By Antoni Slodkowski, James Pomfret and Laurie Chen

BEIJING/HONG KONG (Reuters) – After Donald Trump first stormed the White House eight years ago, stunned Chinese leaders responded with force to his tariffs and fiery rhetoric, resulting in a crisis that has reduced ties between the world’s largest economies to their lowest levels in decades. There was a trade war.

This time, Beijing is preparing for Trump’s return by deepening ties with allies, increasing self-reliance in technology and allocating money to support the economy, which is now more vulnerable to new tariffs already threatened by Trump.

While some retaliation for these moves is inevitable, experts say China will focus on exploiting rifts between the United States and its allies and aim to lower the temperature to help broker an early deal to cushion the blow from trade friction.

Zhao Minghao, an international relations expert at Shanghai Fudan University, said China will probably not repeat the tactics of Trump’s first presidency, when Beijing reacted very strongly to Trump’s moves on tariffs.

He noted the message Chinese President Xi Jinping sent to Trump on Thursday, in which Xi called for “cooperation” rather than “conflict” and emphasized “stable, solid and sustainable” relations between the two superpowers.

“Trump is no stranger to Beijing right now,” Zhao told Reuters. “Beijing will respond in a measured manner and make efforts to communicate with the Trump team.”

While Chinese tech giants are now much less reliant on US imports, the economy, hit by a massive housing crisis and burdened by unsustainable debt, is in a weaker position than in 2016, struggling to deliver 5 percent growth compared to 6.7 percent then .

To make matters worse, Trump has promised to end China’s most-favored nation trade status and impose tariffs exceeding 60% on Chinese imports, far higher than those imposed during his first term.

Fudan’s Zhao said Beijing had prepared for this scenario but expected tariffs to fall below the level promised during the campaign because “this would significantly increase inflation in the United States.”

Still, that threat alone has discouraged manufacturers in the world’s largest exporter, as China sells more than $400 billion worth of goods to the United States annually and hundreds of billions of dollars’ worth of parts for products Americans buy elsewhere.

As a result, China’s economy may need more stimulus than the $1.4 trillion expected on Friday, said Li Mingjiang, an academic at the Rajaratnam School of International Studies in Singapore.

“This will be a very serious blow to China’s international trade, which will affect jobs and government revenues,” Li said. “China will probably need to come up with a much larger stimulus package domestically.”

Charm Attack

China is mounting a diplomatic offensive to boost global trade, strengthening alliances, mending fences with enemies and continuing difficult talks with the European Union even after the bloc imposed stiff tariffs on Chinese electric vehicles.

Last month, China ended a four-year military dispute with India on its disputed border; In August, it resolved a two-year dispute with Japan over the discharge of radioactive water from the Fukushima nuclear power plant; and Premier Li Qiang visited Australia in June; this was the first such trip in seven years.

Also last month, both Xi and Li attended separate summits of the BRICS and the 10-state Shanghai Cooperation Organization, which now account for 35% of the global economy, as China deepens its ties with the Global South.

“The first Trump administration paid little attention to strong relationships in Africa, Latin America and Southeast Asia, giving China wide latitude to operate largely unchallenged in those markets,” said Eric Olander, the magazine’s editor. Chief of the China-Global South Project.

Some experts say that trade tensions with China in Europe could be balanced by concerns about Trump’s diminishing potential role in the Ukraine war and his economic policies, which could create an opening for Beijing.

Jean-Pierre Cabestan, one of the experts in Hong Kong, said, “China will continue to reach out not only to the USA and the northern countries, but also to the Europeans, the British, the Australians and even the Japanese.” Baptist University.

“But also as part of its mission to rebalance foreign trade in favor of the Global South,” he said.

TECHNOLOGY FLOOR

During the first trade war, Trump banned high-tech exports to China and imposed sanctions on companies including SMIC, China’s largest chipmaker, ensuring that the technology sector became domestically focused and self-sufficient.

Winston Ma, former managing director of China’s sovereign wealth fund China Investment Corporation (CIC), said that the main trigger for this change was Trump’s ban on the sale of parts to Chinese telecommunications company ZTE in 2018.

“From the Chinese perspective, this was really scary, so they started to prepare. This was the beginning of this kind of defensive thinking,” Ma added.

Shortly thereafter, Xi called on the nation to increase self-reliance in science and technology, pushing China to build key industries including artificial intelligence and space.

The result: Eight years ago, China had only four government procurement projects worth more than $1.4 million that replaced foreign hardware and software with domestic alternatives. According to data, this number increased to 169 this year.

Despite these advances, chip makers are “definitely feeling the squeeze; these Chinese companies are unable to supply global customers and have access to the latest chips,” Ma said.

Nazak Nikakhtar, who knows Commerce Department officials and advisors in the Trump administration, said he expects Trump to be “much more aggressive on export control policies towards China.”

He expected a “significant expansion of the entity list” restricting exports to persons on the list to include subsidiaries and business partners of listed companies.

Ma, the former CIC executive, said the restrictions will be effective for a while as the US expands its sanctions regime to overseas suppliers.

“I think the important point is that the coming years will be the most critical in terms of US-China technology competition.”

(Additional reporting by Karen Friefeld and Eduardo Baptista; Editing by Lincoln Feast)