1 Trump launches opening salvo at the CCP
China tariffs
Feb. 1
President Donald Trump imposed a 25 percent additional tariff on Canada and Mexico, and a 10 percent additional tariff on China. According to a White House fact sheet, the move was intended to hold those countries to clamp down on illegal immigration and stop the flow of fentanyl and other drugs into the United States.
In response, the PRC foreign ministry denounced the tariffs and pledged to take unspecified “countermeasures.” The foreign ministry added that trade and tariff wars “have no winners” and “fentanyl is America’s problem.”
Feb. 2
Trump wrote on Truth Social, “Anybody that’s against tariffs, including the fake news Wall Street Journal, and hedge funds, is only against them because these people or entities are controlled by China, or other foreign or domestic companies.”
Feb. 3
Trump paused the tariffs on Canada and Mexico for 30 days after both countries pledged to do more to prevent the trafficking of fentanyl into the United States. In posts on Truth Social (here and here), Trump indicated that the U.S. will have negotiations with both countries during the tariff pause period to see if an economic deal can be reached.
Feb. 4
Trump’s China tariffs came into effect at 12:00 a.m. EST. Within minutes, the PRC announced that it would impose 15 percent tariffs on U.S. coal and LNG, and 10 percent for crude oil, farm equipment, and some autos, effective Feb. 10. The PRC also announced an anti-monopoly investigation in Google and included PVH Corp (holding company for brands including Calvin Klein) and biotech company Illumina on its “unreliable entities list.” Separately, the PRC commerce ministry and customs administration announced export controls on rare earths and metals including tungsten, tellurium, bismuth, molybdenum, and indium.
Feb. 5
When asked by reporters about the PRC’s retaliatory tariffs, Trump said, “That’s fine. It’s fine.”
Trump added, “We’re going to do very well against China and against everybody else. Right now, they’ve taken advantage of the [Joe] Biden administration like I’ve never seen. The deficit with China is about a trillion dollars. Think of it, a trillion dollars. They’re using our money to build their military.”
When asked about calling Xi Jinping, Trump said, “we’ll speak to him at the appropriate time. I’m in no rush. I’m in no rush.”
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The Wall Street Journal reported on Feb. 3 that the PRC is preparing an “opening bid” to negotiate with Trump and head off greater tariffs.
Citing people in both capitals familiar with Beijing’s thinking said Beijing saw the 10 percent tariffs as Trump’s method of applying pressure, but noted that the move was not the sort of “maximum pressure” that the Xi leadership would not be able to tolerate.
The people said that Beijing’s initial proposal to Trump will revolve around restoring the Sino-U.S. trade agreement that was signed in early 2020 but the PRC did not fully implement. Beijing is currently preparing to talk to the Trump administration about areas where the PRC can purchase more from the U.S., according to the people.
The people said that Beijing also plans to offer to make more investments in the U.S. in sectors such as electric car batteries, not devalue the renminbi to gain a competitive advantage, and commit to reducing exports of fentanyl precursors. Beijing also plans to treat TikTok as mainly a “commercial matter,” which means that the PRC authorities intend to stay out of the way and let investors in ByteDance talk a deal with U.S. bidders. The Journal added that it is unclear if Beijing would willingly give up control over TikTok’s algorithm as part of any deal.
Rubio pressures Panama
Marco Rubio traveled to Panama, El Salvador, Costa Rica, Guatemala, and the Dominican Republic from Feb. 1 to Feb. 6 in his first international trip as secretary of state. In a commentary published in The Wall Street Journal before his trip, Rubio wrote, “As our regional partners build themselves up, they can more easily resist countries such as China that promise much but deliver little.”
In Panama, Rubio told Panama president Jose Raul Mulino that Washington would “take measures necessary” if the country does not end the PRC’s influence and control over the Panama Canal. Afterward, Mulino signaled that he would review a 25-year concession to the Hong Kong-based CK Hutchinson Holdings for the operation of two entrance ports (U.S. lawmakers cite the contract as an example of PRC expansion in Panama). Mulino also said that Panama would not renew a broad agreement with the PRC to participate in the Belt and Road Initiative, and would consider terminating the agreement early.
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In a meeting with Salvadoran president Nayib Bukele on Feb. 3, Secretary Rubio “raised strategies to counter the influence of the Chinese Communist Party in the hemisphere to safeguard the sovereignty and interests of both nations and the region,” according to a press release.
CIA backs lab leak theory
Jan. 25
The Central Intelligence Agency shifted its view on the origins of COVID-19 from a natural source to a lab leak. “CIA assesses with low confidence that a research-related origin of the COVID-19 pandemic is more likely than a natural origin based on the available body of reporting,” according to an agency spokesperson.
BRICS currency tariff?
Jan. 30
In a Truth Social post, Trump warned the BRICS nations against creating a new BRICS currency or back any other currency to replace the U.S. dollar, otherwise “they will face 100 percent tariffs and should expect to say goodbye to selling into the wonderful U.S. economy.”
