All options on the table: the weekly recap

China’s leadership is showing remarkable creativity when it comes to their evolving approach to an all-but-certain second-round trade war with the US.

In case you’ve been living off-grid: The incoming Trump administration is poised to ratchet up tariffs on a range of countries – starting with China.

The only real questions seem to be:

• How high will the tariffs be? While Trump has floated 60% tariffs on Chinese goods entering the US, the prevailing view in DC is that they will likely settle closer to 25-30% (on top of existing tariffs).
• How quickly can the tariffs be implemented? The Trump team is already exploring the range of legal avenues and executive authorities that would allow them to move forward with tariffs unhindered by legal challenges, lengthy public review periods, and most especially, congressional approval.

For its part, China has largely kept mum on how it will respond – as expected.

But we have seen announcements and reports indicating Beijing plans to cut tariffs for a range of non-US countries as a first gambit – aiming to boost its global street cred, especially if the US hikes tariffs on other countries, as Trump has also said he intends to do.

• At the G20 summit in Brazil this week, Xi Jinping repeated his pledge – first made in September – that China will unilaterally remove tariffs on all imports from the least developed countries.
• This matches recent reporting from the WSJ that Beijing is also considering unilaterally reducing tariffs for other non-US trading partners to capitalize on the US’ protectionist turn.

In terms of the wider US-China relationship under a second Trump administration, it seems clear that Beijing is keeping all options on the table – and hoping for the best while preparing for the worst.

• In Peru this week, Xi told US President Joe Biden that he stands ready to work with Donald Trump to improve US-China ties.
• Meanwhile, as we highlighted recently, Chinese policymakers are readying an array of lawfare tools to counter a potential US escalation in sanctions, entity listings, and export controls.

So the upshot is that Beijing’s reaction to Trump 2.0 will be highly path dependent and reactive.

• There’s virtually zero chance that Beijing comes in hot, looking to pick a fight with the new administration.
• And there seems to be some genuine hope in Beijing that Xi can use personal diplomacy with Trump to move things in a positive direction.

On that score, I think Beijing is taking the right approach. As I’ve been arguing for a while, beyond increased tariffs, there is only one thing that is truly knowable about Trump’s coming approach to China:

• The range of plausible outcomes is much wider than it has been under the Biden administration.

In my view, it is fully plausible that personal diplomacy mixed with some sort of “grand bargain” could significantly improve US-China relations over the next four years.

Likewise, depending on who ultimately takes up key positions in Trump’s government, it’s equally plausible that the administration pursues an even more hawkish, ideologically driven agenda that takes direct aim at the Chinese Communist Party.

• And of course, there are a range of possible outcomes in between.

Knowing this, Xi and company will take a patient approach toward the US, at least initially – and in the meantime, hedge their bets by seeking to deepen China’s relationships with, and leadership of, the Global South.

That approach has been on full display in the past few days, with:

• Xi’s state visit to Peru, including the inauguration of the massive, China-backed Chancay Port
• Xi’s commitment at the APEC summit to launch a Global Cross-Border Data Flow Cooperation Initiative – likely building on China’s Global Data Security Initiative.
• Xi’s state visit to Brazil, which saw the upgrade of Sino-Brazilian ties to the apparently new “community with a shared future for a more just world and a more sustainable planet” level and the signing of almost 40 cooperation agreements

This concerted push to strengthen ties with other developing countries is set to gain steam regardless of how the US-China relationship evolves in the years ahead.

• Simultaneously, Chinese leaders will look for opportunities to improve ties with developed countries – particularly in Asia, but also in Europe – especially if the US develops a reputation as a less reliable partner under the Trump administration.

Ultimately, then, it seems to me that there are multiple potential paths ahead for US-China relations as the Trump show unfolds.

Meanwhile, there are a couple of key dynamics – like increased US tariffs and China’s courting of the Global South – that companies, investors, and anyone else can go ahead and bake into their forecasts.

