U.S.-China Tariffs Accelerate Changes in Global Economy
Key points
Trump imposed blanket tariffs on Chinese imports, prompting that country to retaliate with tariffs on certain U.S. goods as well as restrictions on the export of critical minerals.
The tariffs on China signal three critical developments for U.S. policy: (1) Trump will use tariffs as a geoeconomic tool to address national security issues; (2) the United States has abandoned rules-based international trade; and (3) the U.S.-China decoupling accelerates the fragmenting of the global economy.
On February 1, 2025, President Donald Trump ordered 10% tariffs on imports from China. The tariffs are in addition to any current trade measures. The order also suspended the $800 “de minimis” exemption for small packages from China. The tariffs took effect February 4, 2025, and China announced retaliatory tariffs on the same day, effective February 10, 2025.
Trump cited a national emergency from the inflow of illegal fentanyl into the United States, stating that Chinese officials “have failed to follow through with the decisive actions needed to stem the flow of precursor chemicals to known criminal cartels and shut down the money laundering” transnational criminal organizations. Trump invoked emergency economic authority under the International Emergency Economic Powers Act (IEEPA) and justified the tariffs as critical to national security.
Trump ordered the tariffs on February 1, 2025, when he also ordered tariffs on products from Mexico and Canada. Those countries, however, made individual border-security agreements with the United States, and the Trump administration agreed to delay the implementation of the tariffs by at least 30 days beyond the February 4, 2025 effective date. (Mexico, Canada Tariff Threats Signal Shift Toward Geoeconomics and Executive Power.)
China Retaliatory Tariffs and Other Measures
In response, China imposed tariffs on $14 billion in U.S. exports. While the United States imposed blanket tariffs, the Chinese tariffs target U.S. exports of liquefied natural gas (LNG), coal, crude oil, farm equipment, and automobiles. China will impose tariffs of 15% on imports of coal and LNG. It will impose tariffs of 10% on imports of crude oil, farm equipment, large automobiles, and pickup trucks.
China also announced an antitrust investigation into Google. It also placed gene sequencing company Illumina and PVH Corp., owner of Calvin Klein and Tommy Hilfiger, to the “unreliable entity list,” which restricts an entity’s ability to operate in China. It also placed export restrictions on five critical metals: tungsten, tellurium, molybdenum, bismuth, and indium. Chinese supply of these metals is critical to U.S. defense, clean energy, and high-tech industries.
Lastly, China referred the U.S. tariffs to the World Trade Organization (WTO). “This unilateral tariff hike by the U.S. side seriously violates World Trade Organization rules, does nothing to solve its own problems, and undermines normal China–U.S. economic and trade cooperation,” China’s Customs Tariff Commission of the State Council said in a statement.
“The U.S. approach severely undermines the rules-based multilateral trading system, damages the foundation of Sino-U.S. economic and trade cooperation, and disrupts the stability of global industrial and supply chains,” the Chinese Commerce Ministry said.
Policy Implications: Impact of U.S.-China Decoupling
The tariffs between the United States and China risk renewing a trade war between China and the United States and could impact supply chains and business operations for many companies that do business in China. Companies dependent on imports from China should consider changing suppliers or diversifying their supply chain. Additionally, the tariffs on China, along with the threatened tariffs on Mexico and Canada, signal a shift in U.S. trade policy and U.S. geoeconomic policy that business leaders should understand.
Trump will use tariffs as a geoeconomic tool: Trump has demonstrated that he will use tariffs as leverage to pressure countries over non-trade policy, including to address U.S. domestic issues. “Tariffs are very powerful, both economically and in getting everything else you want,” Trump said while signing the executive orders. This use of tariffs could lead to repeated disruptions of the international trading system.
The United States has abandoned rules-based international trade: Trump has discarded the U.S. policy of trade liberalization and ended its adherence to the rules-based international trade order. Meanwhile, China has positioned itself of the defender of that order in arguing before the WTO that the U.S. tariffs undermine the rules-based multilateral trading system.
U.S.-China decoupling accelerates the fragmenting of the global economy: Trump’s move to further decouple economic and technological ties between the United States and China. This will further the slowing of the international trade of goods and accelerate the fragmentation of the global economy into geopolitical blocs.
Additional Details
Products covered: The executive orders covered “all articles” that are products of the People’s Republic of China. The executive order did not provide for any exclusions.
Additional changes: Trump’s executive order also disallows duty drawbacks in which importers are refunded tariffs and other fees on the imports of certain goods that are then exported from the United States. Products imported into a U.S. foreign trade zone (FTZ) under “domestic status” continue to be duty free, while other products must be admitted as “privileged foreign status” and subject to these tariffs on exit from the FTZ.