US and China: The tariff tensions

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CWA # 1904

State of Global Politics 2025

US and China: The tariff tensions

The World This Week #338, Vol 7, No 52, 31 December 2025

Femy Francis
31 December 2025

What happened?
In 2025, after a series of tariff tensions and retaliations by both China and the US, both sides threaten to test limits. This tariff crossfire is officially on pause as of now after the high-level meeting between China’s President Xi Jinping and US President Donald Trump in October. This was the first in-person meeting between the two leaders in Trump’s second tenure. After which, China’s Ministry of Commerce announced that both Beijing and Washington achieved a consensus on tariffs, export controls and port fees as they impose a tariff pause for the next year, 2026. This tariff truce came after China imposed export controls on rare earth materials. China holding a monopoly of the supply chain of rare earths sent shock waves across the globe, being a catalyst to the trade truce between the US and China.

In April, China’s Ministry of Commerce announced 125 per cent tariffs against the US, noting this as their last move against the “unilateral bullying” by the US President, who imposed 145 per cent tariffs. This comes after a series of tariffs and duties were imposed by the US since February. US President Donald Trump also announced a 90-day halt on “reciprocal tariffs” on countries that have not retaliated, unlike China. China’s President Xi Jinping said: “There are no winners in a trade war, and going against the world will only lead to self-isolation.” China’s Ministry of Commerce said: “If the US escalates tariffs, China will resolutely take countermeasures to safeguard its own rights and interests,” and warned that “China will fight to the end.” While Trump remains optimistic in securing a deal with China, he said: “Think we'll end up working something out that's very good for both countries.”

The US President justified the imposition of the tariffs under the IEEPA, the National Emergency Act, and the Trade Act of 1974. Trump’s order stated that the influx of sustained synthetic opioids is killing Americans daily, mostly individuals aged 10-45. He stated that China is a haven for transnational criminal organisations, laundering money by selling opioids, according to Trump. He also noted that the increased presence of illegal aliens in America due to China’s failure to detain criminals and drug cartels has further exacerbated the issue.

China vehemently opposed the tariffs. This was backed by some retaliatory tariffs by China after Trump issued the executive order. China imposed tariffs on US agricultural imports, including poultry, corn, cotton, and wheat. They also imposed an additional 10 per cent tariff on US produce like beef, dairy, fruits, vegetables, soy, and pork. 15 US firms were under the Export Control List of China, prohibiting Chinese companies from selling dual-use tech to the US. Additionally, they added 10 US firms to the Unreliable Entity List. It also kick-started the anti-monopoly and anti-competitive investigation into US tech companies like Google and Apple. They introduced self-tariff measures where Chinese firms importing from the US would have to pay taxes. China dominates the refinery industry of critical minerals; it imposed export controls on 25 rare metals vital for electronic and military equipment. They also imposed 15 per cent duties on coal and LNG products imports from the US. China’s Ministry of Foreign Affairs spokesperson Lin Jian warned that: “If the US has other intentions and insists on a tariff war, trade war or any other war, China will fight to the end.” This all came to a halt as a tariff truce was established.

What is the background?
First, the US-China economic and trade relations. Trade between China and the US has grown steadily from USD 2.5 billion in 1979 to USD 688.3 billion in 2024. The US deficit to China is the largest compared to its other trading partners, coming to USD 295 billion in 2024. Since 2018, the US has been working to reduce this gap, when the US deficit to China was the largest, amounting to USD 418 billion. For China, the US is its largest trading partner, while China comes third for the US. Major Chinese exports to the US include transmission equipment, computers, machine parts, batteries, and motor vehicle parts. US exports to China are soya beans, crude oil, petroleum gas, cars, vaccines, and machinery.

Second, Trump's China policy. Since his first tenure, Trump has pushed for stricter anti-China dependency policies. Under his administration, the US grew closer to Taiwan and has now invited TSMC (Taiwan Semiconductor and Company) to open five plants in the US. Other than sanctions imposed on several Chinese firms, entities, and individuals. Under Trump, the Indo-Pacific Command focused on countering China’s presence, and the Department of Justice also launched the China Initiative to hinder covert activities by Beijing. In 2018, Trump imposed 30 per cent tariffs on imported solar panels, 80 per cent coming from China. In 2020, the US and China signed a Phase One Trade deal where China agreed to buy USD 200 billion worth of US goods. In 2025, the US Postal Service briefly halted all parcels arriving from China and Hong Kong.

Third, the sectors and firms most affected. China plays a critical role in the production of the global electronics supply chain, producing semiconductors and circuit boards. 90 per cent of the supply of refined rare metals comes from China, vital for smartphones and high-tech military equipment. US firms like Apple, Nvidia, Cisco, Dell, and Intel are all dependent on China’s manufacturing industries. In 2023, China exported USD 146 billion worth of electronics to the US, reports the US International Trade Commission. Apparel industries, including MAGA merchandise, are made in China. Major retailers like Gap, Nike, and Walmart also get their products from China. Other industries, like the auto and pharmaceutical industries, face the threat of inflationary prices.

Fourth, leverage deals. Trump publicly announced that he is interested in leveraging Chinese tariffs for TikTok divestment. The US has asked TikTok’s parent company, ByteDance, to divest and sell to a non-Chinese firm if they want to continue in the US. ByteDance has informed that any decision taken will be under the purview of Chinese law. In September, US President Donald Trump signed an executive order outlining the framework agreement of TikTok divestment to a US-based company. The White House press release confirms that as part of the deal, majority stakes in TikTok will be US-owned, and will be operated by a board of directors who will ensure that the US national security and cybersecurity rules are applied.

What does it mean for 2026?
First, rising trade tension, not a trade war. China’s Ministry of Foreign Affairs and State Council announced that they are ready for any kind of trade/tariff war that comes after the tariff’s imposition by the US. Using the term trade war means imposing policies that hurt other countries' economies, even at the cost of its own economy. Trump's policies centred around protectionism have overarching repercussions for the US market as well. But the administration believes that they will bounce back up as they build their domestic market. And find this as the only solution to decrease their external dependence. The year ahead will see continued trade tensions, and both countries will maintain the truce.

Second, the “America First” policy. The above-mentioned tariffs imposed on China are part of Trump’s larger policy of “America First.” The administration firmly believes that it has let foreign countries, institutions, and firms take advantage at the cost of the US’s development. Trump’s America First Investment Policy 2025 aims at welcoming foreign investment but not at the cost of national security. The initiative cited China as a foreign adversary, “exploiting United States capital to develop and modernise its military, intelligence, and other security apparatuses, which poses a significant risk to the United States homeland and Armed Forces of the United States around the world,” notes the policy paper. The year ahead will see Trump putting America first as it recalibrates its relations with China.

About the author
Femy Francis is a Project Associate at NIAS, Bengaluru.

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