The highly anticipated US “reciprocal tariffs” were released on April 2, Eastern Time, with an additional 34% reciprocal tariff imposed on China. This tariff increase, overlaid with the 20% tariffs announced by Trump since taking office, raises the overall tariff rate on Chinese goods to 54%. Many market institutions believe that the impact on the Chinese economy from this tariff hike will exceed the tariffs imposed during the trade war in 2018 and 2019.
According to reports from Caixin, international financial institutions such as Morgan Stanley and Nomura estimate that, combined with existing tariffs, the weighted average tariff rate on US goods imposed by China has reached 65% to 66%, reaching a historic high.
According to calculations by the Trump administration, the current average tariff imposed by China on US goods is around 67%. Therefore, the US believes that with the imposition of these “reciprocal tariffs,” the overall tariff levels between the two countries will tend to be balanced.
Nomura’s Chief Economist in China, Luting, pointed out that during the trade war in 2018, the additional tariff rates imposed by the US were 8%, which have now been stacked up to 65%. Luting believes that the unprecedented high tariffs make it difficult to assess the losses to the Chinese economy.
Xing Ziqiang, Chief Economist of Morgan Stanley in China, stated that after the reciprocal tariffs take effect, the weighted average tariff rate on US exports to China will reach 65%, one of the highest tariff rates, which will have a greater negative impact on China’s economic growth than the wave of trade wars from 2018 to 2019.
Xing Ziqiang believes that unlike some US allies, the higher tariffs imposed by the US on Chinese exports are aimed at protecting sensitive industries and incentivizing domestic investment and production in the US. This means that the threshold for negotiations and tariff reduction between China and the US will be much higher.
Nomura’s report pointed out that in 2023, China’s exports to the US through ASEAN and Mexico amounted to billions of dollars. The US has imposed reciprocal tariffs on multiple ASEAN countries, including Malaysia (24%), Thailand (37%), Vietnam (46%), and Singapore (10%). The subsequent impact will directly affect China’s transit trade.
Analyzing the situation, Luo Zhiheng, Chief Economist at Yuekai Securities, stated that the US’s actions significantly impact China’s strategy for transit businesses, forcing Chinese companies to slow down investment and factory set-ups in Vietnam.
Although Mexico has not been included in this round of tariffs, Luting warned that in the future, the US may push for a “secondary tariff” mechanism, compelling Mexico to impose simultaneous tariffs on China to safeguard its position in the US-Mexico trade agreement. This will inevitably pose a greater challenge to China’s exports.
With a huge trade surplus over the past few decades, the Chinese Communist Party has become the world’s largest exporting country. In 2023, the total volume of foreign trade accounted for 37% of its GDP (World Bank data). Major exported goods include mobile phones, automatic data processing machines, electronic integrated circuits, cars, electric storage batteries, and semiconductors. Cross-border e-commerce plays a crucial role in China’s foreign trade, with transaction volumes growing significantly.
Chinese e-commerce platforms like Shein and Temu rely on the tax-free policy for exports under $800 to the US. Trump also signed an executive order to end the tax-free policy on small packages below $800 from mainland China and Hong Kong starting from May 2, further impacting Chinese cross-border e-commerce, especially affecting small-scale businesses.
Following the news of Trump’s tariff policies on April 3, both A-shares and Hong Kong stock markets experienced simultaneous declines. The Shanghai Composite Index fell by 0.24% on April 3, while the Shenzhen Component Index and the ChiNext Index dropped by 1.4% and 1.86% respectively. Many analytical institutions predict that China-US economic and trade relations are entering a freezing point, intensifying the cautious mood among investors and increasing short-term market volatility.
Regarding the US’s additional 34% reciprocal tariffs on China, at a routine press conference on April 3, a spokesperson for China’s Ministry of Commerce, He Yadong, stated that “China resolutely opposes…” Some mainland netizens questioned and mocked this statement on Weibo.
“Is this statement useful? ‘Resolutely opposes’ every day.”
One netizen commented, “Join forces to counteract the (US tariffs).” Netizen Yexingshushengren retorted, “Join forces with whom?”
Netizen Boge 201809 sarcastically responded, “Not afraid, everyone is already far ahead.”