The Trump administration has now implemented tariffs of up to 125 per cent on selected Chinese imports, a dramatic step set to reshape global trade. These tariffs might not last long—negotiations or a diplomatic retreat could quickly alter the landscape. If they persist, however, their impact will be significant. Despite immediate setbacks, could China emerge strategically stronger?

The highest tariffs target electronics, machinery, and certain consumer goods. Chinese exporters in these sectors face an immediate and sharp decline in profitability, forcing them to slash prices drastically or pass higher prices on to US consumers. The electronics sector, essential to China’s exports, along with toys, textiles, and footwear - traditionally dominated by Chinese producers - are expected to feel the brunt.

As anticipated, the response has been swift and substantial. Beijing have imposed retaliatory tariffs on all US imports and has historically used non-tariff barriers to significant effect. We could see more customs scrutiny and regulatory delays.

Undoubtedly, the short-term economic consequences of a trade war will be significant for China. Regions heavily reliant on exports, notably Guangdong, may face factory closures and substantial job losses. Even historically modest tariff hikes have demonstrably reduced China’s GDP growth, making the likely economic fallout from tariffs exceeding 100 per cent especially severe.

Yet, this crisis might catalyse an acceleration of China's ongoing economic transformation. Trade dependency on the US market has already considerably reduced over the past decade. The Regional Comprehensive Economic Partnership (RCEP), linking China closely with ASEAN countries, Japan, South Korea and others, now encompasses about one-third of global GDP.

Some market observers anticipate China will adopt a more flexible approach to the RMB, allowing further depreciation. A weaker yuan could help offset some impacts of the tariffs by making Chinese exports more competitively priced in global markets. The offshore yuan has reached its weakest levels since market inception in 2010 following the easing of currency controls.

Asia House has closely tracked China's growing economic engagement with Gulf markets through our Middle East Pivot to Asia research. Recent agreements enhancing cooperation on digital finance, energy, and infrastructure underscore the importance of Saudi Arabia, Qatar, and the UAE as strategic partners. Indeed, Asia House teams have been active in Riyadh, Jeddah and Dubai this week alongside officials from Invest Hong Kong, engaging businesses to explore deeper connectivity opportunities between Asia and the GCC. 

These engagements reflect increasing capital, technology, and expertise flows between Asian economies and the Gulf. Chinese enterprises are notably active in renewable energy projects, digital infrastructure investments, and advanced manufacturing initiatives across the region.

Amid heightened trade tensions with the US, while this pivot towards the Middle East will not fully mitigate the impact, it offers China critical new avenues for trade, investment, and strategic partnerships, potentially offsetting disruptions in its traditional markets.

Further highlighting this strategic shift is the upcoming ASEAN-China-GCC Summit scheduled for next month in Malaysia, where China was recently invited to join what was initially an ASEAN-GCC forum. This summit underscores China's growing influence and signals how nations across these regions are actively seeking alternatives amid US tariff escalations. Malaysia, as the summit host, has openly criticised recent US trade policy moves, indicating that this gathering could become an important forum for co-ordinating responses against rising protectionism. 

Paradoxically, US policy could also slow the exodus of manufacturing from China in the medium term. Although the immediate threat has subsided, the looming risk of high tariffs on Vietnam, Mexico, and India undermines their attractiveness as alternative production hubs. Companies cautious about further supply chain disruption may opt to maintain their manufacturing base in China.

Restricted access to the US market will encourage Chinese companies to innovate specifically for emerging economies, developing products tailored to the demands of markets in Africa, Asia, and Latin America. This aligns with Beijing’s strategy of pivoting away from export-led growth toward a model driven by internal and regional demand.

Strained US relations with traditional allies like the EU and ASEAN countries could inadvertently drive these economies closer to China. Europe, preparing for its own set of Trump-imposed tariffs, may strengthen collaboration with China in green technologies and infrastructure investment. The UK Labour Government, outside the EU but closely linked economically, has prioritised growth and appears to be taking a more collaborative approach to China than its Conservative predecessors. ASEAN countries will likely intensify economic integration, building a resilient regional trade network as protectionism rises.

This moment presents China with an opportunity to position itself as a reliable global partner in stark contrast to US protectionism. Recent statements from Beijing have explicitly criticised Washington for undermining the global rules-based trading system. China has lodged formal complaints with the World Trade Organization, accusing the US of economic bullying and breaching international agreements. If deftly managed, this stance could significantly enhance Beijing's geopolitical influence, allowing China to present itself as a stabilising force committed to multilateralism and predictable trade relations.

Trump's tariffs bring immediate economic hardships, posing significant short-term shocks to China's economy that will necessitate substantial policy responses. Factory closures, job losses in export-reliant regions, and disruptions to supply chains will compel Beijing to implement considerable economic stimulus, accelerate domestic consumption, and push structural reforms. However, the longer-term outlook suggests China could emerge economically stronger and strategically more resilient. Increased self-reliance, enhanced regional ties, and deeper integration with markets in the Global South and the Gulf could come to characterise a reshaped international trade landscape.

For further insights from Asia House on the implications of tariffs - and how we can support your business or sector in navigating them - please contact Katie Reid, Stakeholder Engagement Associate at katie.reid@asiahouse.co.uk