CHINA WAS READY. Most nations expressed shock when the United States announced last week that it would impose what it called “reciprocal tariffs” on all trading partners.
But China already expected a dramatic escalation of US tariffs—and had taken steps to deal with it.
Last month, the Beijing leadership released its annual review, known as the Work Report. This said there will be “an increase in tariff barriers” and predicted that “the world’s century-old changes will accelerate, and the external environment will become more complex and severe, which may cause greater impact on country’s trade, technology and other fields”.
In other words, China had already prepared a strategy to deploy in response to the new tariff war.
China quickly produced a white paper which went into detail about the creation of a positive trade relationship with the United States
NOT THE FIRST TIME
This is not the first time that the United States used tariffs as a weapon to threaten China.
In 2018, Trump threatened to “crush the Chinese economy” with a trade war, as China’s GDP had just surpassed that of the United States in terms of purchasing power parity.
Did he succeed? Not at all.
Six years later, by 2024, the size of China’s economy measured in the same system was 1.6 times that of the United States. So clearly, looking back at that earlier tariff battle, it ended with the United States losing more than it gained.
Official US government figures claim that Donald Trump’s first tariff war against China achieved some success, indicating that the Chinese share of US imports fell by almost 8 percentage points between 2018 and 2024. But a new, larger study of data by New York University shows that the real drop over those six years was just 3.7 percentage points. And when direct and indirect routes are included, the share of US imports that come from China actually increased from 20 per cent to 22 per cent between 2018 and 2024, the report says, quoting Asian Development Bank data.
DUAL CIRCULATION SYSTEM
In order to cope with challenges such as the headwinds of economic globalization and the weakness of international markets, China took appropriate measures in 2020 by adopting the “dual circulation” development model: this fosters self-reliance on key elements in the domestic economy while also remaining open and active in international trade on other elements.
President Xi Jinping stressed that only by relying on ourselves and ensuring the smooth flow of the domestic circulation can we survive and develop with vitality regardless of changes in the international situation.
When China revealed its stimulus package in October last year, it included an extra one trillion renminbi in case Donald Trump was elected.
MAJOR TASKS FOR THIS YEAR
This year’s Work Report proposes that China complete ten major tasks this year, as well as further advancing the development of the domestic and international dual circulation system to a higher level.
These tasks included deepening the connections of mechanisms among the parties in the Guangdong-Hong Kong-Macao Greater Bay Area; and continuing to cultivate emerging industries, accelerating the construction of future industries, developing new quality productivity, and tapping the potential for economic growth.
This year, a series of measures have also been introduced to expand domestic demand, expand production capacity, continue to open up, and ensure the reduction of risks, so as to promote steady economic progress.
The steps taken include the issuing of 1.3 trillion yuan of ultra-long-term special government bonds, vigorously supporting “double-weight” projects and the “two new” policies, and so on. The aim is to vigorously boost consumption, and expand domestic demand in all directions.
ZERO TARIFFS
While the Trump Administration was concocting up massive tariffs for the world, what did China do?
The Work Report stated that all products from the least developed countries that have established diplomatic relations with China will be given zero tariff treatment.
Furthermore, the number of nations getting unilateral visa-free entry will be expanded, and visitors will be allowed a longer period to stay while in transit. This will promote tourism and related sectors, and increase the country’s openness to the outside world.
DEALING WITH CHALLENGES
The central government has assessed the situation and put forward a number of strategies to deal with external challenges.
The Work Report clearly stated that it would flexibly adjust policies to respond to future situations to improve the foresight, pertinence and effectiveness of macro-control.
It also required that policies be introduced and implemented as early as possible to deal with uncertainties. There must be ample room for monetary policy adjustments, indicating “timely reduction of reserve requirement ratio and interest rates to maintain ample liquidity” and the “strengthening of financing and credit enhancement” to cope with market fluctuations and capital pressures caused by international economic and trade frictions.
The country’s system of governance is efficient and geared for the long term. It possesses many advantages such as the presence of a super-large market, and a complete industrial system, and abundant human resources.
HONG KONG TO GROW
The central government emphasized that the underlying trend of the country’s long-term economic advancement will not change—and that of course includes Hong Kong.
Thanks to the country’s development and support, Hong Kong has been able to integrate itself into the construction of the Guangdong-Hong Kong-Macao Greater Bay Area, maintain its status as an international business hub, an international financial center, and as the world’s freest economy.
Hong Kong has also become an ideal location for domestic and overseas companies to establish or expand their businesses.
Overseas companies use Hong Kong to enter the mainland market, while mainland companies “go global” through the city. According to government data, the number of companies stationed in Hong Kong with parent companies overseas and on the mainland increased to 9,960 in 2024, more than four times the number in 1996. The largest number are from the mainland, followed by Japan, the United States and the United Kingdom. These organizations employ 493,000 people.
USING ITS ADVANTAGES
On a GDP per capita basis, Hong Kong is among the top 20 wealthiest communities in the world.
In terms of net worth of individuals, Hong Kong is number three in the world.
The city’s success today is ultimately due to the strong support of the motherland. Also, the people’s unity and hard work have made sure the “one country, two systems” policy has been successfully implemented.
As part of China, Hong Kong should make good use of its advantages, such as having China’s backing, having international connections, and being a free port.
This community can concentrate on solidly and steadily enhancing its unique status. In the long run, it can make use of the advantages of being part of the Greater Bay Area; it can accelerate upgrading and transformation of industrial sectors, such as digital economy and green finance; it can firmly safeguard national sovereignty, security and development interests.
Hong Kong can help the country open up to the outside world, deepen international cooperation, and work together to turn crises into opportunities.
Professor Herman Hu Shao-ming is a Hong Kong deputy to the National People’s Congress of China.
Image at the top shows Xi Jinping and his wife Peng Liyuan arriving at a G20 meeting in Argentina. Picture by G20 staff.