In Beijing, they keep repeating the mantra of “moving in the same direction”.
Last week, Beijing and Washington exchanged sanctions for all to see.
The Biden administration tightened rules on trade in microchip production equipment and advanced microchips used in data centers with artificial intelligence capabilities. The Commerce Department also blacklisted 140 organizations linked to China’s chip manufacturing sector, limiting their ability to do business with American companies.
According to the U.S. Commerce Department’s Bureau of Industry and Security, the regulations will restrict China’s ability to develop «advanced military and intelligence applications, cyber operations, and mass surveillance technologies». U.S. Commerce Secretary Gina Raimondo called the new U.S. sanctions on China «groundbreaking and sweeping», saying they are «the toughest ever imposed by the United States» and are designed to «limit China’s ability to produce chips that fuel its military ambitions».
In reality, these measures continue a strategy begun during the Trump presidency to impede the development of China’s chip and AI equipment industries. But their effectiveness is highly questionable.
Although China has acted slowly and cautiously in the past, this time the PRC’s response was not long in coming. It appears that Beijing knew about the measures in advance or had a response plan ready. Literally the next day, the PRC tightened control over its exports of key commodities to the United States. According to the Washington Post, in response to U.S. restrictions on the export of semiconductor chips and related equipment to China, Beijing imposed restrictions on the export of key raw materials to the U.S., including gallium, germanium, antimony, and superhard materials such as synthetic diamonds. China’s Ministry of Commerce cited the possible military use of these materials. «The U.S. has expanded the concept of national security, politicized and weaponized economic, trade and technological issues, and abused export control measures», the Chinese agency said. The Wall Street Journal published an article with the disturbing headline: «China Strikes Back After U.S. Chip Controls, Imposes Curbs on Key Raw Materials».
Indeed, there is cause for concern. China is a major producer of these materials, accounting for nearly all of the world’s supply of gallium.
Observers note that the speed of the PRC’s response suggests that China has changed tactics toward the United States. It signals to Trump that if he plans to continue the trade war, Beijing has its own strategy ready and will not stand on ceremony.
As is well known, Trump has already announced that one of his first steps upon returning to the presidency would be to impose a 60% tariff on all Chinese imports into the U.S. in order to reduce dependence on the PRC for key goods. In an interview with the Wall Street Journal, Trump said that «tariff» is «the most beautiful word in the dictionary» and that his top priority regarding China is to resume the trade war he started in 2018. In other words, the continuity of the American strategy of economic and trade containment of China remains unchanged.
But after four years of the Biden administration, China has already diversified its trade and appears to be preparing for an intensified trade war.
Today, the PRC has trade relations with 140 countries. Its exports are increasingly directed to Southeast Asia, Latin America and Africa. Russia and the Central Asian countries are playing an active role in this process. In addition, China has learned to trade with the U.S. through third countries, using re-exports. As the Financial Times wrote, over the past eight years, China has passed new laws that allow it to blacklist foreign companies and restrict U.S. access to key supply chains. According to the FT, this will help Beijing resist sanctions by other countries and «weaponize its global dominance in the supply of dozens of resources».
Chinese economists believe that imposing 60% or even 100% import tariffs on Chinese goods shipped to the U.S. would lead to a 60–70% drop in their direct imports. This would be followed by a sharp decline in U.S. budget revenues from taxes and a restriction of supply in the American market. China’s countermeasures would reduce U.S. exports by 25–30%, which would also reduce customs and other revenues and limit U.S. corporate profits.
U.S.-China trade has been shrinking for many years, with the result that America has slipped to third place in terms of trade volume after ASEAN and the EU. A major headache for Washington is the significant price advantage of Chinese imports over exports. No matter what Washington does, the situation changes little. This suggests that Chinese goods are irreplaceable in the US market. If Trump tries to block them, it could have a drastic impact on inflation and the incomes of the American middle class.
Without directly linking its latest sanctions move against the U.S. to the chip-related restrictions, China added 13 U.S. companies and six top executives of U.S. firms to a sanctions list over Washington’s recent decision to sell arms to Taiwan. According to Beijing, Washington’s decision «seriously violates the one-China principle and the three Sino-US joint communiques, constitutes interference in China’s internal affairs, and undermines China’s sovereignty and territorial integrity». The property of these companies in the PRC is frozen, and Chinese citizens and organizations are prohibited from cooperating or conducting business with them.
Top executives of U.S. military-industrial firms are banned from entering the PRC, including Xiamen and Macau.
At the same time, as Chinese Foreign Minister Wang Yi stated during a meeting with a delegation from the U.S. National Committee on American Foreign Policy (NCAFP), China intends to continue to improve and develop its relations with the United States based on the principles of mutual respect, peaceful coexistence and win-win cooperation, regardless of any changes in the United States.
The future direction of China-U.S. relations depends on the choice of the American side, Wang Yi said, expressing hope that the United States will move in the same direction as China.
According to Wang Yi, China does not intend to challenge or replace the United States, and the American side should not be obsessed with the mistaken desire to outcompete China.
The choice is up to the Americans.