China Responds to U.S. Tariffs with Retaliatory Measures

China Responds to U.S. Tariffs with Retaliatory Measures

Beijing has announced additional tariffs of up to 15% on a range of U.S. goods starting March 10, intensifying the ongoing trade dispute between the world’s two largest economies. The decision, unveiled by China’s Ministry of Finance and Ministry of Commerce, follows the latest round of U.S. tariff hikes on Chinese imports.

In addition to higher duties, China will restrict exports to 15 U.S. companies, including major defense contractors like Leidos and General Dynamics Land Systems. This latest development signals a worsening of trade relations, with both sides unwilling to back down.

Agricultural Products at the Center of Tariff War

China’s retaliatory tariffs primarily target U.S. agricultural products, an area where American exporters rely heavily on Chinese demand. Under the new policy:

• Corn exports will now be subjected to a 15% tariff
• Soybeans, another major export to China, will face a 10% tariff

The U.S. agricultural sector, particularly soybean farmers, has historically been vulnerable to shifts in China’s trade policies. With China being one of the largest buyers of American agricultural goods, this move is expected to have ripple effects across the sector.

China Rejects U.S. Trade Pressures

Lou Qinjian, a spokesperson for the 14th National People’s Congress, reiterated China’s firm stance against economic pressure and coercion from the U.S.. He emphasized that while China is open to dialogue, it will not tolerate what it perceives as economic intimidation.

Meanwhile, China’s Ministry of Commerce has condemned the new U.S. duties, calling them harmful to bilateral trade. Beijing has urged Washington to withdraw the tariffs, warning of further countermeasures if tensions escalate.

Impact on U.S.-China Trade Relations

As the White House confirmed a 10% increase in tariffs on Chinese imports, the total new tariff burden has now risen to 20% within just over a month. Experts warn that this continued escalation could lead to long-term economic consequences, particularly for businesses dependent on international trade.

Frederique Carrier, Head of Investment Strategy at RBC Wealth Management, highlighted the risks of retaliation and escalation.

“Trade wars carry the risk of retaliation, and we expect some response from China, Canada, and Mexico, which are all facing new tariffs,” Carrier noted.

Rather than matching the U.S. tariffs directly, Beijing appears to be using targeted responses, strategically imposing levies where they hurt U.S. businesses the most.

Previous Retaliatory Actions

This is not the first instance of China responding to Washington’s tariff measures. After the initial round of U.S. tariffs in February, China retaliated by:

• Raising duties on U.S. energy imports
• Adding two American firms to its ‘Unreliable Entities List’, restricting their business operations in China

Rising Tariff Burden on Chinese Goods

Analysts estimate that the average U.S. tariff rate on Chinese goods will now reach 33%, a sharp rise from 13% before Donald Trump’s return to office in January. The increasing tariff pressure has prompted China’s state-backed Global Times to suggest that Beijing may soon expand tariffs to more U.S. exports, particularly in the agricultural and energy sectors.

U.S. Agricultural and Energy Exports at Risk

China remains a key buyer of American agricultural and energy products. According to a 2023 report from Allianz Research:

• Soybean exports to China accounted for 1.2% of total U.S. exports, valued at $22.3 billion
• Oil and gas exports represented 1%, totaling $19.3 billion
• Pharmaceutical exports ranked third, making up 0.8% of exports, worth $15.6 billion

Given these figures, further tariff hikes could significantly impact U.S. farmers, energy producers, and pharmaceutical companies, exacerbating trade tensions.

The Road Ahead: A Prolonged Trade Battle?

With both nations doubling down on protectionist policies, the risk of a full-scale trade war looms large. As Washington and Beijing continue to exchange tariff blows, businesses and consumers on both sides may face increased costs and market instability.

While there is some hope for diplomatic resolutions, China’s latest measures indicate it is preparing for prolonged economic friction with the U.S. If further tariffs are introduced, global supply chains and financial markets could experience significant disruptions.

For now, all eyes are on how Washington will respond and whether further rounds of tariffs and countermeasures will escalate an already fragile U.S.-China relationship.