China's been trying to 'Trump-proof' its economy amid his tariff threats, experts say

Key U.S. trading partners are better equipped now to deal with President-elect Donald Trump's tariff threats than they were during his first administration, according to experts.

China has spent the last several years trying to "Trump-proof" its economy, reducing its reliance on U.S. trade. Exports from China to the U.S. fell 20% to $427 billion in 2023.

"China's been trying to Trump-proof its economy for the last few years," said Neil Thomas, a fellow for Chinese politics at the Asia Society Policy Institute's Center for China Analysis. "We know from Trump's first term that tariff threats are often used as an opening salvo for diplomatic negotiations, so I expect there's going to be a lot of behind-the-scenes diplomacy."

Trump on Monday announced he plans to impose a 10% additional tariff on Chinese imports, as well as 25% tariff on products coming from Canada and Mexico.

American markets, so far, are mostly shrugging off Trump's latest tariff threat with stock indexes mixed.

But the Canadian dollar and Mexican peso fell against the U.S. dollar and socks of global carmakers also fell -- suggesting investors are waiting to see if Trump makes good on his proposals.

China has shifted and diversified exports to other regions, including Europe and Latin America. It has also increased investments in manufacturing in Southeast Asia, Europe, and Latin America, according to Scott Kennedy, Chinese business and economics specialist at the Center for Strategic and International Studies in Washington.

The bigger concern for China is Trump's campaign vow to slap 60% tariffs on Chinese imports. That tariff threat could still come.

Trump's latest reason for imposing tariffs on China is the flow of fentanyl into the United States.

Beijing's Ministry of Foreign Affairs pushed back on Trump's claim that China hasn't done enough to stop the flow of illicit drugs.

"China is willing to continue to carry out anti-drug cooperation with the United States on the basis of equality, mutual benefit and mutual respect," it said. "The United States should cherish China's goodwill and maintain the hard-won good situation of Sino-US anti-drug cooperation."

Cooperation on fentanyl is one of the big wins from President Joe Biden's diplomacy with Chinese leader Xi Jinping. According to one senior administration official, China has been "helpful" on curbing the flow of precursor chemicals and they've been abiding by their commitments.

"Trump wants to take credit for that win [on fentanyl cooperation], and he wants to get even more out of Beijing than Biden to show that his approach to diplomacy is superior," Thomas said.

Thomas said given the fact that China is still struggling to revive its economy post-pandemic, it's possible China could take further steps on fentanyl and impose the death penalty on a few major exporters.

Experts say Beijing will likely try to use Elon Musk and other American businesses with operations in China to try to persuade the Trump administration to moderate his policies on China.

In retaliation to the tariffs, Beijing could also revoke some of the preferential treatment that it gives Tesla.