China retaliation for US protectionism, while ‘never a good choice’, may be just starting

With little option in the face of mounting protectionist measures from Washington, and coupled with a need to “give the public an account” of what is being done in response, Beijing may be forced to retaliate.

That was the message conveyed by former central bank governor Yi Gang on Wednesday, and it painted a worrisome picture of relations between the world’s two largest economies over the next four years.

“We all understand that, from an economics perspective, [retaliatory actions are] never a good choice,” Yi said at the annual Beijing-Tokyo Forum in Tokyo. “But there’s not much policymakers can do about that” in the face of mounting domestic pressure and rising concerns among international industry players.

Yi, who received a PhD in economics from the University of Illinois in the 1980s and was at the helm of the People’s Bank of China from 2018-23, did not explicitly mention the United States, but his comments were made as the focus among guest speakers was predominantly on US president-elect Donald Trump.

Meanwhile, Trump’s picks for cabinet members, including China hawks such as Marco Rubio, are fuelling speculation that the trade war will escalate.

Against such a backdrop, “as policy advisers, we should speak up for the benefits of free trade”, Yi said, calling it the easiest way to boost the world’s economic growth.

At the onset of the trade war in 2018, the US slapped tariffs of 10-25 per cent on most Chinese shipments. Beijing pushed back with retaliatory duties. What followed were several rounds of negotiations that resulted in Beijing vowing in January 2020 to buy an additional US$200 billion worth of American goods and services over two years to balance the trade. But in January 2022, Biden refused to lift tariffs on Chinese imports, alleging that Beijing had not abided by the terms of the deal.