UPDATE (April 9, 2025, 2:12 p.m. ET): On Wednesday President Donald Trump shared on social media that he is raising U.S. tariff charges on China to 125%. For other countries, the president said in the post, he is issuing a 90-day pause on reciprocal tariffs, during which time he will lower tariff charges to 10%.
You’re not alone if you’re struggling to understand the back-and-forth between China and the U.S. over tariffs. Even Treasury Secretary Scott Bessent appeared confused, answering, “I think it is,” when asked if a 34% tariff President Donald Trump said he was imposing on Chinese goods imported into the U.S. was to be added to the 20% tariff that already existed. On Monday morning, Trump threatened an additional 50% tariff on China if it does not reverse the retaliatory 34% tariff on U.S. goods it announced last Friday.
What does this trade war, including China’s retaliation, mean and what can markets, consumers and companies expect to come? Remember that the most significant U.S. products and assets in China are services and intellectual property. Chinese authorities can decide to outright ban these things. They could, as reports in the Los Angeles Times, Deadline and The Hollywood Reporter suggested Tuesday, refuse to screen Hollywood movies. But there’s plenty China has already done.
While China’s across-the-board 34% on U.S. goods is a clear “tit-for-tat,” that’s not all the country did in response to Trump imposing tariffs.
China’s across-the-board 34% tariffs on U.S. goods is a clear “tit-for-tat,” and on top of that, China placed 11 U.S. companies on its “unreliable entity list,” thereby preventing those firms from doing business with Chinese firms.
China also announced an antitrust investigation last week into DuPont, which is its way of exercising leverage over a major U.S. firm. China has threatened similar investigations into Google, Nvidia and more. The speed of China’s retaliatory actions is significant; the government announced its moves on a national holiday. Even Chinese citizens most likely thought the government would wait until the weekend to retaliate.
Trump may have expected that the tariffs would bring the Chinese to the table, or at least that Monday’s threat of an additional 50% would move them to action. But the People’s Republic does not work through humiliation and threat — even if the tariffs will hurt them.
China is angry, determined to show resolve in the face of American strong-arming and in no way ready to make a deal with the Trump administration. That is, if Trump’s administration is even looking to negotiate. The administration has floated multiple and mutually exclusive rationales for the historic tariffs — including negotiation leverage, revenue generation and shoring up jobs and manufacturing in the U.S. Even if the Chinese were interested in negotiations, they have no idea whom to talk to and are reluctant to expose themselves, and particularly Chinese President Xi Jinping, to any kind of uncertainty in atmospherics.
The Chinese economy is by no means dependent on exports to the U.S., but it is already in deep trouble. Since lifting its Covid-19 restrictions, its economy has been dragged down by devastating property sector breakdown, local government fiscal crisis and structurally low domestic demand. That last part means Chinese households don’t want to part with their income given uncertainty about aging parents, a weak job market, cycles of crackdowns in China over the last few years and weak government provision of social and public services.
China is determined to show resolve and is in no way ready to make a deal with the Trump administration.
China’s household consumption has been worryingly low for decades, and China’s policymakers have tried in multiple ways to stimulate domestic demand since at least the Asian Financial Crisis in the late 1990s. But the country’s economy has grown even with lagging domestic demand, partly because of the demand for exports. China has pushed capital into manufacturing, generating more products — including electric vehicles, semiconductors, robotics and also toys, furniture and textiles — that someone, somewhere has to consume.
The Trump administration’s tariffs apply not only to China but also to its trading partners outside the U.S., meaning that even if China does not depend as much on U.S. demand (exports to the U.S. from China have fallen as a percentage of China’s total exports from 20% in 2018 to 15% in 2024), the shock to global demand may affect China’s economy quite deeply.
What can we expect from China in the months and years to come? The most ironic outcome of Trump’s tariffs on China and beyond may be that they provide a serious impetus for China to make domestic economic reforms to adapt. Not to capitulate to U.S. accusations or adopt a different economic model, but perhaps to finally undertake the fiscal and financial reforms that would actually get Chinese households to spend their money.
My Chinese colleagues have been using a Chinese idiom that roughly translates: “Circumstances will force them” when they speculate about when and how Chinese authorities will forge meaningful reform to better allocate capital and reassure domestic markets. Trump’s efforts may push China not to yield to U.S. strength but to reconfigure the sources of its own strength.
As for what will happen to companies here, U.S. firms cannot just quit China. The U.S. does not make all the intermediary goods that these firms require, but beyond that, competing in China’s market, as risky and unfair as it is, is essential for U.S. companies’ competitiveness. A new report I co-wrote for the U.S. Chamber of Commerce Foundation shows exactly that: Even the companies who see China as the primary source of risk have plans to stay and compete there because, as one firm representative put it, “our greatest fear is that we are surprised by competitors from China elsewhere in the world.”
Firms can and will do business in and with China and, ideally, exercise risk management so they can benefit from China’s dynamism and minimize the threat. But now they are managing risk not only with an emboldened Chinese government but also with an unpredictable American one.