China has swiftly imposed tariffs on U.S. imports in response to new U.S. duties on Chinese goods, reigniting a trade war between the world’s two largest economies as President Donald Trump seeks to penalize China for not halting the flow of illicit drugs.
Trump’s additional 10% tariff on all Chinese imports into the U.S. took effect at 12:01 a.m. Eastern U.S. time this morning.
In response, China’s Finance Ministry announced within minutes that it would impose levies of 15% on U.S. coal and LNG and 10% on crude oil, farm equipment, and some autos.
These new tariffs on U.S. exports will commence on February 10, according to the ministry.
China also revealed that it is launching an anti-monopoly investigation into Alphabet’s Google and adding PVH Corp, the holding company for brands such as Calvin Klein, and U.S. biotechnology company Illumina to its “unreliable entities list.”
Additionally, China’s Commerce Ministry and its Customs Administration announced export controls on tungsten, tellurium, molybdenum, bismuth, and indium to “safeguard national security interests.” China controls much of the world’s supply of these rare earth elements, which are critical for the clean energy transition.
30-day pause
Yesterday, Trump suspended his threat of 25% tariffs on Mexico and Canada at the last minute, agreeing to a 30-day pause in exchange for concessions on border and crime enforcement with the two neighboring countries. However, there was no such reprieve for China.
- A White House spokesperson stated that Trump would not be speaking with Chinese President Xi Jinping until later in the week.
- During his first term in 2018, Trump initiated a contentious two-year trade war with China over its substantial U.S. trade surplus. The tit-for-tat tariffs on hundreds of billions of dollars’ worth of goods disrupted global supply chains and impacted the global economy.
- To conclude that trade war, China agreed in 2020 to purchase an additional $200 billion of U.S. goods annually. However, the plan was derailed by the Covid-19 pandemic, and China’s annual trade deficit with the U.S. widened to $361 billion, according to Chinese customs data released last month.
“The trade war is in the early stages, so the likelihood of further tariffs is high,” Oxford Economics said in a note as it downgraded its China economic growth forecast. Trump warned he might increase tariffs on China further unless the country stemmed the flow of fentanyl, a deadly opioid, into the United States.
“China hopefully is going to stop sending us fentanyl, and if they’re not, the tariffs are going to go substantially higher,” Trump said yesterday.
What you should know
China has called fentanyl the U.S.’s problem and stated it would challenge the tariffs at the World Trade Organization and take other countermeasures but left the door open for talks.
Stocks in Hong Kong pared gains after China’s retaliation.
“Unlike Canada and Mexico, it is clearly harder for the U.S. and China to agree on what Trump demands economically and politically. The previous market optimism on a quick deal still looks uncertain,” said Gary Ng, senior economist at Natixis in Hong Kong.
“Even if the two countries can agree on some issues, it is possible to see tariffs being used as a recurrent tool, which can be a key source of market volatility this year.”
- There was relief in Canada and Mexico, as well as global financial markets, after the deals to avert the hefty tariffs. Both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum stated they had agreed to bolster border enforcement efforts in response to Trump’s demand to crack down on immigration and drug smuggling.
- This agreement would pause the 25% tariffs due to take effect today for 30 days.
Canada agreed to deploy new technology and personnel along its border with the United States and launch cooperative efforts to fight organized crime, fentanyl smuggling, and money laundering. Mexico agreed to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal migration and drugs.
