Trade between the two largest economies in the world – a link that has defined the world economy for two decades – is in critical condition. US tariffs over China are now at 145%; China’s tariffs on the US are now 125%. And this is just the base line, without including additional tariffs on specific goods such as steel (in the case of the US) or agricultural products (in the case of China).
“Tariff rates are now so high that they become prohibitive for most direct bilateral trade,” says Yeling Tan, professor of public policy at Oxford University.
Even Beijing recognizes that with such high rates, American products have no chance. “Since American products are no longer marketed in China under current fare rates, if the US increases tariffs on Chinese exports, China will ignore such measures,” said the country’s Ministry of Finance in a statement announcing its new 125%tariffs.
Tariffs are quickly undoing a nearby economic relationship: Chinese manufacturers produced products, from garden chairs and Christmas ornaments to smartphones and semiconductors, and US consumers and companies bought them.
Both Washington and Beijing signaled that they are open to negotiations, even if there are no public signs that they are talking. Each thinks that the other needs to move first; On Friday morning, CNN said the US, instead of requesting a telephone call with XI, required China to request a telephone call with Trump.
The US may have realized that its high rates on China are unsustainable. On Friday night, the White House exempted electronic goods such as smartphones, laptops and US tariff computer processors, including some imposed on China.
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Tariffs and Commerce
The US imported $ 438 billion in China’s goods in 2024, compared to $ 143.5 billion in exports to China, according to US Census office data.
The 145% Trump rate on Chinese imports is just the base line. There are also 25% tariffs on steel and aluminum imports, and the imminent threat of a 25% tariff over any country using Venezuelan oil, a set that includes China. And there are all the previous rates imposed by previous administrations: on Chinese appliances, solar panels and electric vehicles.
Beijing also imposed additional US goods, such as heavy machinery, oil, gas and agricultural products. It also imposed a number of other non -tariff barriers; For example, on Friday, Chinese authorities said they will reduce the number of American films approved for screening in China.
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If the current situation persists – 145% of China, 10% over all others – both Western and Chinese companies will likely accelerate their search for establishing outside China manufacturing centers in countries such as Vietnam, India and Mexico.
The problem is that Trump’s trade hawks want to undo the “China one more” strategy. Trump’s “Liberation Day” fares, now suspended, imposed high rates on countries such as Vietnam and Cambodia that attracted Chinese investment. Employees such as Trump’s trade counselor Peter Navarro want governments to aim for Chinese trade as a condition for reducing tariffs.
Vietnam is offering repressing Chinese products that move through its territory as part of tariff negotiations with the US, reports Reuters citing a government document and an unidentified source.
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So there is a risk that Trump can’t close a deal with business partners, and “Liberation Day” rates return. “Factories that have moved to connecting countries likely to increase production to take advantage of the break, but there may be less new investment for fear that tariffs will increase in ‘plus one’ countries,” Tan suggests.
China’s high tariffs also encourage US companies that export to the world’s second largest economy to consider their own supply chain diversification. On Friday, the China Semiconductor Industry Association said companies did not need to pay tariffs on US chips and chip manufacturing equipment as long as they were made in a third place.
China resists
Trump officials argue that China is much more vulnerable to a trade war than the US, stating that China’s economy depends on the American consumer. If the US closes its doors, China will not have to sell, and the economy will collapse.
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The White House also now insists that the Trump rates break was a deliberate strategy to isolate China while opening negotiations with the rest of the world. “You might even say that he caused China to a bad position,” Treasury Secretary Scott Bessent told reporters on Wednesday; He also suggested that the US and its allies can work together to press China in commerce.
In fact, China depends less on the US now than during Trump’s first administration. Less than 15% of China’s exports go directly to the US, a drop from about 19% in 2018. Beijing also cultivated alternative sources for what matters from the US, such as Brazil and Australia for agricultural products. Australian beef exports to China in the last two months have increased by 40% over the previous year.
“China has options,” says Brown, noting that China’s largest commercial partner is now Southeast Asia. “It’s no longer subordinate to the US as before.”
To be clear, economists expect China to suffer an economic blow from Trump’s tariffs, with banks like Citi and Goldman Sachs cutting their GDP predictions to 2025 from the second largest economy in the world.
However, Beijing is adopting a bold stance in his struggle with the US, with spokespersons saying that China will “fight to the end” if the US persists in a trade war.
Posture aside, Beijing may be in a safer position than the US. Trump’s trade war is already making stock markets plummeted, raising the income from the titles and sinking the US dollar – and that before the inflationary effects of tariffs have actually hit.
Dexter Roberts, a non-resident senior researcher at Atlantic Council Global Hub, explains that “people in China really feel they can ‘eat bitterness’, referring to a Chinese expression that means persevere through difficulties.“ This contributes to their firm posture. I think they believe that in the end, if someone is giving in, it will be the US. ”
Roberts adds that at least Beijing’s perspective, the First Trade War never really over. Biden administration maintained Trump’s previous rates over Chinese goods. Biden also imposed his own rates, such as a 100% rate on Chinese electric vehicles, and more annoying for Beijing – China’s technology sector with measures such as US chip export prohibitions. This means that Beijing has been in a “commercial war posture” since 2016. China has built business relations with other markets, found new sources to replace US commodities and has invested in their own technology companies. “China has been preparing for a world with less access to the US market for several years,” says Tan.
And a trade war, although painful, can accelerate some of Beijing’s other priorities. “In a strange way, this kind of fits Beijing’s long -term goals to transit his economy away from his dependence on the West and exports,” says Roberts.
However, China cannot easily change its export markets to other regions such as Europe, Middle East or Southeast Asia. On the one hand, these regions – the same markets developed like Europe – do not really have the same consumption potential as Americans. Then there is a risk of retaliation. “These countries are afraid of facing an increase in diverted Chinese imports from the US market,” warns Tan.
Agreement or no agreement?
Economists broadly agree that total detachment between the US and China would be extremely painful for both countries. Farms above 100% are “absolutely punitive,” says Iain Osgood, professor of international relations at the University of Michigan. “There are a lot of US businesses that might not be able to survive this. Even big retailers will simply fight.”
This could mean that in the end, both sides will try to find some way to reduce things – or the US can unilaterally reverse some of their tariffs as pain begins to manifest. Even so, rates are likely not to be reduced to levels prior to 2024, much less to the levels prior to 2018. Osgood believes the tariffs could be brought back to a relatively “wiser” level, perhaps between 15% and 30%.
However, the rapid climb of the US-China trade war raises an uncomfortable question: What would the world look like when its two largest economies refuse to negotiate with each other?
A world where Beijing and Washington cannot be able to be dangerous. Business relations due to the presence of companies and foreigners really have a “moderating influence,” says Roberts, even if the idea is sometimes exaggerated. “If you are increasingly isolated, and you have no business relationships… the likelihood of conflict definitely increases.”
“In the end, the fate of the two giant economies will remain intertwined. A direct bilateral trade collapse will hurt companies and consumers in both countries,” says Tan.
“It will be a much more volatile world.”
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