China: The Forever King of Tariffs
A Stealthy Weapon Paves Way To Industrial Power
It is no secret that President Donald Trump loves tariffs. “I’m the Tariff Man,” he declares, with zero trace of inhibition.
What is less well known is that China embraces tariffs in a big way, too. And China’s love affair with tariffs – quiet, almost clandestine – has been going on for decades.
A tall, imposing brick wall of taxes on imports, blended with targeted industrial investments, have played a pivotal role in China’s rise as a manufacturing powerhouse.
How powerful? In 2024 alone, China ran a one trillion dollar trade surplus with the world.
One trillion dollars.
China’s car market offers a dramatic illustration of what tariffs can do.
• Of the 25 million vehicles sold in China last year, 24.2 million – a staggering 97% – were manufactured inside the country. Imports were a mere rounding error.
• China also exported 6 million vehicles in 2024 – almost 10 times more than it imported.
How did we get here? Well, we need to go back 35 years, to the beginning.
When I started my first company in Beijing in 1990, China was an automotive weakling. Annual production was less than 500,000 cars; thin wood shavings compared to more than 13.5 million that Japan produced.
To gain industrial traction, regulators in Beijing slammed the door shut on imports. They set tariffs at 100%. They also strictly limited the number of import licenses granted each year. It was a double layer of protection – non-tariff barriers on top of tariffs.
Price of Market Access
China’s message to global automakers was crystal clear. If you want to sell cars in China, you will need to manufacture them inside China. And to secure an approval to manufacture inside China you must first marry up with a Chinese partner. And, by the way, the Chinese partner will own no less than 50% of the joint venture.
Dear Reader: You might be wondering what right-minded global automaker CEO would go along with terms that so heavily favored the home team, China.
As it turns out, practically every one of them.
Over the next three decades, Japanese, American, German, French and Korean automakers invested tens of billions of dollars to form manufacturing joint ventures in China. By 2000, China was building one million cars a year. By 2010, that number exploded to 16 million.
In 2024, China produced 31 million vehicles, three times more than the United States. The tariff and non-tariff barrier regime never relaxed. During that 35- year sprint to automotive manufacturing supremacy, China never permitted car imports to exceed 6% of the total market.
Kettle Black
These days, we hear Chinese leaders loudly criticize American tariffs, calling them “arbitrary and destructive.” Chinese Foreign Minister Wang Yi earlier this week said that American tariffs were “meeting good with evil”.
Don’t be fooled by Wang’s words. The reality is that China has managed an elaborate system of tariff and non-tariff barriers for decades. Last year, America imported 7.8 million vehicles – almost half of the total market. In China, imports limped in at a measly 3 percent.
As a concession when joining the WTO in 2001, China did agree to partially reduce tariffs on car imports. But China kept the non-tariff barriers, like quotas on import licenses, in place. The double-barrel approach is effective. Today, a Tesla Model S that starts at $74,000 in America will cost a Chinese consumer no less than $96,000 after tariffs and fees.
Tremblingly Obey
As Mark Twain liked to say: “History does not repeat itself but it sure does rhyme.” Look at history and you discover that protectionism has been China’s instinctive go-to playbook for centuries.
The Great Wall did not get there by accident.
In 1793, Qing Dynasty Emperor Qianlong wrote a bordering on letter to England’s King George in a tone that bordered on disdainful: “Our celestial empire possesses all things in prolific abundance and lacks no products within its borders. Therefore, there is no need to import the manufactures of outside barbarians.”
Emperor Qianlong further warned British traders against efforts to ship products into the China market: “Tremblingly obey and show no negligence!”
Imperial Britain, alas, did not listen. China’s cloistered kingdom was shattered in 1842 when British warships sailed up the Yangtze River – triumphant in the first Opium War.
Over the next 100 years foreign companies, people and products flooded in, overwhelming China. The Qing Dynasty fell in 1911, French, British, American and German concessions were established in several coastal cities. Later on, Japanese forces invaded, conquering large swathes of the country.
Every Chinese citizen from an early age learns to call this period “China’s one hundred years of humiliation.”
Tables Turned
Now, it feels like payback time. China has become an industrial machine the likes of which the world has never seen before. It has the scale, the supply chains, the speed – and the tariff walls – to crush most other countries.
One year ago Elon Musk put the new realities into plain words: Chinese automakers “will pretty much demolish” most competitors without some trade barriers.
There is no doubt that tariffs – combined with massive investments in manufacturing – played a decisive role in China’s breathtaking industrial ascendancy.
Donald Trump looks at China’s results and says: Why not America, too?
Clockwork logic to a rational conclusion. Well stated.
Thank you for great insightful article.
I acknowledge your sentiment that we need to learn from China and use a combination of massive incentives with tariffs specifically against China and perhaps non-tariff barriers. However, instead of giving credit to Trump for imposing tariff on our best allies, I would give credit to Biden administration and Democrat-led congress for setting up these massive EV incentives and 100% tariff on Chinese EVs.
I may not oppose the strategy to moving manufacturing from Canada/Mexico to the USA but that needs to be strategically planed - just like China's model.