Moving to raise tariffs on imports from China by President Donald Trump. This action, perhaps more than any other taken by President Trump, has stoked enormous fears for the future of trade relations between these two economic titans. Economists note that the new cumulative U.S. tariff rate on Chinese goods has now climbed to an unheard of 145%. This drastic escalation is essentially shutting down all but essential trade between the two countries. On July 5, China has responded in kind, increasing its duties on American exports. Their new rate has increased from just 34% to 84%, which takes effect this Thursday.
The Tax Foundation, a nonprofit, nonpartisan research organization, predicts that the new tariffs will increase federal tax revenues. They project this incremental growth to be about $171.6 billion just for this year. By 2025, this number is expected to shoot up to more than $170 billion. Erica York is an economist at the Center for Federal Tax Policy at the Tax Foundation. She pointed out the bad precedent these tariff rates would set historically.
“It’ll take the average tariff rate still to highs that we haven’t seen since the 1940s, so this is major,” – Erica York
These tariffs’ effect on the stock market was both swift and severe. Yet a White House official’s confirmation of the heightened tariff rate was all that it took for the market to crash nearly 600 points. That rapid drop erased much of the dramatic surge from an epic rally only one day prior. Investors reacted with caution as uncertainty loomed over future trade negotiations, with York noting that “it’s not like the threat went away entirely.”
The recent increase in that tariff was even more acute, skyrocketing from 84% to 125%. There is a 20% Chinese import tax on fentanyl. Beyond increasing tariffs, this move rocketed U.S. trade policy in an awful new direction. It does raise some very serious questions about what’s in store for American consumers and businesses that rely upon Chinese imports.
President Trump subsequently declared a 90-day suspension of tariffs on imports from all other countries, reducing those rates to 10%. Yet U.S.-China relations remain dangerously stuck in limbo. The lack of clarity surrounding future tariff reversals, scheduled to be evaluated in July, adds to the market’s volatility and uncertainty.
As this trade saga unfolds, stakeholders on both sides of the Pacific are left navigating the complexities introduced by these new tariffs. Beyond safety, this policy change has direct fiscal costs. It poses a profound challenge to the traditional patterns of global trade and interconnected economic and political alliances.