Trump’s economic war reaches the Great Wall of China
How much do customs tariffs harm China
The trade war between Washington and Beijing has resumed with greater intensity. Why did Trump start it, and which sectors are most vulnerable? China and the United States are once again embroiled in a trade dispute that neither seems likely to emerge from unscathed.
Since Donald Trump was re-elected as President of the United States last November, many had predicted tough times ahead for the economic relations between the world’s two major powers.
However, few could have predicted the speed of events in the past week. In less than 100 days since Trump’s return to the White House, he increased tariffs on imports of Chinese goods, reaching an unprecedented high of 145 for some products, which should also include pre-2025 tariffs.
Some of the most important import categories were deliberately and strategically excluded from the latest wave of tariffs imposed on the second of April. Imports of aluminum, steel, cars, and their parts were spared from this new increase, but only because Trump had previously announced a 25% tariff on them between February and March.
In addition to these categories, other goods were exempt in April, including copper, medicines, semiconductors, wood products, some critical minerals, and some energy products, which were excluded from the list of goods subject to the latest round of Trump tariffs.
These items are very important for bilateral trade, and their exemption significantly reduces the impact of the U.S. government’s decisions.
However, the White House has announced that these exemptions will be temporary, and, for example, the electronics sector will soon be subject to regulations that will set separate tariffs for these products.
In other words, although all trade between China and the United States has not yet been affected by tariffs, the future looks bleak for those sectors currently exempt from tariffs.
Trump’s reasons
For China, it was clear that Trump’s return meant more pressure on the economic front compared to what occurred under his successor Joe Biden’s presidency.
This situation holds true for at least two reasons: the first relates to the internal political dynamics of the United States, while the second points to the trade imbalance in the relations.
The first reason relates to the rhetoric of the Republican President regarding the unfair treatment the United States has suffered from opportunistic and greedy trade partners like China. This message, which is somewhat simplistic, sees the confrontation with Beijing not as a strategic competition for dominance in technology and industry, as Joe Biden had suggested, but more as an effort to retaliate against adversarial rivals who have exploited U.S. trade openness and plundered its industrial resources.
However, this is a message that has a strong impact on his electoral base. In other words, tariffs against China are a tool for Trump to maintain the image of a strong man defending U.S. interests and to strengthen his support base.
Nevertheless, Trump’s political stance against unexpected changes has always been known. It suffices to mention his shift in position in recent years regarding the ban on TikTok, a Chinese app that now dominates U.S. social networks.
Yet, this has not affected his image as a relentless candidate against Beijing in the eyes of his supporters.
This brings us to consider the second factor, which is the trade imbalance in the relations between the two countries. According to data from the U.S. Trade Representative’s office, in 2024, the United States exported $1,435 billion worth of goods to China while importing $4,389 billion worth of goods from China.
The trade deficit resulting from this amounts to $2,954 billion. Although this figure has significantly decreased compared to 2018 when Trump first started the trade war with Beijing, it remains the largest trade surplus recorded in China’s trade balance.
An overall surplus that seems to continue growing over time due to the internal imbalance of China’s economy, whose production capacities in high value-added industries, such as the automotive industry, have significantly increased over the past decade without the domestic market growing simultaneously.
This is a situation of industrial overcapacity that forces China to direct its production to foreign markets to continue its growth.
The tariff cycle
Thus, within a few weeks, the Trump administration resumed the trade war that had started in the previous term.
With announcements that followed each other in recent months, in February, the United States initially imposed a 10% tariff on all Chinese imports, then added another 10% in March, and finally, on the famous Freedom Day, April 2, announced an additional 34% reciprocal tariff on Beijing.
After each announcement, China responded with some retaliatory tariffs on American goods, but it was only on Freedom Day that a response exactly equal and opposite to the tariffs imposed by Trump was made.
However, the following week, a vicious cycle began, with the United States once again increasing tariffs after China’s tariffs were leveled. At the end of this vicious cycle of increases, both countries imposed reciprocal tariffs of 125% on each other’s goods.
