China Implements Retaliatory Tariffs Against U.S. Trade Measures
Extended summary
Published: 05.02.2025
Introduction
The ongoing trade tensions between the United States and China have escalated once again, following the U.S. administration's announcement of a 10% tariff on all imports from China. In response, China has implemented a series of countermeasures targeting U.S. goods and companies, marking a new phase in the trade war between the two economic giants. This article outlines the recent developments, the implications of these tariffs, and the market reactions to this evolving situation.
Recent Developments in Trade Relations
On February 4, China announced its retaliatory measures, which include raising tariffs by 10-15% on various U.S. imports such as coal, liquefied natural gas (LNG), crude oil, agricultural machinery, and vehicles. Additionally, China has imposed export restrictions on critical minerals, including tungsten, tellurium, bismuth, molybdenum, and indium. Furthermore, two U.S. companies, PVH Corp. and Illumina Inc., have been added to China's Unreliable Entity List for allegedly disrupting normal market transactions. An antitrust investigation into Alphabet Inc. has also been initiated by Chinese authorities.
The Chinese Ministry of Finance criticized the U.S. tariffs as a violation of World Trade Organization (WTO) rules, highlighting the contentious nature of the current trade environment. The new tariffs from China are set to take effect on February 10, while the export bans on essential minerals are already in place.
Implications of the Tariff Measures
According to Andrew Tilton, an economist at Goldman Sachs, China's response to the U.S. tariffs is more focused and strategic compared to the broader measures seen in the previous trade war of 2018-2019. The targeted nature of China's tariffs suggests a calculated approach, as the U.S. accounts for a minimal portion of China's imports in the affected energy sectors. For instance, in 2024, U.S. exports of coal and LNG to China made up only 5% of China's total imports for these products, while crude oil from the U.S. constituted just 3% of total crude imports.
Goldman Sachs further notes that China's counter-tariffs represent a significantly lower economic impact compared to the U.S. tariffs. The U.S. has imposed a 10% tariff on $525 billion worth of Chinese products, while China’s additional tariffs affect only $14 billion in U.S. goods, resulting in a less-than-proportional response.
Market Reactions
In the wake of these developments, the Chinese yuan showed slight appreciation against the U.S. dollar, gaining 0.2%. The trade measures have influenced the commodities market, leading to declines in futures for WTI and natural gas, while gold prices reached record highs. U.S. stock market indices exhibited mixed results during premarket trading, with the S&P 500 showing a slight uptick, while the Dow Jones experienced a minor decrease.
Notably, shares of Chinese companies listed in the U.S. saw a rally, with significant gains for Alibaba, PDD Holdings, and JD.com, reflecting a degree of investor optimism amid the trade tensions.
Conclusion
The latest developments in U.S.-China trade relations underscore the complexities and uncertainties that characterize the ongoing trade war. With both nations adopting strategic measures that reflect their economic priorities, the potential for further escalation remains. Observers are keenly watching for the U.S. response to China's tariffs, as well as any communications between President Trump and Chinese President Xi Jinping. The broader implications of these trade actions could significantly influence global markets and economic policies moving forward.