At first glance, the announcement of 25% tariffs against any country that trades with Iran seems tantamount to Donald Trump escalating a global trade war.
But China, India’s largest trading partner, has kept its response quite brief and quite mild.
“There is no winner in the tariff war,” said Foreign Ministry spokesman Mao Ning, adding that China will firmly safeguard its legitimate rights and interests.
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it’s exactly the same kind of thing China says when it is still trying to figure out the details.
In fact, it seems reasonable to assume that China is on fire because, like the rest of the world, it is probably unsure how it will react to the new announcement Will it apply and to whom?
For example, there was no clarification on what exactly “doing business” with Iran entails and, crucially, whether such activities would be exempt from China’s tariff agreement with the US.
Theoretically, this additional tax should primarily target China.
Although it is Iran’s largest trading partner, it is one of a relatively limited list of countries still willing to circumvent US sanctions to buy from it, despite international backlash over the regime’s treatment of protesters demanding an end to clerical rule in the country.
Analysts estimate that China buys at least 80%, possibly as much as 90%, of the oil shipped from Iran. Exact figures have not been published.
China has significant investments in Iran.
Additionally, China has significant investments in Iran, with Chinese companies financing construction and infrastructure projects.
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However, the context of US-China relations is crucial in this situation.
Presidents Xi Jinping and Trump finally agreed to a ceasefire in November, bringing an end to the crippling trade war that had been raging for several months. Negotiations took several months to achieve the deal, which reduced China’s average tariff rate from 145% at the peak of the standoff to about 47%.
In exchange for these cuts, Trump secured some things that were important to him, such as an agreement to increase purchases of US soybeans, de-blacklisting some US companies; and easing access to critical rare earth minerals.
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Now China’s tariff rate increase will definitely provoke it to retaliate; all these hard-earned gains can be lost in an instant.
Add to the mix the fact that Trump says he plans to visit Beijing in April and he has indicated that stability in the relationship is desirable, and the likelihood of him making some sort of concession to China increases.
An example of this also exists.
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Over the summer, an additional 25% tariff was imposed on India in retaliation for oil purchases from Russia.
Although China buys more from India, it was not treated equally, almost certainly because a comprehensive deal was in the process of being struck.
An additional 25% tariff would be punitive for China now, at a time when its economy is still struggling with slow growth and high unemployment. This would push the average rate to more than 70%—an amount that would make almost all trade with the US uneconomic.
But China has learnt in the last year that being strong and firm with Trump has paid off.
He knows he has the power and leverage to force a waiver, and there’s no doubt that’s what he’ll be doing behind the scenes.
If it doesn’t make sense, expect retaliation, and expect it to be severe.
