China Abandons Restraint With Latest Trade Salvo Against the U.S.

(STRINGER/AFP via Getty Images)

Cranes unload shipping containers from a ship at a port in Qingdao, in eastern China's Shandong province, on April 2, 2025.

China's retaliatory measures against U.S. tariffs signal a significant escalation of the trade war and will dim the prospects of near-term talks, but the greater economic stakes for both countries will increase the likelihood of a trade deal in the medium to long term and will likely drive China to expand domestic stimulus measures. On April 4, China levied wide-ranging economic restrictions against the United States after U.S. President Donald Trump announced 34% reciprocal tariffs on most Chinese imports on April 2. The Chinese restrictions include a 34% tariff on all U.S. imports (with no exemptions) effective April 10, as well as an export licensing system on seven rare earth elements and related compounds, though the U.S. market was not explicitly mentioned. China also added 16 U.S. firms (mainly defense companies, and no household names) to its export control list, and added 11 U.S. defense firms to its Unreliable Entity List and barred them from import, export, and investment activity in China. Additionally, China has opened up an industry competitiveness probe into imports of medical CT tubes and an anti-dumping probe into imports of U.S. and Indian medical CT tubes, and has halted chicken imports from five major U.S. exporters and sorghum imports from one U.S. producer.

The rare earths and related compounds placed under a licensing system include yttrium, scandium, lutetium, dysprosium, terbium, gadolinium and samarium, which are used to create a wide range of products, from weapons to electric vehicles. These licensing systems usually require companies to list the destination, amount and purpose of their exports, thus giving Chinese regulators the flexibility to expand or shrink punishments against certain countries without explicitly targeting them in the law.
In 2024, China imported $165 billion worth of goods from the United States, while it exported $525 billion of goods to the United States. Thus, though the percentage of new Chinese tariffs matches those of the United States, the scale of goods affected is still smaller, due to the bilateral trade imbalance.

The scope and timing of China's restrictions show a will to escalate its retaliation and may prompt U.S. counter-retaliations, suggesting a deepening of the trade war that will impede near-term negotiations. China's latest retaliatory trade measures are considerably larger and broader in scope than the ones it imposed in early February and March in response to Trump's earlier tariffs. These previous rounds of Chinese tariffs against U.S. goods were low (10-15%) and targeted specific exports (approximately $20 billion in each round). China's new tariff, by contrast, targets U.S. imports across the board and is higher at 34%, equal to the level of the U.S.-imposed reciprocal tariff announced on April 2. This time, the listing of U.S. companies on the Unreliable Entity List (UEL) also came simultaneously with related restrictions, whereas in previous rounds, China listed and imposed restrictions on U.S. companies at separate times. As far as companies targeted, the UEL and export control lists still contain no household names and focus on defense firms with little business in China anyway. But the import bans on five major U.S. chicken producers and one major sorghum seller show a willingness to target firms with a large China exposure and with a potential for political disruption, given the politically active U.S. farm lobby. Lastly, China's response to the U.S. tariff was faster this time around. Previously, China waited for Trump's tariffs to take effect before revealing its retaliations. But in this round, China unveiled its retaliatory measures just two days after Trump announced the new 34% tariff, and five days before it is set to take effect. China's move to respond quickly and severely to Trump's reciprocal tariff shows Beijing's desire to maximally deter the United States from continuing the trade war, as opposed to earlier efforts to soft-hand retaliations in hopes of facilitating trade negotiation. This shift, as well as Trump's pledge to impose counter-measures on any country that retaliates against U.S. tariffs, suggests a significant deepening of U.S.-China trade tensions, which will further dim the prospect of near-term trade negotiations.

After the United States imposed a 10% tariff on all Chinese imports, China on Feb. 4 imposed a 10-15% tariff on U.S. energy, agricultural and certain vehicle imports, and placed tungsten, tellurium, bismuth, molybdenum and indium products on export licensing regimes. China also added PVH — parent company of Calvin Klein and Tommy Hilfiger — and U.S. biotechnology company Illumina to its UEL, and opened an anti-monopoly investigation into Google.
On March 4, Beijing responded to Washington's addition of another across-the-board 10% tariff on Chinese goods by adding 10-15% tariffs on various U.S. agricultural goods, adding 15 U.S. companies (mainly defense firms) to its export control list, and adding 10 U.S. companies (mostly smaller and/or defense companies) to its UEL. China also announced it was banning imports of gene sequencers from Illumina.

The escalating trade war will significantly curb U.S.-China trade, but it may also increase the long-term likelihood of a trade deal. Bilateral trade will reduce substantially over the next year, with the United States effectively imposing 65% tariffs on all Chinese goods — when adding the two 10% fentanyl tariffs, the 34% reciprocal tariff, and the previously existing 11% effective tariff rate — and China tariffing U.S. goods at 34%, bilateral trade will reduce substantially over the next year. This suggests the economic pain inflicted on both countries, particularly hits to employment and chances of a recession (in the United States' case) or marked growth slowdown (in China's case), will rise. The impact on inflation will likely be more modest. U.S. inflation is still expected to rise just one to two percentage points in 2025. China, meanwhile, would actually welcome a slight uptick in inflation (on the same scale as the United States), given its struggles against structural deflation over the last two years. These higher economic stakes suggest that the probability of negotiations will increase in the medium to long term (i.e., in the next two years) as both countries begin to feel the full impact of their trade war. However, as seen in the last U.S.-China trade deal reached in 2020, it is unclear how much an agreement would actually reduce tariffs as opposed to bearing more temporary fruits, like commitments to not impose new tariffs on each other and to purchase certain goods. Thus, amid sticky tariffs, a greater economic decoupling remains a risk to watch, though the extent of this will depend on the final level of tariffs and the particular combination of concessions in a trade deal.

The escalating trade war will likely also prompt China to pursue greater economic stimulus. The elevated U.S. tariffs and the escalatory path of the trade war will likely push Beijing to significantly increase the scale of its ongoing economic stimulus. This will most likely include raising sovereign treasury bond issuances to fund more debt restructuring in the real estate, banking and local government finance sectors, along with more infrastructure projects and more consumer goods subsidy programs. Beijing will likely remain hesitant to engage in what it calls ''flood irrigation stimulus'' (e.g., providing major stimulus checks to households), given concerns about fiscal sustainability and a desire to control the direction of consumption toward supporting exporters of Chinese goods hurt by tariffs. In the unlikely event that Beijing does abandon these constraints on the type and scale of stimulus efforts, however, it could indicate a broader shift in Beijing away from a long-term focus on economic reform and toward policies that will help better weather the current geopolitical storm, no matter the cost (like China's response to the 2008-2009 Global Financial Crisis). This would hurt China's long-term chance of transitioning to a more sustainable growth model based on high-end exports, services and domestic consumption and increase the long-term risk of fiscal crises in the coming decades.