04 Feb 2025

**Global Macro Analysis: U.S.-China Trade Relations and Tariff Implications**

The recent enactment of a 10% tariff on imports from China by the United States has triggered a swift and strategic response from Beijing, highlighting the ongoing tensions in U.S.-China trade relations. According to Arjen van Dijkhuizen, Senior Economist at ABN AMRO, while the initial 10% tariffs are not expected to cause significant disruptions to the broader economic landscape, there remains a looming threat of further tariff increases that could have more profound implications.

In retaliation, China has introduced a series of tariffs on U.S. goods, including a 15% tariff on liquefied natural gas (LNG) and coal imports, as well as a 10% tariff on crude oil and agricultural machinery. This response is characterized as measured and proportional, reflecting a strategic approach that allows for the continuation of negotiations without severely impacting China's overall commodity imports. Notably, in 2024, only about 6% of China's total LNG imports were sourced from the U.S., and coal imports from the U.S. are relatively minimal, suggesting that the immediate economic impact on China may be limited.

In addition to tariff measures, China has escalated its regulatory scrutiny of U.S. companies operating within its borders. An antitrust investigation into Google has been initiated, alongside actions targeting other U.S. firms, including PVH Corp, the parent company of Calvin Klein. Furthermore, China is tightening export controls on tungsten-related materials destined for the U.S., signaling a broader strategy to leverage trade policy as a tool for economic and geopolitical maneuvering. Additionally, Beijing has lodged a formal complaint with the World Trade Organization (WTO) regarding the new U.S. import tariffs, indicating a willingness to challenge U.S. trade practices on the international stage.

While the initial implementation of these tariffs occurred sooner than anticipated in ABN AMRO's Global Outlook report, titled "The Year of the Tariff," the baseline scenario suggests a gradual escalation of U.S. import tariffs on China. Projections indicate that these tariffs could reach an average effective rate of 45% by the second quarter of 2026. Although there is potential for discussions between U.S. President Trump and Chinese President Xi Jinping to alleviate some immediate tensions, Trump has made it clear that he views the 10% tariffs as just the beginning. He has signaled the possibility of imposing significantly higher tariffs on China if a satisfactory trade agreement is not reached.