US-China tariff war 2.0 kicks off

Global Macro: After US imposes 10% China tariffs...

While the start of an imminent trade war between the US and its neighbours (Canada, Mexico) was delayed for one month at the very last minute, today marks another episode in the saga of ongoing US-China trade and tech tensions. A 10% US tariff on all imports from China has become effective as of today, based on the accusation that China is not doing enough to halt the flow of illegal drugs into the US. Unlike the cases of Canada and Mexico, US president Trump did not speak with his Chinese counterpart Xi to discuss a potential delay of tariffs, although the two had a phone call just before Trump’s inauguration last month. According to the US, Trump and Xi will speak later this week, leaving the door open for a possible short-term agreement – although there are also obvious risks of further escalation.

... Beijing retaliates immediately, in a targeted, measured way

Immediately after the US tariffs went into effect, Beijing responded by imposing a 15% tariff on LNG and coal imported from the US, and a 10% tariff on crude oil and agricultural equipment. That is a measured, non-proportional reaction, in line with our expectations, leaves the door open for further negotiations, and does not disturb China’s commodity inflows that much. In 2024, around 6% of China’s total LNG imports came from the US, while China hardly imports any coal from the US. In line with the playbook we sketched in our 2025 China Outlook, That 2018 (tariff) feeling - What's different in 2025? China also announced it would put Google under investigation for antitrust violations, while putting another two US firms (including PVH Corp, the owner of Calvin Klein) and widening exports controls to the US with tungsten-related materials. Beijing also stated it had filed a complaint with the World Trade Organization in response to the new US import tariffs.

10% US tariffs not a game changer, but more could come

As we wrote in our earlier Global Insight comment , a 10% tariff will not be a game changer in terms of our growth forecasts for China, also reflecting our expectation of a further stepping up of monetary easing and fiscal support, partly contingent on the effective implementation of higher US tariffs. Besides, although the first tariff implementation now seems to have come even earlier than anticipated in our Global Outlook, The Year of the Tariff, in our base case we already anticipate a material (gradual) stepping up of US import tariffs on China to an average effective tariff rate of 45% per Q2-2026. While talks between Trump and Xi may potentially smoothen the risk of a further escalation for now, Trump stated earlier this week that he sees the 10% tariffs as a first salvo, with tariffs on China potentially moving much higher if no agreement is reached.