Trade War

Newsletter 246 - February 9, 2025

This version is unpaywalled and free to read in its entirety. Please subscribe below if you find it interesting.

Welcome to the 246th edition of Trade War.

China opts for a measured response to U.S. tariffs as both sides leave room open for a deal. State Administration for Market Regulation launches anti-trust investigation into Google and Apple could be next. Trump’s trade attacks are alienating allies.

Shuttering of United States Agency for International Aid (USAID) means end to programs countering Chinese influence around the world. China activists have been hung out to dry by Trump’s freeze on foreign aid. And Justice Department shuts down election interference unit that countered Russian and Chinese malign influence.

Unclassified letter sent by the Central Intelligence Agency (CIA) to comply with Trump executive order may have exposed identity of China agents to Beijing. And 17 states question whether US investment funds adequately disclose China risks.

Notable/In depth

• Mayor and governors must audit ties to China, says new Johns Hopkins University China institute report

• Trump’s Mexico tariffs hurt US auto companies, could boost Chinese EVs

• Death of Taiwan celebrity could inflame cross-Strait tensions

Two Takes on trade and tariffs

• “Tariffs harms most Americans” says Peterson Institute for International Economics (PIIE)

• American workers the “real victims” of trade without tariffs, says Trump’s former USTR Robert Lighthizer

Trump’s disastrous China policy ~

By now it’s clear that Trump has become the proverbial bull in the China shop, smashing many of the policies and practices that supported the U.S. in its competition with China, and at least for now, giving Beijing carte blanche to usurp any global leadership role Washington once had.

What’s are the various factors behind this disastrous development?

—The striking unimportance Trump places on honoring U.S. relationships with its traditional allies, battering Washington’s standing abroad and pushing other nations into the arms of Beijing.

—It’s also in part the result of the ongoing chaos in American governance, undermining faith in U.S. institutions, both at home and abroad.

—Trump‘s belief that his unpredictability is his secret weapon which means he has little inclination to let up in his disruptive, policy-whiplash ways.

As he proudly said to the Wall Street Journal, Xi Jinping “respects me” and “knows I’m fucking crazy.”

—Trump’s unwillingness to consider values including human rights as having any relevance in international affairs and instead views all policies as narrowly transactional.

“He’s less ideologically driven,” says Henry Huiyao Wang, founder and president of the Beijing-based Center for China and Globalization.

—The fact that the president does not seem to view China as a serious threat to the U.S. Rather he’s made it clear that he admires and likes its authoritarian leader Xi Jinping.

“I’ve always liked him,” Trump has said and invited Xi to his inauguration.

This is an enormous break from the Biden administration which saw the U.S. and China as engaged in an existential struggle for power (which, by the way, is how Beijing views the relationship.)

“Does the Trump administration really think this is an urgent epochal competition?” asked the Kissinger Institute on China’s Robert Daly, at a recent conference.

—The Trump team’s blatant disregard for conflicts between business interests and political responsibilities.

That is most notable with Elon Musk whose Tesla business is deeply reliant on the goodwill of Beijing, but also, we now know, true of Federal Bureau of Investigation (FBI) nominee Kash Patel. Patel consulted for and now owns stock worth from $1 to $5 million in the parent company of controversial China fast fashion and ecommerce retailer Shein, as was revealed in an investigation by Wired.

Patel says he has no plans to divest his Shein shares, even as the Trump administration considers adding the company to its forced labor list. And of course, scores of conflicts of interest are evident in Trump’s well-documented business links to China and other countries, going back years.

—Despite strong words of support for Taiwan during the U.S. president’s meeting with Japanese Prime Minister Shigeru Ishiba, there are growing signs that Trump is intent on securing a grand bargain with China, one which could see him tacitly agree to Beijing’s eventual takeover of the democratic island.

All of these together have put in motion the unfolding shit show of bad policy which is now kneecapping the U.S. in its competition with China.

China opts for measured tariff response

For now, China is opting for a measured response to Trump’s tariffs as both sides leave room open for a deal.

On Tuesday, Beijing announced 15 percent tariffs on U.S. coal and LNG and 10 percent on American oil, agricultural equipment, and large-engine cars, as well as a lawsuit at the World Trade Organization (WTO) in response to the 10 percent across-the-board tariffs levied by Washington.

China's tariffs “appear much less than proportional” as they hit $14 billion worth of U.S. products while Trump's measures cover $525 billion of goods, according to Goldman Sachs.

Aware that Trump is interested in securing a larger deal, China is keeping its powder dry for now, levying limited tariffs and taking actions that are more noise than heat—an approach that has the added benefit of make Beijing appear more statesmanlike than Washington.

“The rationale for filing the case [at the WTO] is to give China the moral high ground for retaliation,” says Stephen Olson, a visiting fellow at the Singapore-based ISEAS-Yusof Ishak Institute.

