Cover Story: Trump 2.0 Means Reboot of Aggressive Tariff Policy Toward China

By Zeng Jia, Lu Chen, Hu Xuan and Denise Jia

At around noon on Jan. 20, Donald J. Trump will once again stand outside the U.S. Capitol, place his hand on a Bible and recite the oath of office, this time becoming the 47th president of the United States. His remarkable comeback, punctuated by a resounding electoral victory on Nov. 5, marks the first time in 132 years a former president reclaimed the White House after a term away. But as the 78-year-old Republican prepares to lead a deeply divided nation, all eyes are on the critical decisions shaping his second-term agenda—starting with the assembly of a cabinet and the rollout of aggressive trade policies toward China.

Trump’s victory was amplified by Republicans regaining control of the Senate and likely controlling the House of Representatives, granting him a rare alignment of executive and legislative power to push his agenda.

This Republican consolidation paves the way for Trump to deliver on a wide array of promises, from raising tariffs to reshaping U.S. foreign relations. Analysts predict the next two years will be pivotal in redefining America’s domestic and international posture as Trump has the political capital to enact sweeping changes without the gridlock that marked much of his first term.

The Cabinet: Loyalty First

Trump’s approach to staffing his administration reflects lessons learned during his first term, which was marred by high turnover and conflicts with establishment Republicans. In October, Howard Lutnick, co-chair of Trump’s transition team, made it clear that “loyalty” would be the primary criterion for cabinet appointments. This shift underscores Trump’s determination to avoid what he has called the “biggest mistake” of his presidency: picking “bad, disloyal people” to join his first administration.

Among those reportedly under consideration for top economic posts are John Paulson and Larry Kudlow, both longtime allies with strong conservative credentials. Paulson, a billionaire hedge fund manager and early Trump supporter, has been floated as a potential Treasury secretary. Kudlow, a television host on the Fox Business Network and an economic adviser in Trump’s first term, is also in the running. Both bring experience and alignment with Trump’s tax-cutting, deregulatory ethos, though Kudlow’s private skepticism about aggressive tariffs may prove a sticking point.

On trade, Robert Lighthizer, the architect of Trump’s protectionist policies during his first term, is a strong contender to reprise his role as U.S. Trade Representative or assume another key economic post. Lighthizer’s hardline stance on China, including a proposed 60% tariff on Chinese goods, signals an escalation of Trump’s confrontational trade policies.

The Foreign Policy Hawks Circle

Trump’s foreign policy team is also expected to feature staunch allies with a shared vision of “America First.” Speculation about the next State Secretary centers on figures like Senators Bill Hagerty and Marco Rubio, along with former National Security Adviser Robert O’Brien. All three have taken a hardline stance on China, aligning with Trump’s call for decoupling the U.S. economy from Chinese influence.

Hagerty, who served as ambassador to Japan during Trump’s first term, is seen as a frontrunner. His record of strengthening the U.S.-Japan alliance and advocating for fair trade aligns with the president-elect’s priorities. Rubio, a Cuban-American senator from Florida, has been a critic of China and an advocate for sanctions against authoritarian regimes, making him a viable pick for a high-profile diplomatic role. O’Brien, known for his traditional conservative approach, could bring continuity to Trump’s foreign policy strategy.

In the defense realm, names such as Michael Waltz and Tom Cotton—both China hawks—are circulating. While all are staunch supporters of a robust military posture, their views on aiding Ukraine—a contentious issue within Republican ranks—may influence Trump’s final decision.

Trump has ruled out two prominent figures from his first term from joining his new team. The president-elect said in a social media post Saturday that Nikki Haley, his former ambassador to the United Nations, and Mike Pompeo, his former secretary of state, will not be invited to join his new administration.

Radical Economic Vision: Tariffs and Tax Cuts

Central to Trump’s pledges for his second-term agenda is a radical reimagining of U.S. economic policy. During the campaign, he said he would impose a blanket tariff of 10% to 20% on all imports, aiming to reduce America’s dependence on foreign goods and protect domestic manufacturing. He also proposed eliminating the federal income tax and making permanent corporate tax cuts to be offset by revenue from tariffs.

Economists are divided on the potential impact of these policies. Proponents argue they could revitalize American industry and reduce the trade deficit, while critics warn of inflation, strained global supply chains and an unsustainable federal deficit.

According to estimates by Adam Posen, president of the Peterson Institute for International Economics, a Washington-based independent think tank, 20% across-the-board tariffs could generate significant revenue initially—amounting to 1% to 1.5% of GDP. But this benefit would diminish over time as consumer behavior shifts and import volumes decline, according to the projections.

Estimates from the Wharton School at the University of Pennsylvania suggest that increased tariffs would not generate significant revenue. When combined with the proposed tax cuts, the plan would likely deepen the U.S. fiscal deficit, potentially adding $3.5 trillion to $5.0 trillion to the budget shortfall over the next decade. Furthermore, Trump’s tightening of immigration policies would reduce the labor supply, accelerate wage growth and reignite inflation, leading to higher interest rates and a stronger dollar.

