Here’s how China could retaliate against U.S. tariffs

China is the world’s second-largest economy and second-largest importer of U.S. goods. Entities in China hold at least $784 billion in U.S. federal debt. The country also controls much of the world’s rare element supply, which is vital for manufacturing technology. China could weaponize these assets if an all-out trade war breaks out, to the detriment of U.S. consumers and businesses.

“China is actually a bigger financial power than it looks like on the surface,” said Brad Setser, a senior fellow at the Council on Foreign Relations. 

Since 2018, China has developed regulatory tools, including export controls, that could be used to pressure U.S. businesses such as Tesla and Apple, should tensions between the two countries rise.

As tariff rates rose this spring, ports on the U.S. West Coast reported a slowdown in activity, fomenting concerns about an inbound shortfall of supplies that typically are produced in Asia. 

The White House in April suggested several tariff rate increases for U.S. imports from China that may reach up to 245%. The average tariff rate for Chinese exports to the U.S. rose to 124.1% as of April 12, according to an analysis conducted by the Peterson Institute for International Economics. China’s average tariffs on U.S. exports are higher, at about 147.6%, according to the analysis.

“We’ve already raised tariffs to such a high degree that with time, trade will go to zero,” said Setser, who served as a senior advisor to the U.S. Trade Representative during the Biden administration. 

Members of the Trump administration have suggested that China should come to the negotiating table. But governing officials in China insist that no trade talks have occurred between the two superpower nations. 

“These 125%, 145% tariffs are unsustainable,” Treasury Secretary Scott Bessent said on CNBC’s “Squawk Box” on April 28. 

In April, China’s leaders urged nations around the world to stand up to what they called “unilateral bullying” from the United States. They’ve also vowed to retaliate against countries that cut deals with the U.S. to the detriment of China.

“China is sending strong signals … that the games that we are playing, which are tariff games and supply chain games, for them, it’s about survival,” said Dewardric McNeal, a managing director at Longview Global. 
 
Watch the video above to see what cards China could play in a trade war with the U.S.