“By following WTO procedures, China will position itself as the defender of the rules-based global trade system and the US as an irresponsible—perhaps even dangerous— rule breaker. This would be extremely useful for China as it competes with the US for influence.”

“[The WTO is] pretty toothless now, it doesn't have a good enforcement mechanism . . . countries take it less and less seriously,” says Dexter Tiff Roberts, a non-resident senior fellow at the Atlantic Council’s Global China Hub.

The Trump administration “will not be impacted one whit” by China taking the U.S. to the WTO, says Steven Okun, CEO of the public affairs firm APAC Advisors, who previously served in the Bill Clinton administration. “Chinese officials know that.”

“I do think that there is a real possibility that Trump might back off and try to cut a deal with China,” adds Roberts.

“The fact that the tariffs are 10 percent and not higher, the fact that he's trying to do a deal on TikTok—I could see Trump doing some sort of big deal that would encompass other areas.”

“Key members of Trump’s team, including Secretary of State Marco Rubio, have historically espoused more ideologically negative views of Beijing than the president. It remains to be seen how much that sentiment might guide policy, particularly as long as China-friendly Elon Musk retains influence,” notes the Wall Street Journal.

Beijing launches anti-trust probe of Google

Along with the tariffs and WTO lawsuit, Beijing is also targeting a particular vulnerability of the U.S.—the many American companies doing business in the China market.

On Tuesday, China’s State Administration for Market Regulation announced it had launched an anti-trust investigation into Google and added PVH, the parent company of Tommy Hilfiger and Calvin Klein, as well as San Diego-based gene-sequencing firm Illumina, to its “unreliable entities” list. Being on the blacklist could mean they eventually are banned from doing business in China.

Beijing also announced it was putting new export controls on critical minerals including tungsten, tellurium, bismuth, molybdenum and indium. That followed earlier restrictions last December on sales of gallium, germanium, and antimony to the U.S.

“China has the capacity to retaliate hard and fast, but seems intent to demonstrate strength while avoiding unnecessary escalation to keep its options open,” says Han Shen Lin, China director at consultancy the Asia Group.

“Google has a smaller presence in China than many markets, with its search engine blocked like many other Western platforms. Google exited the Chinese market in 2010, after refusing to comply with censorship requests from the Chinese government and following a series of cyberattacks on the company,” reports the Associated Press.

Apple is also in the crosshairs

Beijing is also investigating Apple over the App Store fees it charges developers including Tencent and ByteDance.

“Though the examination of Apple’s practices began before U.S. President Donald Trump took office, they’re now colliding with a series of tit-for-tat moves between Beijing and the Trump administration, which is threatening to ignite a global trade war,” reports Bloomberg News.

“Apple is one of the most prominent American firms with extensive operations in China, the production base for most of the world’s iPhones. The country is also Apple’s most important market after the U.S., the world’s biggest arena for smartphones, computing and artificial intelligence,” the financial news service reported.

Apple is already facing severe competition in China from local smart phone makers including Huawei.

“Destruction of the western alliance”

“Trump’s tariffs threaten to destroy the unity of the western alliance. He is sowing the seeds of an alternative grouping formed by the many countries that feel newly threatened by America. Co-operation will be informal at first, but will harden the longer the tariff wars go on,” writes the Financial Times’ Gideon Rachman.

“The collapse of western unity would be a dream come true for Russia and China. Trump himself may not care; he has often expressed his admiration for Vladimir Putin and Xi Jinping. But Marco Rubio and Mike Waltz—the men Trump has appointed as secretary of state and national security adviser—both claim to believe that containing Chinese power is the central strategic challenge facing the U.S.,” writes Rachman.

“Corporate America also needs to wake up and stop the sycophantic prating about the return of ‘animal spirits’ to the U.S. economy. What Trump is essentially offering America is economic autarky and the destruction of the western alliance. That would be an economic and strategic disaster for American business—and for the U.S. as a whole.”

Demise of USAID gives upper hand to China

The shuttering of the United States Agency for International Aid (USAID) also means the closing of programs countering Chinese influence around the world.

“Over the past eight years, USAID has quietly undertaken an impressive counter-CCP agenda. Foremost among these was the Clean Network, Trump’s efforts to help interested nations rip out CCP-controlled telecommunications equipment from companies like Huawei, and replace it with trusted hardware. Then-Secretary of State Mike Pompeo launched it from the State Department in 2020, but USAID was responsible for significant financing,” writes Hudson Institute Senior Fellow Michael Sobolik.

Another USAID program that aimed to support U.S. firms vying for business with Chinese state enterprises was called the Infrastructure Transaction Advisory Services.

