Dear Valued Client,
As projected and previously advised, the Administration has imposed 10% tariffs on all products from China and Hong Kong, with very limited exceptions.
In response, China announced retaliatory tariffs on select American imports, export controls on critical minerals, and an antitrust investigation into Google. China’s response includes additional measures beyond tariffs that target particular sectors of the U.S. economy, indicating that China is better prepared for President Trump’s trade actions in comparison to the 2018 trade war. China’s response is relatively modest compared to U.S. actions and appear designed to convey a message to the U.S. without imposing significant hardship. Unlike the immediate negotiations and resulting delays of the tariffs with Mexico and Canada, President Trump and President Xi Jinping have yet to speak but have a scheduled call. This may signal that these tariffs will not be resolved swiftly. With China’s retaliatory countermeasures, President Trump may increase or expand in scope of the new tariffs as per the Executive Order.
Tariffs on US Exports to China
China intends to implement a 15% tariff on coal and liquefied natural gas products as well as a 10% tariff on crude oil, agricultural machinery, and large-engine cars imported from the U.S. effective, Monday, February 10, 2025.
China Export Controls on Critical Minerals
Effective Tuesday, February 4, 2025, the Ministry of Commerce of China (MOFCOM) has added several metals to its export control list, which impacts multiple countries, including the U.S. This move restricts but does not completely ban U.S. access to these minerals, which are essential for producing semiconductors, missile systems, and solar cells. For any controlled item on this list, an export license for dual-use items is required before exportation. Although the U.S. is not heavily reliant on China for some of these minerals, they include tungsten, tellurium, bismuth, molybdenum, and indium. Many of these are designated as critical minerals by the U.S. Geological Survey, signifying their importance to the U.S. economic and national security and their vulnerable supply chains.
China Targets Individual Companies
China’s State Administration for Market Regulation is investigating Google on suspicion of violating antitrust laws.
Effective Tuesday, February 4, 2025, MOFCOM has placed two American companies, PVH Group (owners of Calvin Klein and Tommy Hilfiger) and the biotechnology firm Illumina, on its Unreliable Entities List for having “disrupted normal business with Chinese companies, taken discriminatory measures against Chinese companies and severely harmed the legitimate rights of Chinese companies.” This designation could prevent these companies from engaging in import or export activities related to China and from making new investments within the country
Forthcoming U.S. Trade Activity
In an article posted yesterday, Trump advisor Peter Navarro announced that the Commerce Department will conduct Section 232 investigations to assess how the steel and aluminum tariffs should be adjusted and evaluate the impact of imports of “critical minerals” and “essential medicines” on U.S. domestic production capabilities. Trump used Section 232 during his first administration to impose 25% tariffs on steel and aluminum (later expanded to derivative products). It is unclear at this time what “essential medicines” are intended to cover – the World Health Organization has an “Essential Medicines List” and, in response to an Executive Order in the first Trump Administration, the U.S. Food and Drug Administration published a list of essential medical products and countermeasures in October 2020.
U.S. Industries Expressing Concern about the impact of new tariffs on President Trump
The American Farm Bureau Federation, the nation’s largest general farm organization representing all sectors of agriculture, cautions against tariffs – including those on Chinese products, emphasizing that tariffs may inadvertently “create financial hardships for U.S. farmers and ranchers who are already operating on very thin or negative margins.”
Pharmaceuticals were a target of Trump’s previous tariff actions and recent campaign in an attempt to force the development of domestic manufacturing capability. Drug and medical device manufacturers have responded to these latest tariffs, arguing that the 10% tariff on Chinese goods could significantly impact American patients and the medical product supply chain and exacerbate drug shortages. Tariffs on China could disrupt the biopharmaceutical industry, which is increasingly partnering with Chinese firms for new drug candidates and active pharmaceutical ingredients. However, the American Medical Manufacturing Association supports the tariffs on Chinese goods, arguing they address anti-competitive behavior.
Industries may face an increase in China tariffs depending upon the outcome of the USTR’s recently announced investigation on China’s compliance with the previously executed U.S.-China Phase One Trade Agreement. While China’s imports of US agricultural products increased slightly following the Phase One deal, China’s purchases of American manufactured goods decreased in 2020 and 2021.
Tariff Mitigation under Chapter 98
There are exemptions that are expected to continue that allow importers to avoid tariffs from China, including Chapter 98 which allows duty-free entry of machinery and parts of machinery for agricultural and horticultural use.
