Five ways China is hitting back against US tariffs

The trade conflict between the world's two largest economies has intensified as China retaliates against the U.S.'s implementation of tariffs with its own countermeasures. Beijing has chosen to target specific American products with new taxes, following the U.S.'s blanket 10% tariff on all Chinese imports.

This recent escalation is part of an ongoing trade dispute that has seen tariffs imposed and threatened on various goods since 2018. President Trump has expressed his intention to speak with Chinese President Xi Jinping in hopes of reaching an agreement. However, if China follows through with its planned response on February 10, it could have significant consequences.

Coal, oil and gas

As part of its response to U.S. tariffs, China has imposed its own import taxes, including a 10% levy on U.S. coal and liquefied natural gas (LNG), and a 15% charge on crude oil. This means that companies seeking to import fossil fuels from the U.S. will have to pay the additional tax.

While China is the world's largest importer of coal, most of it comes from countries like Indonesia, Russia, Australia, and Mongolia. Although China has been increasing its LNG imports from the U.S., with volumes nearly doubling from 2018 to 2023, its overall fossil fuel trade with the U.S. is modest. In fact, U.S. crude oil accounted for only 1.7% of China’s total oil imports in 2023, suggesting that China is not heavily reliant on the U.S., meaning the impact of these tariffs on its economy could be limited.

Trade economist Rebecca Harding points out that China could easily source more fossil fuels from Russia, where it has been purchasing discounted oil to support the Kremlin’s war efforts. On the other hand, the U.S. is the world's largest LNG exporter, and it has many other customers, particularly in the U.K. and the European Union.

In addition to fossil fuels, China has placed a 10% tariff on agricultural machinery, pickup trucks, and some large cars. However, since China does not import many U.S. pickup trucks and mostly sources cars from Europe and Japan, the impact on consumers would likely be minimal. China's recent investments in agricultural machinery are aimed at boosting domestic production and reducing reliance on imports, so these tariffs might serve to support the domestic industry.

Julian Evans-Pritchard, head of China economics at Capital Economics, notes that the tariffs are relatively modest compared to the U.S. actions, affecting about $20 billion worth of U.S. imports—roughly 12% of China's total imports from the U.S. This is significantly smaller than the $450 billion worth of Chinese goods targeted by the U.S.

China has also initiated non-tariff measures, including an anti-monopoly investigation into U.S. tech giant Google. While Google’s search services have been blocked in China since 2010, the company still operates in the country through apps and games in partnership with local developers. However, China represents only about 1% of Google’s global sales, meaning a complete severing of ties would likely have minimal impact on the company.

Calvin Klein added to 'unreliable entities' list

China has added PVH, the American company behind designer brands like Calvin Klein and Tommy Hilfiger, to its "unreliable entity" list, accusing it of taking "discriminatory actions against Chinese businesses." The list, established by Beijing in 2020 amid escalating trade tensions, includes several U.S. companies. Being on this list will make it more challenging for Calvin Klein and Tommy Hilfiger to operate in China, potentially leading to sanctions such as fines, the revocation of foreign employees' work visas, and investigations into the firms' factories, according to Andreas Schotter, a professor at Western University in Ontario, Canada.

This move mirrors the U.S.'s own "entity list," which restricts certain organizations from purchasing products from U.S. companies without approval. Schotter views China's actions as a response to the U.S. strategy of decoupling the two economies.

Additionally, China has imposed export controls on 25 rare metals, many of which are vital for electronics and military equipment. China dominates the global production of these metals, refining nearly 90% of the output. The restricted list includes tungsten, a key material for the aerospace industry.

However, it’s worth noting that China has not targeted critical metals imported from the U.S. that are essential for high-end chips, semiconductor machinery, pharmaceuticals, and aerospace. According to Julian Evans-Pritchard of Capital Economics, the process of securing export licenses could significantly disrupt supply chains, leading to a sharp drop in exports.

Meanwhile, the U.S. appears to have a strategy in place. President Trump recently proposed that Ukraine guarantee the supply of more rare earth metals in exchange for $300 billion in support for its fight against Russia.