-Andrew Polk, Co-founder, Trivium China

What you missed

Business environment

On Friday, the finance ministry (MoF) and tax administration (STA) announced sweeping changes to China’s export tax rebate regime, effective December 1.

• Among the changes, the tax rebate for exports of solar modules, cells, and wafers will be reduced from 13% to 9%.
• Reducing tax rebates is the latest indication that Beijing is taking a more hands-on approach to tackling the solar industry’s massive overcapacity.

Notably, the changes to the export rebate regime will also fully scrap the 13% export tax rebate for aluminum and copper.

• This will hit aluminum particularly hard, with domestic analysts predicting that many producers will need to renegotiate existing contracts.
• Canceling export tax rebates will bring short-term pain but could address China’s aluminum overcapacity by forcing smaller, rebate-dependent producers to adapt or exit the market.

Tech

On Friday, China’s Ministry of Commerce (MofCom) released the official list of dual-use items subject to export controls.

• The list will be effective December 1.
• It doesn’t appear that any new export controls have been instituted at this time, and according to a MofCom spokesperson, this list only consolidates previous disparate export control lists into a single document.

On Friday, representatives from China’s Ministry of Commerce sat down with their South Korean counterparts to talk export controls.

• It’s obvious what’s going on here: MofCom has just finalized its new export control mechanism, and now it’s previewing that mechanism to chipmaking powers that are also US allies.
• Beijing’s message is crystal clear: Restrict exports to us, and we’ll restrict exports to you.

Econ and finance

On Monday, local state-owned enterprise (SOE) Guangzhou Anju Group began taking applications from developers interested in selling unsold inventory to the government.

• This makes Guangzhou the second first-tier city – after Shenzhen – to initiate property buybacks.
• We’ve previously flagged that the untenable economics of property buybacks would put off developers and hinder the program’s rollout, and the persistent lack of significant progress reinforces our concerns.

China’s securities regulator (CSRC) wants listed companies to do more to boost share prices.

• The latest: New guidelines published Friday call on firms to “pay attention to their own investment values” and “genuinely enhance investor returns.”
• The guidelines build on recent CSRC efforts to rebuild confidence in the equity market by enhancing corporate governance and promoting higher dividend payouts.

Net zero

On Saturday, China’s climate envoy Liu Zhenmin, speaking on the sidelines of the 29th United Nations Climate Change Conference (COP29), said new climate finance obligations should fall on developed countries.

• ICYDK: The main focus of COP29 is establishing a new collective quantified goal (NCQG) for annual climate finance contributions.
• Beijing insists that only developed countries should make binding commitments, while some developed and/or climate-vulnerable countries argue that major emitters like China and India should also contribute.

Politics

Former agriculture minister Tang Renjian is getting expelled from the Party.

• On Friday, the anticorruption watchdog (CCDI) released findings that Tang was engaging in corrupt practices, including accepting bribes and intervening in government processes to enrich himself.
• Get smart: Tang’s downfall is a great reminder of why Xi Jinping’s campaign to root out corruption is popular among Chinese citizens.

US-China

On Saturday, Xi Jinping met with US President Joe Biden on the sidelines of the APEC Summit in Lima, Peru.

• Xi told Biden that the two of them had stabilized China-US ties and brought “dialogue and cooperation back on track.”
• The two also reached an agreement on “the need to maintain human [rather than AI] control over the decision to use nuclear weapons.”

On Wednesday, China and Brazil announced a long list of deals and breakthroughs as part of Xi Jinping’s state visit to Brasilia – including an agreement for China to open its markets to imports of Brazilian sorghum.

• Currently, China relies heavily on the US for its sorghum imports.
• That could change fast if the US sparks another tariff war with China.
• Back in 2018, US sorghum was one of the first crops to face Beijing’s retaliation – anti-dumping and anti-subsidy investigations resulted in a 179% increase in tariffs.

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.