As tariffs mount and global markets falter, Beijing maintains that its economy can weather the storm better than many expect.
When President Trump recently imposed additional 10% tariffs on Chinese goods, which took effect in February and increased to 20% in March, Beijing’s response was notably measured. The calm demeanor reflects a strategic calculation that China has effectively insulated its economy from the worst effects of trade tensions.
“What makes this trade war different from the previous one is that China has spent years reducing its dependence on American markets,” said Michael Pettis, a finance professor at Peking University and senior fellow at the Carnegie Endowment for International Peace.
Over the past two decades, China has systematically decreased trade’s importance to its overall economy. Imports and exports now account for approximately 37% of China’s GDP, compared to more than 60% in the early 2000s. In recent years, U.S.-China trade has declined, particularly in sectors hit by previous tariffs and export controls.
This shift represents a deliberate strategy to build resilience against external economic pressures. China has instead ramped up trade with other partners including the European Union, Mexico, and Vietnam. The country’s share of global trade has climbed roughly 4% since 2016, when President Trump first took office, even as the United States’ share has dipped.
Manufacturing executives in China acknowledge the pressure but remain confident in their ability to adapt. “We are the manufacturers, it will hurt us for sure. But it’s ordinary customers in the U.S. who will pay for this,” said Qian, a business owner who noted orders from U.S. customers had slowed significantly since Trump took office for his second term. “I can either reduce production or I look for new markets to absorb our surplus.”
While Chinese officials have publicly threatened retaliation, their actual economic response has been calibrated to avoid escalation. A common maxim of trade wars is that the best retaliation is not to retaliate at all. Such conflicts are counterproductive, as raising levies on imports simply increases costs for domestic consumers, more than offsetting benefits that local producers may enjoy.
However, analysts warn that the outward calm masks real concerns. According to Citigroup Inc., the 54% US tariffs on China’s goods announced since the start of Trump’s second presidential term may drag the country’s gross domestic product growth down by 2.4 percentage points in 2025. That assessment, made before considering any offsetting measures, suggests China’s growth could face significant headwinds.
The latest economic data provides mixed signals. Official figures from China in a previous trade war round showed its industrial output growth falling to a 17-year low. Similar patterns could emerge as the current tensions unfold.
For global investors and policymakers, the long-term implications remain uncertain. As both foreign and domestic investors take a more cautious approach to capital spending in China, real fixed investment could be restrained, reflecting losses in real exports, financial stress, declining equity prices, and reduced foreign investment.
“There is a recognition that the global trading system is broken in some very fundamental way,” Pettis told CBS News. “The only question is are they resolved in a bad way, or a less bad way. But it is going to get difficult.”
Despite these challenges, Beijing continues to project confidence that its economy has already been trade-war-proofed, built to withstand precisely this kind of economic confrontation.
As markets continue to respond negatively to the escalating tensions, the true test of China’s economic resilience lies ahead. While Chinese officials publicly downplay the effects, behind closed doors they are likely accelerating efforts to further reduce dependence on American markets and strengthen domestic consumption as a buffer against external shocks.
