How China Might Utilize Domestic and Foreign Policies to Respond to US Tariffs?
China-EU Rapprochement & Policy Trace of the Premier's Symposium
Facing potential 125% tariffs from the US, Beijing has sent a clear message that it won't blink in this high-stakes standoff. On April 10, a spokesperson from China's Ministry of Commerce stated:
To talk, the door is wide open, but dialogue must be conducted on the basis of mutual respect and in an equal manner; to fight, China will accompany you to the end. Pressure, threats and extortion are not the correct ways to deal with China.
MoFA spokesperson Lin Jian also responded
The U.S. uses tariff as a weapon to exert maximum pressure for its own selfish gains, which severely hurts the legitimate rights and interests of all countries, violates the WTO rules, sabotages the rules-based multilateral trading regime, and destabilizes the global economic order. The U.S., in defiance of global criticism, is pitching itself against the rest of the world. China has taken necessary countermeasures against the U.S.’s bullying acts in order to safeguard its own sovereignty, security and development interests, and more importantly, to uphold international fairness and justice and the multilateral trading regime, and protect the common interests of the international community. A just cause enjoys the support of many. America’s move that goes against the trend of the times will find no support and end up in failure.
Let me stress once again that tariff and trade wars have no winner. China does not want to fight these wars but is not scared of them. We will not sit idly by when the Chinese people’s legitimate rights and interests are denied or when the international trade rules and the multilateral trading regime are undermined. If the U.S. is determined to fight a tariff and trade war, China’s response will continue to the end. If the U.S. puts its own interests over the public good of the international community and sacrifices all countries’ legitimate interests for its own hegemony, it will for sure meet stronger opposition from the international community.
美方出于一己之私，将关税作为实施极限施压、谋取私利的武器，严重侵犯各国正当权益，严重违反世界贸易组织规则，严重损害以规则为基础的多边贸易体制，严重冲击全球经济秩序稳定，这是公然冒天下之大不韪，与整个世界作对。采取必要反制措施反对美国霸凌行径，既是为了维护自身主权安全发展利益，也是为了维护国际公平正义，维护多边贸易体制，维护国际社会的共同利益。得道多助，失道寡助，美国的倒行逆施不得人心，终将以失败告终。
我要再次强调，关税战、贸易战没有赢家，中方不愿打，但也不怕打。我们绝不会坐视中国人民的正当权益被剥夺，绝不会坐视国际经贸规则和多边贸易体制被破坏。如果美方执意打关税战、贸易战，中方必将奉陪到底。美方将自身利益凌驾于国际社会公利，以牺牲全世界各国的正当利益服务美国的霸权利益，必然遭到国际社会更加强烈的反对。
Apr.9, China released its white paper titled China's Position on Some Issues Concerning China-U.S. Economic, Trade Relations. an English version made available through Xinhua.
Also, Apr.10, the Chinese National Film Administration announced that it “will follow market principles, respect audience choices, and appropriately reduce the number of imported American films.”
(The most recent 90-day pause on tariffs for all countries except China appears to be another carrot-and-stick tactic, which is unlikely to alleviate world concerns about policy uncertainty under the Trump administration.)
Besides the EU’s first wave of 25% retaliation on some US goods, There have been more and more interactions between China and the EU in recent days. Apr.8, Chinese Premier Li Qiang held a phone call with EU president Von der Leyen. A day later, Minister of Commerce Wang Wentao held a talk with EU Commissioner for Trade and Economic Security Maroš Šefčovič. I want to highlight this part of the Chinese side readout,
Both sides agreed to initiate consultations as soon as possible, to discuss market access issues in depth, to create a more favorable business environment for enterprises, and to immediately begin price commitment negotiations for electric vehicles, as well as to discuss China-EU automotive industry investment cooperation. Both sides support restarting the China-EU trade remedy dialogue mechanism, discussing trade diversion issues, and properly handling trade frictions. Both sides stated that they will continue to strengthen communication within the WTO framework, jointly promote WTO reform, and maintain the multilateral trading system with the WTO at its core.
I would not go too far on this, but there are clear indications that facing U.S. tariff pressure, both China and the EU have accelerated efforts to address key trade friction points with unprecedented urgency.
Domestically, facing mounting external pressures, it's reasonable to anticipate that the Chinese government will implement stimulus measures exceeding market expectations in scale and scope. For example, following the 2018 trade tensions, Beijing introduced the comprehensive "Six Stabilities and Six Securities" (六稳六保) policy framework. The "Six Stabilities" targeted employment, financial markets, foreign trade, foreign investment, domestic investment, and economic expectations, while the "Six Securities" focused on safeguarding employment, basic livelihoods, market entities, food and energy security, supply chain stability, and grassroots governance. Similarly, the COVID-19 pandemic in 2020 triggered substantial fiscal expansion.
