When Donald Trump launched his first trade war with China in 2018, Beijing found itself on the back foot and unsure how to respond. Although he has more to lose, President Xi Jinping is better prepared for the fight this time.

Trump, who won his second term as president in the election held on Tuesday, threatened to impose tariffs of up to 60 percent on Chinese goods; This is a level that Bloomberg Economics says will reduce trade between the world’s largest economies. This is on top of a series of export controls on high technology that the Biden administration has tightened since Trump left office.

During this time, China has taken strategic steps to ensure it is more resilient and better positioned to respond. The key to this has been expanding the toolkit, which now includes export controls on critical raw materials, in addition to tariffs on agricultural products and a list of entities that can target major American companies.

“Psychologically speaking, China is much better prepared to deal with it again,” said Zhou Bo, a retired senior colonel of the People’s Liberation Army and senior researcher at Tsinghua University’s Center for International Security and Strategy. Xi congratulated Trump on his victory and called for “healthy and sustainable” relations between the countries, state media reported.

Still, Xi prefers to avoid a tariff war that risks being even more devastating than the first round. China is relying on exports of goods such as electric vehicles and batteries to boost an economy grappling with deflationary pressure and real estate shortages, and Chinese lawmakers are meeting this week to formulate measures to boost growth.

If Trump follows through on his tariff threats, Chinese officials will need to do much more to help the economy. Goldman Sachs Group Inc said last week that tougher trade curbs on China could force Xi to boost domestic consumption, something the Communist Party has traditionally tried to avoid.

The yuan fell the most in two years on Wednesday and Chinese stocks fell; This gave investors the opportunity to get a taste of the volatility that will come with Trump clinching the US presidency. The offshore yuan fell as much as 1.3% against the dollar, the biggest one-day decline since October 2022. While Chinese stocks listed in Hong Kong took the brunt of the sales, the Hang Seng index closed with a 2.6% decline.

“China is unlikely to retaliate against 60% tariffs,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA. “What China will do is announce a larger stimulus to counteract so that the market does not punish China.”

Nearly two years of threats, tariffs and negotiations during Trump’s first term ended with an agreement signed in January 2020 that included China’s promise to purchase $200 billion worth of American goods to close the trade imbalance with the United States. But at the same time, the outbreak of Covid quickly soured relations between the countries, and while Chinese exports increased during the pandemic, China never came close to achieving the targets.

A renewed trade war threatens to cause greater damage to global trade. Last year, Chinese companies exported $500 billion worth of goods to the United States; this accounts for approximately 15% of the value of all US exports. If the United States imposes high tariffs on all or most of these products, it could eliminate sales and further hurt companies facing a weak domestic economy and falling prices.

While Chinese officials do not want to overreact to Trump’s new tariff threats, they are also wary of appearing weak, according to Scott Kennedy, a senior adviser at the Washington-based Center for Strategic and International Studies and a frequent traveler to China. Xi said possible options for his government include targeting American companies with large interests in China, selling U.S. Treasury bonds, devaluing the yuan and providing more support to Europe and Latin America.

“They’re tired of being treated like a piñata, and they want to fight back,” Kennedy said of China. “They are ready to deal with Trump and fight fire with fire if necessary.”

One of the wild cards for China is the emergence of Elon Musk as a key supporter of Trump’s presidential campaign. Tesla Inc.’s billionaire CEO has extensive business interests in China, raising the possibility that he may advocate a softer approach. Trump praised Musk while declaring victory in the early hours of Wednesday morning in the United States.

But if a trade war breaks out, China will be ready to respond, and U.S. agricultural exports may again be the first target. Since Trump’s first term, Brazil has strengthened its position as the largest supplier of soybeans to China and is now also the largest source of corn imports, replacing a massive increase in U.S. exports to China as part of the 2020 trade deal . In 2016, the United States provided more than 40% of China’s soybean imports, but in the first nine months of this year, that share fell below 18%.

China’s slowing economy is giving Beijing more of a buffer as demand for pork, as well as corn and soybeans to feed pigs, declines. This means it is less dependent on imports and can more easily shift purchases from the United States to other countries.

“There should be no doubt about China’s tit-for-tat retaliation,” said Zhou Xiaoming, a researcher at a think tank in Beijing and former deputy representative of China’s mission to the United Nations in Geneva a decade ago. “Easy targets include corn and soybeans. The country is in a better position to take countermeasures than in 2018 as China has developed Brazil as a reliable alternative supply source and has been able to reduce imports from the United States.”

But China also has less obvious targets to hit. The country’s imports from the United States have fallen from a peak in 2021 and Beijing has not signed a contract to buy new Boeing Co jets in years, meaning the threat that it might do so has diminished. In addition to the weakening trade relationship, direct investment ties between the US and China are also shrinking: China’s investment stock in the US decreased by 28% last year compared to the peak in 2019, according to United Nations data.

This raises the possibility that China will devalue its currency, making exports cheaper. Although China’s last official devaluation occurred in 2015, during the first trade conflict from mid-2018 to mid-2019, authorities allowed the yuan to fall to almost 7.2 per dollar, making its exports cheaper and responding to Trump’s tariffs. provided some cushion.

China’s currency is currently at the same level, but it allows it to eliminate much more risk that has plagued other trading partners around the world, and those partners could also impose their own tariffs on Chinese goods. The flood of cheap steel has prompted countries to raise barriers against the metal, and this could spread to more products in a general trade war.

One of Xi’s new and important tools is the export controls that the US frequently imposes against China. Last year, Beijing restricted foreign sales of gallium and germanium, two metals widely used in chipmaking, communications equipment and the defense industry. China may now seek to impose restrictions on critical raw materials that the United States needs for strategic technologies, such as antimony, used in some semiconductor devices.

China now has a more formal process for imposing sanctions on foreign companies. Officials said in September that China would launch an investigation into PVH Corp, the parent company of Tommy Hilfiger and Calvin Klein, over its failure to use cotton from the far western region of Xinjiang, where the United States restricts trade over human rights concerns. Beijing also imposed sanctions on a US drone company that supplies Taiwan, preventing the company from purchasing parts from China, according to the Financial Times.

Ultimately, China will prefer to make a deal with Trump. The new president has signaled that he would be open to Chinese investment in the United States, which could potentially form the basis of some kind of agreement, according to Henry Wang Huiyao, founder of the China Center and Globalization research group in Beijing.

“Trump is a pragmatic politician who focuses on solving specific problems,” Wang said. “China has super leadership in electric vehicles and green technology,” he added. “There is a tremendous opportunity where Chinese companies can help make America a great country again.”

Still, there is a recognition in Beijing that China should hope for the best and prepare for the worst. And if Trump also wants to counter extreme threats that would harm the United States and raise prices for American consumers, there aren’t many options.

“We’ve talked a lot about what China can do to prepare for this scenario, but ultimately there’s not much that can be prepared for,” said Tu Xinquan, a former adviser to China’s Ministry of Commerce and current incumbent. Professor and dean of the China Institute for World Trade Organization Studies at the University of International Business and Economics in Beijing.

“There is no magic solution,” he added. “We can only deal with the problem when the time comes.”