How China is responding to pressure from Trump as trade war brews

John Yang:

Good evening. I'm John Yang. The developing trade war between the United States and China keeps ratcheting up. There are reports tonight that China has suspended exports of rare earth minerals critical to automakers, semiconductor companies and military contractors. And Commerce Secretary Howard Lutnick said today that the electronics the administration exempted from reciprocal tariffs on Friday could be subject to different levies in the future.

Earlier, I spoke with Katrina Northrop, China correspondent for the Washington Post. I asked her about the Chinese reaction to the initial exemption of those electronics.

Katrina Northrop, China Correspondent, The Washington Post:

They said that it was a good step. They're still criticizing the tariffs, but it does show a window of opportunity potentially for the two sides to talk. There's still a lot of problems and a lot of kind of barriers to get them together. But that exemption, I think, is going to be seen positively in Beijing.

John Yang:

What do the economists and analysts say about the effect on the Chinese economy of a trade war?

Katrina Northrop:

It's huge. The Chinese economy is not doing well. It's struggled to rebound from the pandemic. They've had a property sector crisis. They've had high youth unemployment. So they started at a bad baseline. And exports have been a really bright spot in the otherwise sluggish economy.

John Yang:

Katrina, you're in Taipei. Like most Western journalists because of the restrictions that the — that Beijing has put on Western journalists. Is it possible to tell, though, how this is affecting or the reaction of the Chinese people to this?

Katrina Northrop:

It's hard to tell, but there's a lot of concern, like there is in the U.S. around a spiraling trade war. There are many supply chains built up in China around serving the American market.

John Yang:

You talk about China sort of looking or interested in a deal, but outwardly they've been very defiant. Help us understand the Chinese reaction and response to all of this.

Katrina Northrop:

Yeah, they've stood very firm. The people that we talk to say that they don't want to be seen as weak. They don't want to be seen as being pressured by Trump. And Trump seems to be waiting for Xi Jinping to call him, and Xi Jinping doesn't seem willing to make that call.

So we're waiting to see what happens or whether we continue to escalate. I don't think that's out of the question. Think we could see more escalation before we see any type of negotiation.

John Yang:

And is China prepared for that escalation? Do they have plans in their back pocket, as it were?

Katrina Northrop:

Yeah, China has been preparing for a trade war with the U.S. since the first trade war with the U.S. in the first Trump term. And there's been a huge push to kind of create a more independent economy. At the same time, they've also developed this whole suite of tools to push back against Washington. So it's not only tariffs that they have in their pocket. They have export controls, which they've increasingly used. They have sanctions. They can go after specific U.S. Companies.

On Friday, Beijing said that they would not increase tariffs further from the 125 percent that they are on right now. But that doesn't mean that they won't use these other tools like export controls to go after Washington.

John Yang:

What's this doing to the overall relationship between these two countries?

Katrina Northrop:

Yeah, I think there's a lot of concern around this escalating beyond just a trade war. This could very easily move into a broader spiraling tension over things like Taiwan or South China Sea or other issues. And so economic and trade ties have long been a stabilizing force in the relationship. It's brought the two countries together, it's forced them to talk.

And right now, we're closer to economic decoupling than we ever have been. And many people are concerned that the two leaders won't be able to get the relationship back on the right track.

John Yang:

Katrina Northrop of the Washington Post. Thank you very much.

Katrina Northrop:

Thank you for having me.