China has chosen to respond decisively to the latest round of tariffs imposed by the US, implementing a comprehensive 34% tariff on American imports. This retaliation comes as no surprise, following the US’s recent “Liberation Day” tariffs. China’s action reflects its intent to engage in an eye-for-an-eye strategy, with no exemptions apparently in place. In our previous discussions, we noted that despite the US’s attempts to lessen its reliance on China, the opposite has occurred.
Since the first trade war, the percentage of China’s exports directed to the US has decreased from 19% in 2017 to an expected 14.6% in 2024. While the US market remains crucial, Chinese companies are less dependent on US consumers than they once were, aided by China’s pursuit of technological self-sufficiency, which bolsters its ability to retaliate. Unlike the first trade war, where tariffs primarily affected agricultural products, this second wave is likely to impact a broader range of sectors. US exports to China reached approximately USD 144.4 billion in 2024, with significant portions in manufactured goods and agriculture.
However, the blanket 34% tariff could render many agricultural items uncompetitive, with energy imports already at low levels. While the potential price elasticity of manufactured goods remains uncertain, machinery and transportation products are expected to be significantly affected. Moreover, the current retaliation is not just focused on tariffs. Sixteen US companies have now been placed on an export control list, preventing the export of sensitive products.
Another eleven businesses have been included on China’s list of unreliable entities, which could lead to further restrictions. The next phase of retaliation may target US corporate interests directly. The recent aggressive tariffs from the US have hindered hopes for negotiations, particularly regarding a potential deal over TikTok. After a warning from China’s Ministry of Foreign Affairs about the implications of the US’s actions, it is clear that further escalation is likely.
While international reactions to these tariff increases will significantly influence the situation, both the US and China appear to be gearing up for a protracted test of endurance.