“One would never know it by the name, but its purpose is to finance U.S. companies competing against PRC state-owned enterprises (SOEs) and Belt and Road Initiative (BRI) projects,” writes Sobolik.

“DOGE’s sledgehammer approach to USAID is imperiling the good programs that advance U.S. national interests—specifically those targeting the malign influence of the People’s Republic of China (PRC) and the Chinese Communist Party (CCP).”

Activists hung out to dry

China activists have been hung out to dry by Trump’s freeze on foreign aid.

Take China Labour Watch (CLW), a New York City-based NGO that investigates labor abuses in China, and is one of many China organizations that now may have to shut down. With only a staff of seven and budget of $800,000 a year—some 90 percent of which comes from the U.S. government—CLW it is now struggling to survive, reports The Economist.

It is all “very painful,” and “completely unexpected,” says founder Li Qiang.

“Everyone in this space is constantly doing risk assessments to figure out if we’re going to get shut down from the Chinese side,” says one member of a Washington-based group. It is “deeply ironic” that America’s government is “essentially doing the job of the Chinese government for it.”

Election interference unit disbanded

The Trump Justice Department has shut down a unit that countered Russian and Chinese malign interference in elections.

“To free resources to address more pressing priorities, and end risks of further weaponization and abuses of prosecutorial discretion, the Foreign Influence Task Force shall be disbanded,” announced new Attorney General Pam Bondi in a memorandum.

The decision is a “terrible mistake,” says Susannah Goodman, the director of election security at Common Cause.

“The FITF provides critical protection to safeguard our votes and our elections from the intelligence services of hostile foreign governments including Russia, China and Iran,” Goodman said.

“States and local officials—who run our elections—do not have the resources and expertise to go toe-to-toe with highly sophisticated foreign intelligence services,” she added.

“Trump has been highly critical of efforts by law enforcement to identify and root out foreign interference in U.S. elections, especially after a report by special counsel Robert Mueller, in 2019, found extensive evidence that Russian influence operations had been mounted to benefit Trump's candidacy during the 2016 presidential election,” reports VOA.

Read the Attorney General’s announcement here.

Were CIA China analysts exposed?

A misstep by the Central Intelligence Agency (CIA) may have exposed the identities of its China agents to Beijing.

The CIA under new director John Ratcliffe sent an unclassified email with names of employees to the Trump administration, in response to the executive order to cut the federal work force.

“It included a large crop of young analysts and operatives who were hired specifically to focus on China, and whose identities are usually closely guarded because Chinese hackers are constantly seeking to identify them,” reports the New York Times.

“Some former officials said they worried that the list could be passed on to a team of newly hired young software experts working with Elon Musk and his government efficiency team. If that happened, the names of the employees might be more easily targeted by China, Russia or other foreign intelligence services.”

In a 2019 article the Washington Post wrote that then CIA director nominee John Ratcliffe was viewed as “a relatively disengaged member of the House Intelligence Committee” and was “little known across the ranks of spy agencies.”

“Exposing the identities of officials who do extremely sensitive work would put a direct target on their backs for China. A disastrous national security development,” wrote Mark Warner, U.S. Senator from Virginia, in a post on X.

“Irresponsible, incompetent and dangerous….all this “winning” is making me sick,” wrote Randal Phillips, a former CIA chief in China, in a post on LinkedIn.

States go after financial firms invested in China

Attorneys general from 17 states are investigating whether U.S. financial institutions including asset managers have fully disclosed the risks they face investing in China.

BlackRock, JPMorgan Chase, Goldman Sachs, Morgan Stanley, State Street Corp., and Invesco, have all received letters querying them about their Chinese investment funds, and in particular, whether they have adequately addressed risks from tariffs and investment curbs on China and from the possibility of a war over Taiwan.

“Many of the largest asset managers in the world appear to make misrepresentations and omit essential disclosures for funds that include Chinese investments,” the Republican attorneys general wrote. It is thus “impossible” for state pension plans to “invest in funds with China exposure without violating their fiduciary duty.”

Austin Knudsen, the attorney general of Montana, leads the letter which focuses on BlackRock and is signed by the attorneys general of Alabama, Idaho, Indiana, Iowa, Kansas, Mississippi, Missouri, North Dakota, Oklahoma, Ohio, South Carolina, South Dakota, Texas, Virginia, West Virginia, and Wyoming.

The financial firms have a March 10 deadline to respond to Montana’s Office of Consumer Protection.

“China is a foreign adversary of the United States, threatens to invade Taiwan at any time, engages in forced labor and genocide, and that barely scratches the surface of their market risk and aggression against our country. It is very concerning that asset managers are withholding these facts, and the significant financial risk Chinese investments pose to their investors,” Attorney General Knudsen said.

Read the letter that the financial institutions received here (pdf).

