Hours after President Donald Trump unveiled a 10% tariff on goods imported from Beijing, China imposed tariffs on a range of US products and launched an investigation into Google, ratcheting up trade tensions between the world's two largest economies.
In a statement on Tuesday, China's State Administration for Market Regulation said it would investigate Google for potential antitrust violations. At the same time, China imposed a 15% tariff on US coal and liquefied natural gas exports, as well as a 10% tariff on oil and agricultural machinery. The country also blacklisted US companies PVH Corp., owner of Calvin Klein, and Illumina Inc., a leading gene sequencing firm, and imposed new export controls on tungsten-related materials.
China's Finance Ministry strongly reacted to the US unilateral tariff actions, claiming they were violations of World Trade Organization rules. The ministry further supported that such actions only worsened the US's economic issues and their relationship with trade between the two countries.
President Xi Jinping's response looked carefully calibrated, neither inflicting major damage on China's economy while at the same time convincingly showing ability to strike back in multiple sectors - again through disruption in the critical minerals supply chain and applying pressure to US businesses with large scale operations in China.
Despite these retaliatory measures, the market reaction was relatively subdued, partly because of Xi's restrained approach and speculation that China might take steps to support its own economy. Trump's willingness to engage in talks with Xi before the tariffs took effect further contributed to the muted market response.
The US dollar rebounded in this light, but the offshore yuan fell by 0.3%. Currencies in Australia and New Zealand, which are strong trading partners with China, dipped nearly 1% too. Other Asian currencies, like the Thai baht and Indonesian rupiah, trimmed their own gains.
China's reaction, as assistant professor of politics at Nanyang Technological University Dylan Loh put it, was "measured and appropriate." "I think the measures that Beijing took were calculated; they did enough to make it clear they meant business but did not provoke any further escalation," he said. He added that Beijing might also want to be like Canada and Mexico, which both agreed with the US eventually.
Beijing matched the United States with equal promptness when its tariffs kicked in, thus dismissing any prospect of a last-gasp agreement that could have staved off the measures. Before this, President Trump had relieved Canada and Mexico of a 25% tariff during a one-on-one talk.
According to shipping data, the US supplied only about 6% of China's LNG imports in the previous year, and China imports minimal coal from the US. Google's services, including search and internet offerings, have been blocked in China since 2010, though the company still operates in the country, primarily through its advertising business.
Lynn Song, chief economist for Greater China at ING Bank in Hong Kong, said the measures could be a wake-up call for US companies that are highly dependent on the Chinese market. However, she also said there was still hope that the tariffs could be rolled back or delayed following direct negotiations between the two countries.
The tariffs also affected China's tungsten exports. Being the world's largest producer of tungsten, accounting for 80% of global production, China has a strong bargaining position in this area. Tungsten is used in defense applications, such as armor-piercing projectiles, because of its high melting point and density.
Besides, PVH, which owns Tommy Hilfiger, has been under attack in China since September because of its alleged boycott of Xinjiang cotton. The concern was not directly mentioned in the statement from the company, but its blacklisting might be related to the continuing concern. Illumina is the rival competitor to Chinese player BGI Genomics that plays a significant role in the genetic sequencing market.
Trump had earlier ordered a blanket tariff on Chinese goods, something he did for Beijing's failure to curb the flow of illegal drugs. The tariffs had escalation clauses that would increase the penalties if China retaliated.
A more forceful response from China could threaten to further escalate US-China relations, which had begun to stabilize somewhat after a meeting between Xi and then-President Joe Biden in November 2023. The two countries had resumed high-level exchanges, even as tensions continued over technology access and territorial issues. Before Trump's inauguration, the two leaders had discussed trade, TikTok, and fentanyl.
Trump said he and Xi were likely to speak again "within the next 24 hours," although Beijing has not made any public comment on the matter.
Read also| USAID Staff Instructed to Stay Out of Office as Elon Musk Pushes for Agency Shutdown
Read also| US Deports Indian Migrants on C-17 Military Aircraft, First Under Donald Trump's Return