While no formal policy roadmap has been released yet, I strongly recommend monitoring developments from Premier Li Qiang's April 9th economic symposium, participants included:
Zhang Bin | Deputy Director, Institute of World Economics and Politics, Chinese Academy of Social Sciences | World Economy
Li Xunlei | Chief Economist, Zhongtai International | Capital Markets
Shen Jianguang | Vice President and Chief Economist, JD Group | Macroeconomy & Industry
Wan Min | Chairman, COSCO Shipping Holdings | Global Supply Chain
Zheng Jin | Party Secretary and Chairman, Guangxi Liugong Group Co., Ltd. | Equipment Manufacturing
Peng Zhihui | Co-founder and CTO, Zhiyuan Robotics | Tech Innovation/Gen-Z
Wang Zuan | Founder, ZongTeng Group | Cross-border Logistics
Particularly noteworthy are Zhang Bin and Li Xunlei, both respected economists whose insights carry significant weight. Zhang's interview with Caixin just prior to the symposium provides valuable clues about potential policy recommendations. Here are some of his key points:
Low Inflation Advantage: China's low inflation levels provide policy flexibility, unlike the US, which faces inflation risks when stimulating demand through fiscal or monetary policy.
Scale of Required Response:
Current market estimates suggest US tariffs could reduce China's 2025 GDP by 1-2 percentage points (not accounting for the newest 50% tariffs)
Small-scale stimulus (hundreds of billions of yuan) would be insufficient
Trillion-yuan level countermeasures are needed, requiring either significant interest rate cuts or expanded fiscal public investment
Two-Pronged Approach Recommended:
Macroeconomic policy adjustments (monetary and fiscal)
Strengthening other trade partnerships (potentially through unilateral zero tariffs)
On Subsidies: Notes that the 2024 Fair Competition Review Regulations already prohibit local government subsidies, though implementation remains challenging.
Effective Short-Term Measures:
Government procurement with clearer guarantees for equal participation by foreign enterprises
Expanding domestic demand which would naturally increase imports
Potential commitments to zero tariffs and zero subsidies
Public Investment Focus:
Recommends civic service-oriented public investment over manufacturing support (which risks overcapacity)
Suggests large-scale urban renewal including hospitals, underground pipe networks, housing renovation, and affordable housing
Calculates at least 31 trillion yuan of potential public investment space over the next five years:
23.6 trillion yuan for improving urban infrastructure and public services
7.5 trillion yuan for urbanization needs in 70 major cities
Infrastructure Priorities:
China's railway, highway, airport, and port infrastructure is already at developed-country levels
Significant gaps remain in healthcare, underground utilities, urban roads, and sports facilities
Calculations based on reaching 50-60% of developed country standards, not 100%
Low borrowing costs (government bond rates around 2%) make public investment financially sustainable. and Such investment could improve rather than worsen government balance sheets as resulting economic activity would generate tax revenue exceeding interest payments.
The other participant, Li Xunlei also published an op-ed on his WeChat account on Apr.5, talking about how China should respond both domestically and internationally.
Li believes that accelerating regional alliance-building becomes a critical response. Li recommends promoting China-ASEAN Free Trade Area 3.0, enhancing allocation opportunities for quality ASEAN assets, aligning with CPTPP rules to increase investment in partner countries, and expediting China-Japan-Korea free trade agreement negotiations to achieve a free, fair, comprehensive, high-quality, and mutually beneficial regional agreement. He particularly emphasizes strengthening economic and trade cooperation with the EU since both are facing US tariffs.
Regarding South America, Li Xunlei believes that South America represents a major source of China's agricultural products and mineral resources; he suggests further reducing tariffs, increasing imports from countries like Brazil, and safeguarding legitimate rights in international shipping channels such as the Panama Canal. He points out that 90% of Brazil's soybeans reach China via the Panama Canal, saving approximately 8,000 kilometers in shipping distance, which highlights the strategic significance of international shipping routes for Chinese trade.
On domestic policy, he recommends readjusting fiscal budget structures and expenditure scales to increase consumption-oriented spending, moderately increasing deficit scale for improving livelihoods and stimulating consumption, and suggests issuing 1 trillion yuan in ultra-long-term special treasury bonds for unemployment subsidies, food vouchers, and living allowances for graduates. Li Xunlei emphasizes that the central government's relatively low leverage ratio of about 25% provides fiscal maneuvering space, compared to the US federal government's leverage exceeding 120% amid a worsening fiscal crisis.
Regarding monetary policy, Li emphasizes that China and the US face opposite inflation environments, with high inflation limiting US interest rate cut capacity, while China's potential downward price pressure provides a window for monetary policy operations. He believes that reducing reserve requirements and interest rates can release liquidity and lower corporate financing costs and household loan burdens, effectively responding to the potential sharp decline in foreign trade orders in the second quarter due to high tariffs. Although interest rate cuts raise three major concerns—exchange rate stability, narrowing bank interest margins, and fund idling—Li Xunlei argues that under high tariff circumstances, proactive moderate exchange rate adjustment is also a response strategy, and preventing systemic risk should take priority over other considerations.