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 How China Might Respond to British Companies Excluding Chinese Products Amid US Trade Pressures

Introduction

The global trade landscape is undergoing significant shifts, driven by escalating tensions between the United States and China. The recent UK-US trade deal, signed on May 8, 2025, has introduced new complexities, particularly for China. This agreement offers the UK relief from US tariffs on car and steel exports but imposes strict security requirements that could compel British companies to exclude Chinese products from their supply chains. This report explores how China might respond to such exclusions, detailing its diplomatic, economic, and retaliatory strategies, and their implications for global trade, with a focus on accessibility for a diverse audience, including Indian readers.

The US-China Trade War: Setting the Stage

The US-China trade relationship has been marked by cooperation and conflict for decades. Since 2018, under the Trump administration, tensions have escalated with the imposition of steep tariffs on Chinese goods, citing unfair trade practices and national security concerns. In 2025, these tariffs reached 145% on Chinese imports, prompting China to retaliate with 125% tariffs on US goods (The New York Times). A temporary truce in May 2025 reduced these to 30% and 10%, respectively, for 90 days, but underlying issues remain unresolved 

This trade war has disrupted global supply chains, forcing countries like the UK to navigate pressures from both superpowers. For Indian businesses, this scenario is relatable, as India has faced similar challenges in diversifying its pharmaceutical and electronics supply chains away from China.

Visual Suggestion: An infographic summarizing the US-China trade war timeline, highlighting key tariff changes and their global impact.

The UK-US Trade Deal: A Catalyst for Tension

The UK-US trade deal, announced by President Donald Trump and Prime Minister Keir Starter, reduces US tariffs on British car exports from 27.5% to 10% for a quota of 100,000 vehicles annually and lifts tariffs on UK steel and aluminium (The Guardian). However, it requires British companies to comply with US security conditions, including scrutinizing supply chains and ownership structures to limit Chinese involvement, particularly in steel production (The Guardian).

China views these conditions as an attempt to isolate it economically, accusing the UK of aligning with the US to exclude Chinese products. Beijing argues that the deal violates the principle that international agreements should not target third countries, a stance it reiterated in a statement to the Financial Times (The Guardian).

Indian Context: In India, entrepreneurs like Ramesh, a small-scale electronics manufacturer in Bengaluru, have faced similar pressures to source components locally or from non- Chinese suppliers due to India’s “Make in India” initiative. Ramesh’s success in partnering with Taiwanese firms illustrates how strategic diversification can mitigate risks, offering a relatable lesson for readers.

China’s Diplomatic Strategies

China has responded diplomatically by issuing warnings to the UK, emphasizing the potential economic fallout of excluding Chinese products. The Chinese foreign ministry criticized the UK-US deal as unfair, with Zhang Yancheng, a senior researcher at the China Academy of Macroeconomic Research, calling its clauses “poison pills” worse than tariffs (The Guardian). Beijing is leveraging international forums to position itself as a defender of multilateralism, contrasting its stance with US protectionism.

China is also engaging with other nations to counter US influence. For instance, it has held talks with the European Union to strengthen trade ties, condemning US trade policies (The Conversation). This diplomatic manoeuvring aims to reduce China’s isolation and secure alternative markets.

Visual Suggestion: A world map highlighting China’s key trade partners and diplomatic engagements, with arrows showing strengthened ties with the EU, Africa, and Asia.

China’s Economic Resilience: The “Dual Circulation” Strategy

To counter supply chain exclusions, China is accelerating its “dual circulation” strategy, which prioritizes domestic production and consumption while maintaining selective global trade (The Guardian). This involves:

• Local Sourcing: Encouraging state-backed companies to source components domestically, reducing reliance on foreign suppliers.
• Investment in Technology: Funnelling resources into advanced manufacturing, green technology, and semiconductors to achieve self-sufficiency, as outlined in the “Made in China 2025” plan (Rhodium Group).
• Market Diversification: Expanding trade with countries in Asia, Africa, and Latin America to offset losses in Western markets reutters

This strategy mirrors efforts in India, where businesses like Priya’s textile firm in Surat have shifted to local cotton suppliers to reduce dependence on Chinese imports, boosting resilience and creating jobs.

Visual Suggestion: A flowchart depicting the “dual circulation” strategy, showing inputs (local sourcing, R&D) and outputs (self-sufficiency, new markets).

If British companies exclude Chinese products, China may retaliate with measures such as:

• Tariffs on British Goods: Imposing tariffs on UK exports like automobiles, steel, or machinery, similar to its 84% tariffs on US goods in April 2025 (Al Jazeera).
• Market Access Restrictions: Limiting British firms’ participation in Chinese government contracts or imposing regulatory barriers (Holland & Knight).
• Export Controls: Restricting exports of critical materials like rare earths, essential for UK tech and manufacturing sectors (Holland & Knight).
• Alternative Suppliers: Encouraging Chinese firms to source from non-UK suppliers, reducing dependence on British markets.

These measures could significantly impact British businesses, prompting the UK to reconsider its alignment with US policies. For Indian readers, this recalls China’s restrictions on Australian coal exports in 2020, which led Australia to diversify to Indian markets, highlighting the ripple effects of such actions.

Visual Suggestion: A graphic illustrating China’s retaliatory measures, with icons for tariffs, market restrictions, and export controls, and their potential impact on UK industries.

Despite tensions, both China and the UK value their trade relationship. The UK is one of China’s largest European trading partners, and China is a key market for British goods. Recent efforts, such as UK Chancellor Rachel Reeves’ visit to Beijing in early 2025 to restart economic dialogues, signal a commitment to cooperation (The Guardian). However, the UK-US trade deal poses challenges, and the future will depend on:

• Negotiation Outcomes: Progress in US-China trade talks and UK-China dialogues could ease tensions.
• Economic Pragmatism: Both nations may prioritize mutual benefits over geopolitical alignment.
• Global Trade Dynamics: Shifts in EU-China relations or new trade agreements could influence Sino-British ties.

For Indian businesses, this underscores the importance of strategic planning. Companies like Arjun’s Mumbai-based tech start-up, which pivoted to Southeast Asian suppliers during US-China tensions, demonstrate how adaptability can ensure stability.

Visual Suggestion: An inspiring graphic with a quote like, “Trade thrives on cooperation, not confrontation,” emphasizing the value of balanced relations.

Actionable Guidance for Readers

To navigate these trade dynamics, readers can:

1. Diversify Supply Chains: Source from multiple countries to reduce reliance on any single market, as Indian firms have done with Taiwanese and Vietnamese suppliers.
2. Monitor Trade Policies: Stay updated on US-China and UK-China trade developments through reliable sources like or The Guardian.
3. Invest in Local Production: Follow China’s lead by investing in domestic manufacturing to enhance resilience.
4. Engage in Dialogue: Participate in industry forums to influence trade policies and foster cooperation.

Downloadable Resource: A checklist for building resilient supply chains, including steps for diversification and risk assessment.

China’s response to British companies excluding its products will likely combine diplomatic warnings, economic resilience through “dual circulation,” and retaliatory measures like tariffs or export controls. While tensions are high, both China and the UK seek to maintain trade ties, suggesting a path toward pragmatic cooperation. For Indian readers, the experiences of entrepreneurs like Ramesh, Priya, and Arjun offer practical lessons in navigating global trade challenges. By understanding China’s strategies, businesses and policymakers can better prepare for a dynamic economic landscape.