Our take
1. President Donald Trump’s early actions against or concerning the PRC indicate that he will maintain and even expand on his first term’s “tough on China” approach, as we previously analyzed. The success of Chinese AI startup DeepSeek and its jolt on the AI sector will likely deepen the Trump administration’s resolve to counter the CCP and “contain” the PRC.
By imposing tariffs on Canada, Mexico, and China over fentanyl, having Panama publicly distance itself from the PRC (including taking steps to end the CCP’s influence over the Panama Canal) and rallying South American countries against the CCP, and declaring a lab leak to be the more likely source of COVID-19, Trump has laid the initial groundwork to put greater pressure on Beijing to advance his China agenda. Trump will likely want to negotiate a new economic deal with the PRC, have Beijing fulfil the previous deal, strongarm neighbors to get on the same page as the U.S. (which would allow Washington greater leverage against Beijing), and safeguard American national security in the face of the CCP threat.
Meanwhile, Trump’s threat to impose 100 percent tariffs on BRICS nations should they attempt to displace the U.S. dollar as the reserve currency appears to be an implicit attempt to put Russia and the PRC on notice. Trump could also be looking to discourage America’s two biggest geopolitical rivals from gathering other nations to undermine the U.S.-led international order and even potentially drive a wedge between Moscow and Beijing.
2. Trump was quick to pause tariffs on Canada and Mexico after both countries reached out to Washington with pledges to make a deal. This gives the impression that Trump is “transactional” and might not actually go through with sweeping tariffs, especially on China.
However, we believe that Trump will ultimately impose his promised tariffs, though what is levied and to what extent is likely to vary considerably from his public proposals. Trump has spoken about his fondness of tariffs (including how they would help the U.S. generate revenue and eventually allow for federal income taxes to be scrapped) on the campaign trail, and plans to create an “External Revenue Service” to collect tariff income. With Trump’s “America First” principle, it is unlikely that allies and partner nations would escape tariffs entirely should Trump stick to his campaign rhetoric.
Trump’s tariffs on Canada, Mexico, and China are likely intended to grab the attention of the three countries and bring their leaders quickly to the negotiation table. But the tariff pause does not necessarily mean that they will be scrapped if Trump does not get what he wants at the negotiating table. In particular, Mexico could find itself subjected to targeted tariffs of some sort even if a deal is reached as the Trump administration looks to close export loopholes that the PRC can abuse to circumvent U.S. tariffs. Meanwhile, Trump could keep the 10 percent tariffs on China to remind Beijing that he has not forgotten the PRC’s failure to fulfil the previous Sino-U.S. trade deal and put pressure on the CCP authorities to reach new agreements.
How quickly Trump escalates tariffs on China could depend on Beijing’s willingness to play ball in negotiations and the pace of the Trump administration’s internal reforms. For instance, Beijing’s retaliatory tariffs and other moves make it harder for Trump to scrap the 10 percent tariffs. Also, if Trump can pass new tax cuts and make substantial savings on government expenditure through the work of the Elon Musk-helmed Department of Government Efficiency, he would have fewer qualms about imposing stiff and sweeping tariffs on the PRC at an earlier date to ramp up pressure on Beijing (through high tariffs, scrapping China’s “most favored nation” status, etc.) and reverse the Sino-U.S. trade imbalance.
3. Trump might not be impressed with the PRC’s negotiation “opening bid” as reported by The Wall Street Journal. For one, the idea of China pledging to buy more from the U.S. rings hollow given that Beijing failed to meet the purchase requirements from the first Sino-U.S. deal. Trump could accept more PRC purchases, but would likely demand closer deadlines for the purchases to be made and more stringent deal compliance checks.
As for more Chinese investment in the U.S., Trump could welcome the “onshoring” of Chinese manufacturing but would not want the PRC to invest in U.S. infrastructure due to national security concerns. Trump could also demand that the U.S. government take some control of TikTok despite Beijing’s plan to treat it as a “commercial matter.” The only parts of the PRC’s negotiation “opening bid” that Trump would have the least trouble with are Beijing’s pledge to not devalue the RMB and curb exports of fentanyl precursors, but is likely to adopt a “trust but verify” approach.
What’s next
The CCP will likely attempt to “delay and wait for change” (以拖待變) to get ahead in geopolitical competition with the United States. This includes making some “concessions” and giving some “benefits” to Trump on various issues, dragging out negotiations for as long as possible, and even making some surprise moves with an eye on alleviating greater U.S. pressure on the PRC for as long as possible.
Beijing’s delaying tactics, however, might not be effective against a more determined and experienced Trump. If anything, the CCP’s stalling and unchanged geopolitical stance (“East is rising and West is in decline,” “great changes unseen in a century,” “no limits friendship” with Russia, etc.) could push the Trump administration to instead pile pressure on the PRC more rapidly and forcefully, compounding the crises facing the CCP regime.