Posen warned that Trump’s economic plan will undermine U.S. economic stability “in ways the last time did not” by raising uncertainty for businesses and investors to previously unseen levels.

The China Question

Apart from tariffs, discussion of China policy was notably absent from the 2024 presidential campaign, with neither of the two major parties making it a central issue. Scott Kennedy, director of the Chinese Business Economics program at the Washington-based bipartisan Center for Strategic and International Studies, highlighted the disconnect between the strategic importance of U.S.-China relations and their perceived significance among voters. In recent surveys, China issues rank low in the minds of American voters, he said.

Yet, as Trump prepares to return to the White House, speculation about his administration’s stance on China is intensifying, especially given his history of fiery rhetoric and bold policy proposals.

During his campaign, Trump vowed to “completely eliminate America’s dependence on China.” In addition to his plan for a 60% tariff on Chinese exports, he proposed revoking China’s most-favored-nation trade (MFN) status and tightening restrictions on technological exports, investment and academic exchanges. If implemented, these policies could worsen tensions between the world’s two largest economies and potentially destabilize global markets.

Martin Chorzempa, a senior fellow at the Peterson Institute, told Caixin that the incoming administration will view the next decade as critical for decoupling the U.S. from China. The Trump team believes that delaying this process will only increase costs, he said. However, Chorzempa pointed out that Trump’s economic and trade negotiations with China during his first term were far from successful. “Tariffs may no longer be just a bargaining chip but could become an end result,” he said.

Chorzempa cautioned against Trump wielding the “Specially Designated Nationals List” (SDN List), a sanctions tool often described as the “nuclear weapon” in the U.S. arsenal. This list, which authorizes secondary sanctions, has been sparingly used by the Biden administration, primarily against Russia following its invasion of Ukraine. Adding prominent Chinese companies to the SDN List could trigger unprecedented disruptions to global supply chains.

Another potential flashpoint would be the revoking of China’s MFN trade status, which allows it to enjoy the lowest U.S. tariff rates on many products. Removing this privilege could have long-lasting economic consequences. According to a Peterson Institute study, such a move could reduce China’s GDP growth by 0.3 to 1.5 percentage points next year, while shaving 0.1 to 0.2 percentage points off U.S. GDP growth in 2026 if China retaliates. Both nations’ job markets would likely suffer, with ripple effects lingering for years.

Trump’s earlier tariffs on China have already eroded China’s MFN status, with the economic damage so far amounting to about one-third of the potential impact of full revocation. Tu Xinquan, dean of the China WTO Research Institute at the University of International Business and Economics, argued that revoking MFN status offers the U.S. more flexibility to adjust tariff rates, making it a more probable course of action than imposing sweeping 60% tariffs.

In the rising U.S.-China competition over technology, American policymakers remain divided on the effectiveness of tightening export controls and scrutinizing foreign investments. This scrutiny, which also targets U.S. allies, risks deterring international firms from investing in sensitive American industries, potentially undermining U.S. industrial policy goals.

Economists warn that foreign investment flowing to U.S. competitors or reduced R&D spending by American companies due to declining sales in China could weaken U.S. firms’ global competitiveness. A diminished presence in China also hinders U.S. companies’ ability to monitor and understand China’s technological advancements, complicating long-term strategic planning.

Trump’s return to power may also influence Sino-European relations. The European Union, wary of Trump’s aggressive trade policies, appears more motivated to strengthen ties with China, Tu said. A high-level EU delegation visited Beijing around the U.S. election, signaling a desire for closer communication and potential reconciliation amid uncertainty over U.S. policies.

For China, experts suggest that the best response to U.S. actions is to prioritize domestic goals. Zhao Hai, director of the International Political Studies Department at the National Institute for Global Strategy of the Chinese Academy of Social Sciences, emphasized that China’s development strategy should be guided by its own needs and global objectives, rather than simply reacting to Washington. “Strengthening innovation and economic resilience could force the U.S. to adjust its policies,” Zhao said.

Many experts believe geopolitical tensions between the U.S. and China are unlikely to ease anytime soon. Ian Bremmer, president of Eurasia Group, warned of rising global risks and the absence of effective governance. He hoped the two powers can engage in dialogue on shared challenges, such as the Russia-Ukraine war and Middle East conflicts. Bremmer suggested that if China is willing to do a little bit more with Russia, the U.S. may be willing to do a little bit more with Israel. “Diplomatic exchanges are urgently needed,” he said.

Hou Wuting, Li Yi, Wang Jing and Luo Zilin contributed to this report.

Contact reporter Denise Jia (huijuanjia@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

Image: Mike Mareen – stock.adobe.com