Five ways China is hitting back against US tariffs

As the world's two largest economies, the United States and China are experiencing escalating trade friction. Previously, the United States imposed a 10% tariff on all Chinese imports, and China immediately took countermeasures by imposing tariffs on some American goods, further intensifying the trade war.

In response to US President Trump's move to comprehensively impose a 10% tariff on Chinese imports, China has taken targeted countermeasures, imposing retaliatory tariffs on specific American goods. In fact, since 2018, the two countries have been imposing tariffs on each other on a variety of goods, and this event is only a continuation of the long-term trade dispute.

Although Trump has expressed plans to speak with Chinese President Xi Jinping, there remains a possibility that the two sides could reach an agreement. But what impact will China's countermeasures have if they are implemented as planned on February 10?

China's countermeasures include imposing a 10% import tariff on US coal and liquefied natural gas (LNG), and a 15% tariff on crude oil. This means that importers must pay corresponding tariffs if they want to import these fossil fuels from the United States. China is the world's largest importer of coal, but mainly imports from Indonesia, with Russia, Australia, and Mongolia also being suppliers. Chinese customs data shows that China's imports of liquefied natural gas from the United States have been increasing, nearly doubling since 2018. But overall, the trade volume of fossil fuels is relatively small, with US imports accounting for only 1.7% of China's total crude oil imports in 2023. This indicates that China's dependence on the United States is not high, and the impact of tariffs on the Chinese economy may be minimal.

Trade economist and CEO of the Economic Security Think Tank Center, Rebecca Harding, said that China can easily obtain more supplies from Russia. As the Kremlin seeks to fund its war, China has been buying oil from Russia at low prices. On the other hand, the United States is the world's largest exporter of liquefied natural gas and has many other customers, especially the United Kingdom and the European Union.

In addition to fuels, China is also imposing a 10% tariff on agricultural machinery, pickup trucks, and some large cars. But China is not a major importer of American pickup trucks, and most of its cars come from Europe and Japan. Therefore, imposing a 10% tariff on imports that are already small in number will not have a significant impact on consumers. In recent years, China has increased its investment in agricultural machinery to increase production, reduce dependence on imports, and strengthen food security. Therefore, imposing tariffs on agricultural machinery may be to further promote the development of domestic industries.

Julian Evans-Pritchard, head of China economics at Capital Economics, said that all tariff measures are "fairly mild relative to the US measures." He believes that the goods targeted by China are worth about $20 billion per year, accounting for about 12% of China's total imports from the United States. "This pales in comparison to the over $450 billion of Chinese goods targeted by the US." But he said that China's actions are "clearly carefully calibrated to send a message to the US [and domestic audiences] while avoiding causing too much damage."

Chinese authorities have also announced some non-tariff measures, including an antitrust investigation into US tech giant Google. It is not yet clear what the specific content of the investigation is, but as background, Google's search services have been blocked in China since 2010. The company still maintains a certain business presence in China by cooperating with local developers to provide applications and games to the Chinese market. But China accounts for only about 1% of Google's global sales, which means that even if it completely cuts off contact with China, Google's losses will not be too great.

US company PVH, which owns designer brands Calvin Klein and Tommy Hilfiger, has been placed on China's so-called "unreliable entity list" and accused of "taking discriminatory measures against Chinese companies." The list was created by Beijing in 2020 against the backdrop of escalating trade tensions and also includes other US companies. For Calvin Klein and Tommy Hilfiger, being placed on the Chinese list will make it more difficult for them to conduct business in China. They may face sanctions, including fines, and the work visas of foreign employees may be revoked. Andreas Schotter, a professor of international business at Western University in Canada, said that regulators will also go to these companies' factories to investigate operations.

The United States also has its own "entity list," which prohibits certain organizations from purchasing products from US companies without Washington's approval. "China is retaliating in the way that President Trump accused Chinese companies of doing. This is all part of the US-pushed decoupling of the US and China," Professor Schotter added. While imposing tariffs on imported goods, China has also imposed export controls on 25 rare metals. Some of these metals are key components of many electronic products and military equipment. China has already mastered the ability to refine such metals, with production accounting for almost 90% of global refined production. The restricted list includes tungsten, which is difficult to obtain and is a key material for the aerospace industry.

Capital Economics' Evans-Pritchard said that it is worth noting that key metals that China imports from the United States for the manufacture of high-end chips, semiconductor machinery, pharmaceuticals, and aerospace equipment have not been affected by any measures. Past experience with restrictions suggests that exports will decline sharply as companies scramble for licenses, a process that will take weeks. As for the impact of the restrictions, the United States seems to have a plan. Trump said on Monday that he wants Ukraine to guarantee to provide more rare earth metals in exchange for $300 billion in support for the fight against Russia.