Behind US–China Tariff Tit-for-Tat

Commentary

Much of the media focus on the Trump administration’s reciprocal tariff policy has been on the progress of tariff negotiations with each U.S. trade partner.

With respect to communist China, media headlines in recent weeks have concentrated on the tit-for-tat of tariffs proposed by the United States and “countered” by China. That eventually led to a temporary tariff de-escalation agreement reached between the two countries in Geneva on May 14.

The deal sets the table for comprehensive U.S.–China trade negotiations. They will include nontariff-related issues that have long been barriers to U.S. companies and products in China—a relatively unreported but key objective of President Donald Trump’s trade strategy.

Let us examine the topic.

US–China Tariffs and Counter-Tariffs

Rebalancing trade with China has taken center stage in the second Trump administration. The signing of Executive Order 14195 declared a national emergency regarding fentanyl and other drug trafficking from China, accompanied by an additional 10 percent tariff imposed on all Chinese imports.

China’s response was to impose 15 percent tariffs on U.S. coal and liquefied natural gas, and 10 percent tariffs on U.S. oil and agricultural machinery.

Beijing also implemented nontariff measures that included launching an antitrust investigation into Google and adding some U.S. companies to its “Unreliable Entity List.” Companies on that list face penalties and barriers to the Chinese domestic market, including trade and investment restrictions, entry bans, permit revocations, and fines.

On March 4, the United States raised tariffs on all Chinese products to 20 percent. China retaliated on March 10, with 10 percent to 15 percent tariffs on select U.S. agricultural, meat, and dairy products, a suspension of U.S. lumber imports, and a revocation of soybean import licenses for three U.S. firms.

On April 2, Trump signed Executive Order 14257, which established a 34 percent “reciprocal tariff” on all Chinese imports, bringing the effective U.S. tariff rate on Chinese goods to 145 percent.

China retaliated with a 34 percent tariff on all U.S. goods. In addition, it added nontariff measures such as implementing export restrictions on Chinese-controlled rare earth elements—vital for strategic manufacturing processes—and adding more U.S. companies to its Unreliable Entity List.

On April 8, in response to this Chinese retaliation, Trump signed Executive Order 14259, which increased tariffs on Chinese imports from 34 percent to 84 percent (effective on April 9), in response to China’s retaliatory measures.

On April 9, the president signed Executive Order 14266, which established an effective total U.S. tariff rate of 145 percent on Chinese goods.

China immediately retaliated by raising tariffs on all U.S. exports to a total tariff rate of 147.6 percent, again adding more U.S. companies to its Unreliable Entity List.

On May 14, U.S. and Chinese negotiators agreed to a temporary 90-day tariff reduction. The United States reduced its tariffs on Chinese goods to 30 percent from 145 percent, while China reduced its tariffs on U.S. goods to 10 percent from 147.6 percent. China also agreed to suspend various retaliatory nontariff measures while formal negotiations on a comprehensive trade deal are completed.

Chinese Nontariff Trade Barriers

Chinese retaliation against new U.S. tariffs has included a few nontariff actions, as identified above.

However, the list of nontariff-related barriers on the United States (and other countries) implemented arbitrarily by China’s Ministry of Commerce is extensive, complex, and fraught with peril for companies interested in doing business in China.

It is ironic that, despite regular pronouncements from Chinese leader Xi Jinping about steps being taken to “open China,” the policies and regulations that the Ministry of Commerce has implemented over the past 40-plus years have done the exact opposite.

Here are some of the more onerous nontariff measures and practices throttling U.S. and other foreign companies in China, which Trump’s reciprocal tariff policy is attempting to address.

State-Sponsored Mercantilist Practices

The Chinese regime has implemented efforts that violate World Trade Organization (WTO) rules, agreed to when China joined the WTO in 2001.

China heavily subsidizes its state-owned enterprises, in violation of the WTO’s Agreement on Subsidies and Countervailing Measures. A 2023 report from Congress noted that China “uses an intricate web of industrial policies, including subsidies, forced technology transfer, and market access restrictions, to distort market behavior, achieve dominance in global markets, and increase U.S. dependency on PRC imports.”

Subsidies allow Chinese companies to undercut the production costs of foreign companies and gain market share domination in various commercial sectors by “dumping” cheap Chinese goods in countries around the world. A companion practice is China’s currency manipulation, which undervalues the yuan to make its exports cheaper.

Market Access Restrictions

In addition to the arbitrarily maintained Unreliable Entity List, China restricts access to its domestic market through various policies, rules, and blacklists.

For example, China has not joined the WTO’s Government Procurement Agreement, despite promises to do so. This limits foreign companies’ access to China’s public procurement market.

China routinely blocks agricultural imports—typically without any scientific basis other than claims of pest contamination—as a punitive measure to provide leverage points in diplomatic negotiations. These blacklists are also intended to favor Chinese producers at the expense of foreign entities.

On the flip side, China has restricted access to critical raw materials such as rare earth elements, in direct violation of WTO precursor GATT Article XI, General Elimination of Quantitative Restrictions, which prohibits nontariff restrictions on imports and exports among WTO countries.

Regulations

Foreign companies wishing to do business in China, especially automotive, aerospace, telecommunications, and information technology enterprises, are required to develop joint ventures with Chinese firms.

Joint ventures are a key tactic for the mandatory transfer of technology, designs, and trade secrets, reverse engineering of foreign technology and designs, and for perpetrating the outright theft of foreign intellectual property of all kinds. Regulations require many foreign companies to contribute proprietary technologies to Chinese national standards maintained by the Standardization Administration of China.

Other regulations, such as China’s Cybersecurity Law and the Multi-Level Protection Scheme, require foreign companies to store data locally and undergo periodic cybersecurity reviews, which grant the Chinese access to proprietary data and records. China also has local content rules that prioritize domestic firms for public contracts and force foreign companies to use locally produced components or services when selling in the Chinese domestic market.

Concluding Thoughts

U.S. reciprocal tariffs are aimed at solving a long-standing U.S.–China trade imbalance benefiting China at the expense of U.S. producers.

While garnering most of the headlines, the tariffs also provide substantial leverage to address many nontariff barriers to U.S. trade erected by communist China over the years.

Pushing China to comply with its original commitments to the WTO and the associated trade practice regimen and addressing the above trade barriers will go a long way toward “opening China” for real.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.