the domestic audience in China and their global audience ‘We’re following the rules, the US isn’t.’ It gives them time to figure out what to do next.”

China’s embassy in Washington, DC, did not immediately respond to a request for comment.

Despite a slowing economy, Beijing is in a stronger position to negotiate with the US than Canada or Mexico.

China’s gross domestic product (GDP) is about $19 trillion, compared with the US GDP of about $30 trillion. The GDPs of Canada and Mexico are far smaller, at about $2.1 trillion and $1.8 trillion, respectively.

The Peterson Institute for Economic Affairs has estimated that the tariffs on Mexico and Canada could wipe as much as $200bn off the US economy over the next four years, $100bn from Canada’s much smaller economy, and reduce Mexico’s economy by 2 percent.

The tariffs on Chinese goods could separately shrink the US economy by another $55bn and China’s economy by $128bn, according to the institute’s analysis.

Carsten Holz, an economics professor at the Hong Kong University of Science & Technology, said Chinese policymakers have likely concluded that the tariffs will do more harm to the US than China given that Americans are facing higher inflation and that Trump possibly overstepped his authority with the measures.

“There is no rush for an economic superpower to let itself be easily provoked,” Holz told Al Jazeera. “If Trump escalates his war on the PRC, significant retaliatory measures can still be taken.”

Chaisse, the City University of Hong Kong professor, said China has “historically always responded to US tariffs with precision rather than broad retaliation, avoiding escalation when possible while still ensuring it does not appear weak.”

On Monday, The Wall Street Journal, citing unnamed sources, reported that Beijing planned to propose the revival of a trade deal sealed in 2020 during Trump’s first term in office.

Under the terms of the deal, China agreed to buy $200bn worth of US goods over two years.

The agreement, however, was disrupted by the COVID-19 pandemic and China only met 58 percent of its obligations, according to the Peterson Institute for Economic Affairs.

“Moving forward, Trump may aim to negotiate a deal of similar scale that addresses unmet commitments,” Carlos Casanova, Union Bancaire Privée’s economist for Asia, told Al Jazeera.

“If he targets $200bn in exports to China annually over four years, we could be looking at a monumental deal approaching $800bn.”