Where the Chinese spy balloon was spotted, first-ever state TikTok ban, home to senator who is vocal critic of Chinese purchases of U.S. land, potential source of critical minerals banned by Beijing, and now this investigation of financial firms—the China-Montana nexus surfaces again (with Montana being the home of this newsletter’s author, of course.)

Notable/In depth

Mayor and governors must audit ties to China, says report

”Mayors and governors, city councils and state legislatures, need to audit their existing political, economic, and cultural ties to China and develop explicit strategies and ground rules for engagement. American cities and states have important leverage in setting the terms for engagement, given the eagerness on the part of Beijing and of China’s subnational governments to stabilize and rebuild relations with the United States,” write University of Notre Dame’s Kyle A. Jaros and Smith College’s Sara A. Newland in “Getting China Right at City Hall.”

”State and local leaders need to think strategically about what kinds of dialogue or exchange would benefit their communities. And they should lay out clear ground rules and principles for contact with China. These might include: maintaining transparency; abiding by U.S. foreign policy; refusing to accede to unacceptable demands (such as to cut ties with Taiwan); and using dialogue channels to raise concerns about Chinese policies that affect their local communities (e.g., the lax handling of fentanyl precursor chemicals, harassment of U.S. residents, or cyber-intrusions affecting critical infrastructure systems).”

Check out the full report “Getting China Right at Home”from the newly-opened Institute for America, China, and the Future of Global Affairs (ACF), at Johns Hopkins University’s School of Advanced International Studies (SAIS).

Trump’s Mexico tariffs boost Chinese EVs

“President Trump’s threat of tariffs [on Mexico] serves as a warning that automakers with significant sales to the United States need to diversify their market exposure,” writes Council on Foreign Relations Senior Fellow Zongyuan Zoe Liu.

“Meanwhile, automakers that do not have major exposure to the U.S. market—such as Chinese EV makers—will not be afraid of losing the market, as consumers could delay or downgrade purchases due to higher prices they will have to pay as a result of tariffs. As EVs gradually expand their market shares around the world, U.S. tariffs on Mexican imports could inadvertently further elevate the comparative advantage of Chinese EV makers and manufacturers in the supply chains at the cost of American automakers.”

Death of Taiwan celebrity could inflame cross-Strait tensions

The death of a Taiwanese celebrity who had been involved in contentious legal disputes with her Chinese ex-husband could inflame cross-Strait tensions.

“Douyin [the parent company of TikTok] announced on Saturday it has permanently banned the accounts of Zhang Lan, former mother-in-law of late Taiwan actress and TV host Barbie Hsu "Big S", and Zhang's son Wang Xiaofei, who is Barbie Hsu's ex-husband, for disseminating false information about Hsu,” reports the Global Times.

“According to Douyin's announcement, the actions of Zhang and Wang violated public order, social norms and moral standards, disrespected the deceased and their families, and provoked widespread public backlash.”

”Barbie Hsu recently passed away from pneumonia as a complication of the flu while traveling in Japan with her family. Her death has attracted widespread attention, and netizens expressed their condolences and called for respect and dignity in remembering her.”

China’s Taiwan Affairs Office spokesperson Chen Binhua weighed in on the then feuding divorced couple last year, saying “The two sides of the strait are one family, and we hope those destined can grow old together. For the few failed marriages, we hope the parties involved can part on good terms. There are approximately 400,000 cross-strait marriages, Chen noted.

Two Takes on trade and tariffs

“Tariffs harms most Americans” says PIIE

“This all-out embrace of higher tariffs is dangerous. It is bad fiscal policy, since tariff revenues will fall far short of candidate Trump’s tax cutting ambitions, and switching the fiscal burden from the income tax toward tariffs harms most Americans, benefiting only those at the top of the income distribution. Beyond these fiscal effects, high tariffs are likely to worsen macroeconomic imbalances, harm exports, diminish economic growth, and create new economic shocks, including higher inflation,” noted the Peterson Institute for Economic Affairs’ Kimberly Clausing and Maurice Obstfeld, writing in June of last year.

Workers “real victims” of trade without tariffs, says Lighthizer

“Our workers are the real victims of [traditional trade] policies. They have seen millions of their good-paying jobs disappear, their real wages have mostly stagnated for more than two decades and many of their communities have been decimated,” writes Robert E. Lighthizer, the U.S. trade representative in the first Trump administration.

“They are poorer and they live less fulfilling lives. In 2021, America’s gap in life expectancy between adults 25 and older without a college degree and those with a four-year college degree widened to eight years. Increasingly Americans without a college degree die from suicide, drugs and alcohol. At the same time, wealth inequality has grown to an alarming level. The top 1 percent of our families now have more wealth than the middle 60 percent.”

Montana picture

Malamute breaking trail in some deep snow.