The link that has defined the world economy for 20 years is the trade between the two biggest economies of the world, which lies in life support. The US tariffs in China are currently at 145%. China’s tariffs on the US are currently at 125%. And it’s just a baseline and does not include additional tariffs on certain products such as steel (in the US) or agricultural products (in the China).
“The tariff rates are currently very high and we are banning most direct bilateral trade,” says Yeling Tan, a professor of public policy at Oxford University.
Even Beijing recognizes that with this high tariff, US goods lack opportunities. ” Given that American goods cannot be sold in China under current tariff rates, if the US raises tariffs on Chinese exports further, China will ignore such measures,” the country’s Treasury Department said. statement Announces new 125% tariffs.
Tariffs are rapidly rewinding close economic ties. Chinese manufacturers built products, ranging from lawn chairs and Christmas decorations to smartphones and semiconductors, and were purchased by US consumers and businesses.
Both Washington and Beijing have shown that they are open to negotiations, even if there are no official indications they are talking about. Each thinks they need to move first. Friday morning CNN It has been reported The US demanded that China instead of requesting a call with Trump.
The US may have noticed that sudden tariffs on China are unsustainable. Late Friday, the White House exempted electronic goods such as smartphones, laptops and computer processors from US tariffs, including those imposed on China.
Tariffs and trade
The US imported $438 billion worth of goods from China in 2024, compared to $143.5 billion worth of exports from China. Data from the US Census Bureau.
Trump’s 145% tariff on Chinese imports is just a baseline. There is also a 25% tariff on steel and aluminum imports, and there is a looming threat of a 25% tariff in countries using Venezuela oil, a set that includes China. And there are all the previous tariffs slapped by the previous administration on Chinese appliances, solar panels and EVs.
Beijing is also slapping additional tariffs on US goods, including heavy machinery, oil, gas and agricultural products. There are also a variety of other non-tariff barriers being imposed. On Friday, for example, Chinese officials said they would. Reduce the number of American movies Approved for screening in China.
If the current situation continues – China’s 145% tariffs, 10% for everyone else – Western and Chinese companies could accelerate their willingness to install manufacturing hubs outside China in countries such as Vietnam, India, Mexico and other countries.
The problem is that the Trump Trade Hawks want to unleash their “China and One Strategy” strategy. Trump’s current rich “liberation day” tariffs have slapped high tariffs in countries such as Vietnam and Cambodia, which attracted Chinese investment. Officials like Trump trade adviser Peter Navarro want the government to target China’s trade as a condition to reduce tariffs.
Vietnam has offered to crack down on Chinese goods traveling through territory as part of its tariff negotiations with the US. Reuters Report Citations from government documents and unnamed sources.
Then there is a risk that Trump will not be able to reach his trading partner partner and will be returned with “liberation day” tariffs. “Factories already moving to Connector countries may increase production to take advantage of the suspension, but there may be fewer new investments in fear of tariffs rising in “plus one” countries,” suggests Tan.
China’s sudden tariffs also encourage US companies exporting to the world’s second-largest economy to consider diversifying their own supply chains. China Semiconductor Industry Association on Friday positive The company did not have to pay customs duties on US chips or chip-making equipment as long as it was made in the third place.
China is enduring
Trump officials argue that China is far more vulnerable to the trade war than the US, and that China’s economy is dependent on US consumers. When the US closes its doors, China has no one to sell to, and the economy collapses.
The White House also argues that Trump’s tariff suspension is a deliberate strategy to segregate China while launching negotiations with other parts of the world. “He might even say he’s put China in a bad position,” the Treasury Department of Finance told reporters Wednesday. He also proposed the United States and its allies. You can work together Put pressure on China on trade.
In fact, China is now less dependent on the United States than it did during the first Trump administration. Less than 15% of China’s exports will be sent directly to the US from around 19% in 2018. Australian beef exports to China over the past two months Already 40% increase The same period last year.
“China has options,” says Brown. It points out that China’s biggest trading partner is currently Southeast Asia. “We can’t see it in the US the way it used to be.”
To be clear, economists hope that China will take an economic hit from Trump’s tariffs. City and Goldman Sachs Reduce 2025 GDP forecast for the world’s second largest economy.
However, Beijing has taken a bold stance in fighting the US, and a spokesman says that if the US continues its trade war, China will “fight until the end.”
Taking a stance, Beijing could be in a safer position than the US Trump trade war already crashing stock markets, hiking bond yields and sinking the US dollar. That’s before the inflationary effects of tariffs were seriously hit.
Dexter Roberts, a senior non-resident fellow at the Atlantic Council’s Global China Hub, explains that “Chinese people really feel they can ‘eat’ bitterness.” I think they believe that in the end, if someone blinks, it will become America. ”
Roberts adds that the first trade war never really ended, at least from Beijing’s perspective. The Biden administration maintained tariffs on Trump’s previous tariffs on Chinese goods. Biden also imposed his own tariffs, such as a 100% tariff on China’s EVs. Perhaps even more annoying for Beijing has targeted China’s technology sector with measures like the export of US chips.
In other words, Beijing has been a “trade war foothold” since 2016. China has developed trade relations with other markets, finding new sources to replace US products and investing in its own technology companies. “China is prepared for a world with little access to the US market for many years,” Tan says.
And, while painful, the trade war may accelerate some of Beijing’s other priorities. “Oddly, it fits Beijing’s long-term goal, a long-term goal of transitioning the economy from dependence on the West and exports,” says Roberts.
Still, China cannot easily move its export markets to other regions such as Europe, the Middle East and Southeast Asia. For one, even these regions that have developed markets like Europe do not actually have the same consumption potential as Americans. After that, there is a risk of blowback. “These countries are wary of facing a surge in Chinese imports that have been diverted from the US market,” warns Tan.
No trades or no trades?
The economists agree that a complete decoupling between the US and China will be extremely painful for both countries. Iain Osgood, a professor of international relations at the University of Michigan, said tariffs above 100% are “absolutely punitive.” “There are many companies in the US that may have never survived that at all. Even large retailers just struggle.”
So, in the end, both sides may try to find some way to scale things. Or the US could unilaterally roll back some of its tariffs as pain begins to collide. Still, it is unlikely that tariffs will be reverted to pre-2024 levels, let alone pre-2018 levels. Osgood believes that tariffs can be returned to a relatively “sensible” level. Probably 15% to 30%.
However, the rapid escalation of the US-China trade war raises unpleasant questions. What does the world look like when the two biggest economies refuse to deal with each other?
A world where Beijing and Washington cannot escalate is dangerous. Business relationships with the presence of businesses and foreigners say that even when ideas are sometimes overplayed, they actually have a “temperamental influence.” “If you’re increasingly isolated and not in business relations…the chances of conflict definitely rise.”
“After all, the fate of the two huge economies remains intertwined. The collapse of direct bilateral trade hurts businesses and consumers in both countries,” says Tan.
“It will be a much more unstable world.”
This story was originally featured on Fortune.com.
