With today’s announcement that the U.S. and China agreed to a 90-day reduction in tariffs down from the 140% level to 30%, it’s a good day to revisit who holds more of the cards. The long-term trade war threat is still in the picture, despite today’s agreement.
It was a huge shock for everyone when President Trump announced the first round of tariffs on April 2nd with “Liberation Day” as the theme. Even though many countries got a breather with a 90-day temporary hold on tariffs, China was not that lucky.
The comments in general from the White House, including the Treasury Secretary Scott Bessent, were that China needs the U.S. more than the U.S. needs China. However, the situation is more complicated than just the trade numbers between two countries. In reality, they depend on each other more than they care to admit since most high-tech items that the U.S. needs cannot be produced by other countries at the scale that China does. Additionally, with the U.S. having the highest GDP among developed nations, there is no other consumer base that China can replace for its products.
Still, starting with the first Trump administration in 2017, China has been slowly but steadily lowering its dependence on the U.S. not only for its exports but its financials as well.
Below are some examples of actions that China took to minimize its reliance on the U.S. over the last 7-8 years.
Example 1:
Back in 2017, Chinese exports to the U.S. accounted for 21.6% of China’s total exports. China has been making more trade deals with other countries ever since. And, in 2024, China’s exports to the U.S. accounted for only 14.7% which is the lowest number in the last decade.
Example 2:
When it comes to trade wars, everything is on the table. China has been paying extra attention on how the U.S. was sanctioning other countries when it comes to financial dependency, so it has been unloading its U.S. Treasury bills on a large scale for a while now. Back in 2017, China had a record amount of U.S. Treasury bills ($1.18 trillion) and in 2024 that figure came down to $759 billion, even though China is aware that U.S. treasuries have the lowest risk.
Example 3:
When it comes to handling the pain due to the trade war, China has more room to bear than the U.S. does as the two countries have different systems. In China, there are no regular elections like in the U.S. even though the party changes its leaders. In the U.S., elections are held regularly, and the economy usually is the top concern of voters. Persistent inflation was one of the reasons that people were not happy during the last election, and the longer the trade war goes with China, the higher the chance of high inflation in the U.S.
Example 4:
It seems China has close to 90% of world’s rare-earth minerals where the U.S. needs these to manufacture its defense, energy, and electronics. China restricted the export of these key minerals to the U.S. after the new tariff announcement. The U.S. government has some key stockpiles that it can use for a while but the longer the trade war continues the harder for the U.S. to continue without importing these minerals from China.
Things are also not great in China where it has fundamental problems that it has to address.
Some examples are its aging population, growing public debt and slowing exports for the last decade. However, it seems China is in much better shape than in it was in 2017. That’s why the phone call from President Xi that was expected quickly by the Trump administration did not happen quickly.
