US-China economic relations are facing new uncertainties after President-elect Donald Trump announced plans to impose an additional 10% tariff on all Chinese imports. The announcement, made on its social media platform Truth Social, signals a significant escalation in trade tensions between the world’s two largest economies.
Trump’s statement came shortly after he revealed his intention to enact a 25% tariff on all imports from Mexico and Canada as one of his first executive actions on Jan. 20, the day he took office. This move is expected to effectively dismantle the existing regional free trade agreement between the three nations. Trump cited illegal immigration and trafficking of illicit drugs, particularly fentanyl, as primary reasons for these sweeping tariff measures.
“I have had many discussions with China about the massive quantities of drugs, especially fentanyl, being sent to the United States, but these discussions have produced no results,” Trump said. He specifically criticized Beijing for failing to keep its promise to impose tougher sanctions, including the death penalty, on drug traffickers. Fentanyl, a highly addictive synthetic opioid, has been linked to tens of thousands of overdose deaths each year in the United States. Countering the flow of this drug, whose precursors are mainly produced in China and Mexico, has been a priority in US-China relations.
Despite past efforts to cooperate to curb drug trafficking, including agreements reached during a meeting between Chinese President Xi Jinping and US President Joe Biden in November 2023, Trump has accused China of not doing enough. “Drugs are pouring into our country, especially through Mexico, at levels never seen before,” Trump said. “Until this ends, we will charge China an additional 10% tariff on all of its products entering the United States.”
This new tariff plan is part of a broader protectionist stance that Trump championed during his presidential campaign, during which he threatened tariffs of up to 60% on Chinese goods. While the proposed 10% tariff is lower than campaign threats and market expectations of 20-30%, it still represents a significant economic move. Kinger Lau, chief China equity strategist at Goldman Sachs, told CNBC’s “Squawk Box Asia” that the lower-than-expected tariff could mute immediate market reactions. However, he expects China to counteract the economic impact through measures such as rate cuts, more fiscal stimulus and a controlled depreciation of its currency.
The Chinese government was quick to respond to Trump’s announcement. Liu Pengyu, spokesperson for the Chinese embassy in the United States, took to X (formerly Twitter) to dismiss Trump’s claims, saying China has made substantial efforts to combat fentanyl production and trafficking. Liu also highlighted the mutual benefits of economic and trade cooperation between the United States and China, warning that “no one will win a trade war or a tariff war.”
Liu also pointed out that the anti-drug teams of both nations have maintained regular communication since the Xi-Biden meeting. He described these cooperative efforts as evidence of China’s commitment to addressing the issue. In contrast, Trump called China’s actions insufficient, suggesting that Beijing has failed to live up to its obligations.
The implications of Trump’s proposed tariffs are likely to impact global markets and trade relations. According to US trade data from September, Mexico currently holds the position as the largest trading partner of the United States, followed by Canada and China. Meanwhile, Chinese customs data reveals that the United States remains China’s largest trading partner on a country-by-country basis, although the Association of Southeast Asian Nations (ASEAN) and the European Union are China’s largest regional trading partners .
Andy Rothman, investment strategist at Matthews Asia, highlighted the importance of US-China trade relations despite rising tensions. Speaking on CNBC’s “Street Signs Asia,” Rothman noted that China is unlikely to react aggressively to these new tariffs in the near term. “China has historically avoided direct reciprocal actions,” he said, suggesting that Beijing may prioritize maintaining economic stability over escalating the trade dispute.
Financial markets have already started to react to the growing trade rhetoric. The U.S. dollar appreciated about 1% against the Mexican peso and 1.4% against the Canadian dollar on Tuesday morning. The dollar also gained 0.2% against the offshore Chinese yuan traded in Hong Kong, reflecting investor concerns about the potential economic fallout from Trump’s tariff plans.
While the full impact of these tariffs remains uncertain, it is clear that Trump’s approach to international trade marks a marked departure from his predecessor’s policies. By targeting China, Mexico and Canada with broad tariff measures, Trump is signaling a return to the protectionist trade policies that characterized much of his first term. The coming months will test whether this strategy will achieve its stated goals of reducing drug trafficking and reshaping the dynamics of global trade or whether it will instead exacerbate economic tensions and disrupt international markets.