The increase in customs barriers has already shown its first tangible signs on trade exchanges, including ports facing container congestion or freight ships speeding up to reduce delivery time across the Pacific Ocean.
However, despite the exemptions granted by Trump so far, in the medium term, the results could be much broader and include significant losses for both economies. These losses could start from the most important trade sectors between China and the United States, namely the mechanical and electronics sectors.
The machinery sector is one of the areas where the United States is heavily dependent on imports from China, to the extent that for some product categories like computers and electric batteries, China’s share even exceeds 40 to 50% of total U.S. imports.
Imposing high tariffs that cause a sudden halt or even a reduction in this flow would seriously harm the U.S. economy, especially consumers.
It is enough to know that, for example, 40% of all computer imports in the United States are supplied by China, according to OEC 2023 data.
Despite the exemptions considered for some electronic items, the atmosphere of uncertainty could lead to reduced sales even without the imposition of heavy tariffs.
From China’s perspective, however, the United States still absorbs 15 to 25% of exports of these products, and it seems unlikely that Chinese companies can shift this share to other markets in the short term.
As a result, U.S. entry tariffs will likely lead to significant reductions for Chinese companies like CATL.
On the other hand, the United States still holds some important industrial sectors that are very attractive to the Chinese economy, such as the semiconductor industry.
However, it seems that China’s retaliatory tariffs in this area are more symbolic than real obstacles, as these technologically valuable and strategically important goods were at the center of U.S. economic security policy during the Biden administration.
In fact, even before the tariffs were imposed, Washington’s derisking policies had imposed very strict controls on the sale of semiconductors to the People’s Republic of China, leading to a significant reduction in exports of this category of goods.
On the other hand, another sector in a similar situation is the automotive industry.
Even after trade barriers were imposed by Joe Biden last year, the U.S. market has been significantly closed to Chinese car exports, with the United States accounting for only 3% of China’s total car exports.
The situation for parts and components is slightly different, as the U.S. market accounts for 20% of China’s total exports of auto parts.
It is noteworthy that the role of agriculture is very important at this stage of the trade conflict.
The main issue in this regard is China’s retaliatory tariffs of 125%, which particularly target U.S. soybean exports.
Soybeans are the largest U.S. export to China in terms of overall value.
For farmers in the U.S. Midwest, this will undoubtedly be a very heavy blow, but for Beijing, the sudden loss of about $15.2 billion in imported soybeans from the United States—27% of the total imported soybeans—will have an impact that will be difficult to compensate for in the short term in areas such as livestock.
The energy industry is another sector that may be affected by tariffs, although relatively.
The United States exports crude oil and petroleum gas worth $107 and $103 billion to China. These amounts are significant, but they are not very impactful for the economies of either country. For China, for example, imports of these two commodities from the United States account for only 3% and 12% of total imports in each of these two categories.
The pharmaceutical-medical industry is another sector that should be noted.
Although the figures in this sector are smaller, China is more at risk in this area than in the energy sector, as the percentage of imports from the United States for important product categories in this sector ranges from 15% to 30% of total imports.
Ultimately, due to the breadth of the tariffs and their sharp increase, all other product categories will also be affected, including chemical-plastic and textile products, which include items that shaped China’s first shock in the early 2000s when Chinese-made products first entered international markets.
As a result, over the past two decades, Beijing and Washington have strengthened their roles in these sectors, meaning that the United States is significantly dependent on Beijing for imports of these items. For some product categories, shares range from 30% to 90% of total imports, but for China, too, the halt in trade flow will cause significant losses for producers in these sectors, as exports to the United States account for 20% to 45% of their total exports.
Thus, for example, products such as toys, household plastic items, sports equipment, video games, and party decorations will be affected and harmed by the 145% U.S. tariffs. All these categories collectively represent several tens of millions of dollars in terms of U.S. imports from China.
At this first stage of the trade war, the likely victims are the very industries that initially brought the economies of the two countries closer together.