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CWA # 1625, 18 March 2025
Global Politics Explainer
US-China Trade War: Tariffs, Retaliation and Fallouts

  C Shraddha

On 21 February, US President Donald Trump issued a presidential action to "establish new rules to stop United States companies and investors from investing in industries that advance the PRC's national Military-Civil Fusion strategy." Theorder stops PRC-affiliated persons and businesses from buying or investing in critical sectors.

On 05 February, China requested for a WTO consultation arguing US actions were "protectionist" and based on "false allegations".

On 04 February, the US imposed ad valorem tariffs on China and ended the de minimis treatment of low-value exports. On the same day, China announced unreliable entity designation, export controls, and tariffs on the US.  

What are the US tariffs?
First, the additional ad valorem tariffs on all imports. The executive order signed by President Donald Trump imposes an additional 10 per cent tariff on all imports from China, including on major goods such as electronic equipment, nuclear reactors, and plastics. The ad valorem nature of the tariffs would make Chinese goods more expensive as US importers would have to pay a percentage of the value of the goods as tax. The executive order suspends the customs de minimis entry threshold; all imports entering the US are now subject to tariffs, regardless of their value. Previously, goods valued under USD 800 were categorized as low-value imports, and deemed duty-free.

Later in February, the Office of the United States Trade Representative proposed to levy fees on Chinese-manufactured commercial vessels with the intent to challenge China’s stronghold over the global shipping industry. According to the US Trade Representative, Chinese-manufactured ships would be charged up to USD 1.5 million per port call. Additionally, USD 500,000 per ship per call would be charged to vessel operators with Chinese-built ships in their fleet.

Why did Trump impose tariffs on China?
Illegal immigrants and the fentanyl crisis are projected as two primary issues. Trupm has adopted tariffs as a leveraging mechanism to protect the US national interest while prioritising the safety of American citizens and their security. The executive order mentioned the influx of illegal immigrants into the US and the "rising number of Chinese nationals and people on the terror watchlist" as a justification. According to the administration, the influx of "illegal aliens" has hindered the quality of life of the citizens by overcrowding hospitals, inciting crime, draining welfare systems, and lowering wages.

In 2023, over 74,000 Americans died of overdosing on drug mixtures containing fentanyl, according to the US Centers for Disease Control. Trump blames China for facilitating the production and distribution of synthetic opioids in the US through Mexico. The executive order accused China of creating a "national emergency" and "public health crisis" in the US due to their failure to take "actions necessary to stem the flow of precursor chemicals to known criminal cartels." While giving reasons for tariffs on China, the White House said, "China not only fails to stem the source of illicit drugs but actively helps this business," accusing the country of subsidising fentanyl production to fuel the crisis in the US.

How has China responded?
On 04 February, China's Ministry of Finance announced a retaliatory tariff against the US. Counter-tariff measures include a 10 per cent tariff on agricultural machinery, crude oil, large-engine cars, and pickup trucks, while coal and liquified natural gas imports face a 15 per cent tariff. As part of the non-tariff counter-measures, China's State Administration for Market Regulation launched an antitrust investigation on the US tech giant Google LLC on suspicion of violating the country's anti-monopoly law. Additionally, PVH Group, the American company that owns Calvin Klein and Tommy Hilfiger, as well as the biotechnology company Illumina Inc, has been added to the Unreliable Entity List by the Ministry of Commerce. Both the companies are accused of violating normal market transactions and adopting "discriminatory measures against Chinese enterprises". China has also imposed export controls on five critical minerals used in defence, clean energy, and other industries.

What happens next?
First, price rise, decline in production and security concerns. The ongoing trade war is expected to impact the domestic economy of the US, affecting both consumers and producers. Domestic prices of everyday commodities are expected to rise as a portion of the additional cost imposed by tariffs is passed on to the consumers. On the producers' side, the US businesses that import raw materials, materials, and equipment from China to produce final goods will be faced with a higher production cost, ultimately causing a price rise.

Second, china’s export control and the US production. China controls 80 per cent of the global supply of tungsten, which the US has not mined commercially since 2015. Similarly, a quarter of US indium imports come from China. Indium remains a crucial aspect for the production of phones, TV displays, and 5G networks. Bismuth, widely used in atomic research, is another critical mineral for which the US widely depends on China. A lack of these minerals would significantly affect the US supply chain, blindsiding the producers and forcing them to find cheaper alternatives. Furthermore, Chinese control over the minerals poses a threat to the US defence production, raising national security concerns.

References
“How China allegedly contributes to the deadly fentanyl crisis," The Economic Times,” AFP, 03 February 2025

“China retaliates with tariffs on US goods after Trump’s move,” Al jazeera, 04 February 2025

”Coal and gas among US targets of China's retaliatory tariffs,” BBC, 04 February 2025

"Trump's China Tariffs—and Beijing's Response, AP, 03 February 2025

“Trump's trade war timeline 2.0: An up-to-date guide,” Peterson Institute for International Economics, 25 February 2025

About the author
C Shraddha is a postgraduate student at OP Jindal Global University, Sonipat.

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