How China is retaliating against Trump’s tariffs

China unveiled multiple countermeasures on Tuesday, immediately after new U.S. tariffs on its imports took effect. This marks the latest development in an escalating trade dispute that began with President Donald Trump’s weekend announcement of broad tariffs targeting multiple trading partners.

Trump on Saturday ordered a 10% tariff across all Chinese imports into the U.S., citing Beijing’s alleged failure to stem the flow of fentanyl and its precursor chemicals into the U.S., along with concerns about China’s growing trade surplus. The measures took effect at 12:01 a.m. ET on Tuesday.

Within minutes of the U.S. tariffs taking effect, China’s Finance Ministry announced its response: targeted levies on specific American goods, along with additional measures affecting U.S. companies and critical mineral exports.

China’s State Council Tariff Commission detailed two tiers of counter-tariffs:

These tariffs are set to begin on Feb. 10, creating a window for potential negotiations. White House Press Secretary Karoline Leavitt confirmed Tuesday that a call between Trump and Chinese President Xi Jinping “is being scheduled and will happen very soon.”

In a statement, the State Council Tariff Commission emphasized that the U.S.’ “unilateral tariff increase seriously violates the rules of the World Trade Organization,” adding that such actions damage normal economic cooperation between the two nations.

Initial analysis of trade data suggests China’s counter-tariffs may have limited broad economic impact while targeting specific sectors strategically. U.S. natural gas exports to China represented just 2.3% of total American LNG exports in 2023, according to the U.S. Energy Information Administration, while Chinese imports of U.S. crude oil accounted for only 1.7% of its total oil imports in the previous year, or worth about $6 billion, as per Reuters.

The automotive sector, however, appears particularly vulnerable to the new measures. With fewer than 110,000 vehicles imported from the U.S. last year, the impact may seem modest, but several key market segments are facing disruption. GM’s planned introduction of the Chevrolet Tahoe and GMC Yukon to the Chinese market could face significant headwinds, while Ford’s existing exports of the Mustang and F-150 Raptor may see reduced competitiveness. Additionally, Tesla’s future plans for Cybertruck sales in China could be complicated by the new 10% electric truck tariff.

China simultaneously announced immediate export restrictions on critical minerals essential for high-tech manufacturing and designated as critical by the U.S. Geological Survey. These include bismuth, indium, molybdenum, tellurium and tungsten.

The controls expand upon similar restrictions China placed on gallium exports in December 2023, highlighting Beijing’s strategic leverage in the critical minerals supply chain. “We depend on them for a lot of critical minerals: gallium, germanium, graphite, a host of others,” said Philip Luck, an economist at the Center for Strategic and International Studies and former State Department official, AP News noted. “They could put some significant harm on our economy.”

The Chinese government intensified pressure on U.S. companies Tuesday through multiple regulatory channels. The State Administration for Market Regulation announced the launch of an antitrust investigation into Google, though the tech giant already maintains limited operations in China after its 2010 market exit.

In a parallel move, the Commerce Ministry expanded its unreliable entities list to include two prominent American companies. PVH Group, the parent company of Calvin Klein and Tommy Hilfiger, faces potential restrictions following an investigation into what Chinese authorities described as “improper Xinjiang-related behavior” regarding cotton sourcing. The ministry also targeted Illumina, a biotechnology firm competing directly with Chinese gene-sequencing company BGI. Companies placed on this list could face significant constraints on their ability to conduct business in China, including restrictions on import-export activities and new investments.

Financial markets reacted to Tuesday’s developments:

The trade dispute occurs against a backdrop of wider international trade tensions. Over the weekend, Trump had announced 25% tariffs on Canada and Mexico, which were subsequently paused for 30 days after both countries agreed to specific border security measures. Canada committed to deploying new technology and personnel along its U.S. border and launching cooperative efforts to fight organized crime, fentanyl smuggling and money laundering. Meanwhile, Mexico agreed to reinforce its northern border by shifting 10,000 National Guard members there to stem illegal migration and drug trafficking.

The Peterson Institute for Economic Affairs estimates the tariffs on Chinese goods could shrink the U.S. economy by $55 billion and China’s economy by $128 billion. Separately, it projects the tariffs on Mexico and Canada could have an even larger impact: potentially wiping $200 billion off the U.S. economy over the next four years, reducing Canada’s economy by $100 billion, and shrinking Mexico’s economy by 2%.

The fentanyl issue remains a central point of contention, with China maintaining that the U.S. must address its domestic drug crisis rather than impose tariffs. While the U.S. records approximately 70,000 fentanyl-related overdose deaths annually, China insists it has implemented strict controls, with its Ministry of Public Security reporting no U.S. seizures of fentanyl precursors originating from China since Beijing began taking legal action.

John Coyne, director of national security programs at the Australian Strategic Policy Institute, said Beijing has the capability but perhaps not the will to address U.S. concerns. “The truth is that if Xi Jinping and the CCP wanted to end the flow of precursors and synthetic opioids to the U.S., they can most certainly do so,” he told the Washington Post. “The CCP operate probably the most sophisticated surveillance of their population of any population in the history of humankind. So if they wanted to stop that flow, they could.”

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