China’s retaliated by escalating its own trade war with the United States. From withdrawing from the TPP—they’re already raising tariffs on American goods—up to a whopping 125%, from their previous rate of 84%. This action was largely a response to the reciprocal tariffs imposed by U.S. President Donald Trump. Consequently, tensions between the two economic superpowers have escalated further. On Friday, the Customs Tariff Commission of the State Council made the announcement of its decision. This is the biggest step yet in the escalating trade war.
In an on-air interview with Fox Business, U.S. Treasury Secretary Scott Bessent acknowledged the hike. He noted that the increased tariff rate “reflect[s] a deepening bifurcation” in U.S.-China economic relations. Beijing has responded by unleashing a barrage of reciprocal action. These measures include retaliatory tariffs on American goods and negative restrictions against U.S. businesses that are operating in China.
The new Administration added its own layers of tariffs, and marked the effective tariff rate on all Chinese imports at 145%. Indeed, CNBC first reported this number on Thursday. This rate represents the joint cumulative effect of both countries’ tariff actions, which have been increasing sharply over the last several months. Goldman Sach’s analysts note that Chinese exports to the U.S. account for less than 3 percentage points of China’s GDP in total. Even taken as such, there is a massive attached impact of these exports on employment in China.
Earlier this month, Goldman Sachs lowered its GDP forecast for China to 4%. This shift takes place against the backdrop of intensifying trade tensions and a worldwide economic slowdown. The firm attributed the negative impacts of U.S. trade policies as a major reason leading to this downgrade. Beijing is increasing the pressure with its own retaliatory measures. Consequently, hopes for an amicable settlement to the ongoing trade spat between the two countries are evaporating quickly.
The state of affairs today serves as a reminder of how intricate international trade relationships can be, and how far-reaching the long-term impacts can be for both economies. New high tariffs and trade restrictions would severely shake bilateral trade. This would set off second-order economic effects, harming job creation and increases in GDP in both nations.