Published on 04/02/2025
China swiftly imposed tariffs on select U.S. imports Tuesday, retaliating against new U.S. duties on Chinese goods and escalating trade tensions between the world’s two largest economies. Meanwhile, President Trump eased tariff pressures on Mexico and Canada for 30 days.
Additional 10% tariff across all Chinese imports into the U.S. came into effect at 12:01 a.m. ET on Tuesday (0501 GMT) after Trump repeatedly warned Beijing it was not doing enough to halt the flow of illicit drugs into the United States.
Within minutes, China’s Finance Ministry said it would impose levies of 15% for U.S. coal and LNG and 10% for crude oil, farm equipment and the small number of trucks as well as big-engine sedans shipped to China from the United States.
China also said it was starting an anti-monopoly investigation in Alphabet Inc’s (Google), while including both PVH Corp (PVH.N), the holding company for brands including Calvin Klein, and U.S. biotechnology company Illumina, and U.S. biotechnology company Illumina (ILMN.O), on a list for potential sanctions in China.
Separately, China’s Commerce Ministry and its Customs Administration said it is imposing export controls some rare earths and metals that are critical for electronics, military equipment and solar panels.
A 10%-duty China announced on electric trucks imported from the United States could apply to future sales for Elon Musk’s Cybertruck, a niche offering Tesla (TSLA.O), opens new tab has been promoting in China. Tesla had no immediate comment.
China’s new tariffs on the targeted U.S. exports will start on Feb. 10, giving Washington and Beijing some time to try and reach a deal that Chinese policymakers have indicated they hope to strike with Trump.
China’s counter measures were limited in scope compared to the Trump administration’s across-the-board tax on imports, a continuation of Beijing’s more measured response to this round of trade tensions with the United States.
Trump plans to speak to Chinese President Xi Jinping later in the week, a White House spokesperson said.
Trump on Monday suspended his threat of 25% tariffs on Mexico and Canada at the last minute, agreeing to a 30-day pause in return for concessions on border and crime enforcement with the two neighbouring countries.
During his first term in 2018, Trump initiated a brutal two-year trade war with China over its massive U.S. trade surplus, with tit-for-tat tariffs on hundreds of billions of dollars worth of goods upending global supply chains and damaging the world economy.
“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 Beijing 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,” he said on Monday.
China has called fentanyl America’s problem and said it would challenge the tariffs at the World Trade Organization and take other counter measures but also left the door open for talks.
The U.S. is a relatively small source of crude oil for China, accounting for 1.7% of its imports last year, worth about $6 billion. Just over 5% of China’s LNG imports come from the U.S.
Crude prices extended losses to tumble 2% after China’s retaliation, and stocks in Hong Kong pared gains. The dollar strengthened while the Chinese yuan, the euro, Australian and Canadian dollars as well as the Mexican peso all fell, reflecting growing market concerns about the risk of a protracted global trade war.
“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.”
NEIGHBOURLY DEALS
There was relief in Ottawa and Mexico City after both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum said they had agreed to bolster border enforcement efforts in response to Trump’s demand to crack down on immigration and drug smuggling. That would pause 25% tariffs due to take effect on Tuesday 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.
“As President, it is my responsibility to ensure the safety of ALL Americans, and I am doing just that. I am very pleased with this initial outcome,” Trump said on social media.
Canadian industry groups, fearful of disrupted supply chains, welcomed the pause.
“That’s very encouraging news,” said Chris Davison, who heads a trade group of Canadian canola producers. “We have a highly integrated industry that benefits both countries.”
Trump suggested on Sunday the 27-nation European Union would be his next target, but did not say when.
EU leaders at an informal summit in Brussels on Monday said Europe would be prepared to fight back if the U.S. imposes tariffs but also called for reason and negotiation. The U.S. is the EU’s largest trade and investment partner.
Trump hinted that Britain, which left the EU in 2020, might be spared tariffs.
Trump acknowledged over the weekend that his tariffs could cause some short-term pain for U.S. consumers, but says they are needed to curb immigration and narcotics trafficking and spur domestic industries.
