Trump's Tariff Threat on Iran Could Strain U.S.-China Relations

Impact of Trump's Tariff Threat on Global Trade

By Joe Cash

China's Response to Tariff Threat

BEIJING, Jan 13 (Reuters) - Donald Trump's threat to slap a 25% tariff on countries that trade with Iran risks reopening old wounds with Beijing, Tehran's top partner, challenging Chinese leader Xi Jinping's global image and resolve to defend China's commercial interests. 

Iran's Trade Relations with China

Iran became a major flashpoint in U.S.-China ties during Trump's first term in the White House, as Washington tightened sanctions on the Islamic Republic and put China's Huawei, accused of selling technology to the country, in its cross-hairs. The arrest of its founder's daughter in Canada at the U.S.'s request sparked bitter recriminations that lingered over the remainder of that administration. 

Political Implications for the Belt and Road Initiative

With Iran in his sights once again, a fresh 25% duty would see Chinese shipments to the U.S. incurring levies exceeding 70%, higher than the effective 57.5% tariffs in place before the two leaders struck a deal in October to de-escalate their trade war.

It remains unclear which countries with Iranian business links Trump might target, and he has not named China. The U.S. president has also made offhand remarks that threatened to upend U.S. foreign policy without acting on them before.

"China is just an excuse, a kind of disguise for the Trump administration, to impose new pressure toward Iran," said Wang Jin, fellow at the Beijing Club for International Dialogue think tank.

"But it's an exaggeration, as China does not have that much business with Iran."

China has sharply reduced Iranian imports in recent years, according to Chinese customs data, with Chinese companies wary of being sanctioned by the U.S. government. China bought just $2.9 billion of Iranian goods in the first 11 months of last year, the latest customs data shows, compared with a peak of $21 billion in 2018 during Trump's first presidency.

"China and Iran are not as close as in the public imagination," said a Beijing-based Chinese academic who advises the foreign ministry on Iran policy, and requested anonymity as they were not authorised to speak to media.

China and Iran's commercial relationship is built around oil, and while Beijing has been unable to broaden the two countries' trade ties, political relations have grown closer, they added.

Beijing moves around 80% of Iran's shipped oil through small independent refiners trading off the books to skirt U.S. sanctions over the country's nuclear ambitions. China's state-backed oil majors have not done any business with the country since 2022.Some analysts say the independents' shipments take the total value of China's purchases into the tens of billions of dollars.

 When asked at Tuesday's regular press conference on Trump's tariff threat, China's foreign ministry said its stance on tariffs was very clear, that there were no winners in a tariff war, and that China would "resolutely safeguard its legitimate rights and interests."

'CHINA WILL CALL THE BLUFF'

Days into the New Year, the U.S. captured Venezuela's leader Nicolas Maduro.

The raid took place hours after Maduro and China's Special Envoy for Latin America had toasted their ties, analysts said.

Maduro was produced in a New York court to face drug charges and Trump met U.S. oil company bosses to discuss Venezuela's oil industry.

Venezuela is one of China's "all-weather" strategic partners while Iran is a lower-ranking "comprehensive strategic partner" in China's diplomatic lexicon. 

Analysts said Trump's renewed push to cut it off from global trade flows was likely to deepen scrutiny of Xi's flagship Belt and Road Initiative, where Iran is a strategic hub for the flow of Chinese goods to the Middle East, and the Chinese president's vision of a global security framework based on China's longstanding tenets of foreign policy including non-interference in the internal affairs of other countries.

"Trump is, again, bluffing, and China will call the bluff. I can assure you that Trump has no guts to impose the extra 25% tariffs on China," said Wu Xinbo, dean of the Institute of International Studies at Fudan University.

The U.S. president has said he is expecting to visit Beijing in April, with analysts anticipating the announcement of a sweeping trade agreement with Xi.

"Whether Trump's tariffs are enforceable remains a question," said Xu Tianchen, a Beijing-based analyst at the Economist Intelligence Unit.

"Last year he announced tariffs related to 'illicit' Russian oil trade, but their implementation was patchy."

The stakes with China were higher, he added.

"Trump is also the kind of person who likes bullying the weak," Xu said. "He should manage his actions to avoid these tariffs escalating into direct confrontation with China."

(Additional reporting by Laurie Chen and Liz Lee; Editing by Kate Mayberry)