Commentary: Who Will Take a Hit From Trump’s China Tariff Hike
By Zhang Jun

U.S. President Donald Trump signed three executive orders Saturday that will impose a 10% additional tariff on goods imported from China, plus a 25% additional levy on products imported from Mexico and Canada, with a 10% tariff increase specifically targeting Canadian energy.
We believe the primary purpose of these tariff hikes is to keep his campaign promises and to highlight the return of his “act tough + negotiation” approach under the “America First” banner. Given the potential pressures of resurgent inflation and high interest rates, we think the likelihood of further U.S. tariff hikes is low in the short term.
Drawing on data from the tariff hikes implemented in 2018 and 2019 during the first Trump presidency, we estimate that the latest 10% tariff increase could lead to an 8.2% reduction in China’s export growth to the U.S. Considering that the U.S. accounted for 14.7% of China’s exports last year, this tariff increase would drag China’s overall export growth down by approximately 1.2 percentage points.
Compared with Trump’s campaign statement that he would impose up to 60% tariffs on goods imported from China, the 10% tariff increase is moderate and aligns with previous market expectations. Given the uncertainty of future trade policies, Chinese companies may continue to rush their exports to the U.S. to get ahead of any potential further escalation of tariffs.
U.S. tariff hikes aim not only to reduce its trade deficit but also to put pressure on China’s emerging industries. The U.S. seeks to suppress industries where China has an advantage and ultimately, bring manufacturing back to the U.S. As such, from the aspects of export growth and the U.S.’ intent to curb China’s high-tech industries, we can anticipate that industries such as furniture, toys, clothing, optical instruments, automobiles, lithium batteries, aluminum products, heavy machinery, and medical equipment may be hurt by the additional tariffs.
That said, we believe that in 2025, three factors will support China’s export growth. First, international trade is likely to maintain its upward trend amid a gradual economic recovery. The International Monetary Fund predicts the global economy will grow at 3.3% year-on-year in 2025 while the World Trade Organization (WTO) estimates 3% annual growth in international goods trade for the year. Second, the competitiveness of Chinese products has increased. Third, China’s export destinations are growing more diverse.
Last year, the shares of China’s exports to several big traditional markets fell. The EU’s share was down by 0.4 of a percentage point. For the U.S., the figure was 0.1. And for the combined market of Japan and South Korea, it was 0.8. However, the share of China’s exports going to Association of Southeast Asian Nations (ASEAN) member countries grew by 0.9 of a percentage point. The total share of China’s exports to Russia, Brazil, and South Africa was up by 0.1 of a percentage point.

On the exchange rate front, higher U.S. tariffs usually mean higher depreciation pressure on the yuan. However, in our view, any impact on the Chinese currency would not be as severe as the one in 2018.
The reasons follow. First, some of the impact of the tariff hike has been priced into the yuan-U.S. dollar exchange rate since November, as Trump repeatedly promised to increase tariffs. As the 10% tariff is implemented, depreciation pressure on the yuan may actually ease. Meanwhile, the situation facing the yuan is significantly different from during the last tariff hikes from 2018 to 2019.
Second, the U.S. is currently in a rate-cutting cycle, whereas it was in a hiking cycle in 2018. Third, from a domestic perspective, China embarked on a fiscal expansion ahead of the latest tariff hike. The current cost of government debt is lower than the economic growth rate, allowing for more efficient use of Chinese government debt, which provides support for the currency. Fourth, China’s export sector is stronger today, and the current account surplus provides strong support for the yuan’s exchange rate.
Nevertheless, we should be wary of the risk of further escalation of the global trade conflict. Canada and Mexico have both announced retaliatory tariffs following the U.S. announcement. In response to the 10% additional tariff, China said it will file a complaint with the WTO and take countermeasures to safeguard its rights.
In addition, the potential U.S. measures against China include the removal of its most-favored-nation (MFN) status. China needs to watch out. However, as the U.S. faces inflationary pressure, the likelihood of canceling China’s MFN status or a hard decoupling this year is low.
Zhang Jun is chief economist at China Galaxy Securities Co. Ltd.
This commentary has been edited for length and clarity.
Contact translator Qing Na (qingna@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)
The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.
caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.
Image: thanapun– stock.adobe.com