China's Strategy in Confronting U.S. Tariffs: Retaliatory Tariffs, Non-Tariff Measures, Political Narrative

1. Background and Context

The U.S.-China trade war has intensified in 2025, with the U.S. imposing significant tariff hikes under President Donald Trump's administration. As of April 2025, the effective U.S. tariff rate on Chinese imports reached 145%, combining a 125% tariff with a prior 20% levy tied to fentanyl-related concerns. These tariffs, announced in early April, aim to address perceived unfair trade practices, reduce the U.S. trade deficit, and pressure China on issues like intellectual property and market access. In response, China has adopted a multifaceted strategy, combining tariff retaliation with non-tariff measures to safeguard its economy and signal resolve.

Tariff-Based Retaliation

China's tariff responses have been direct and progressive, mirroring U.S. actions to maintain a semblance of reciprocity while avoiding open-ended escalation.

2. Tariff Countermeasures

• February 4, 2025: China imposed tariffs of 15% on U.S. coal and LNG (8 tariff lines) and 10% on crude oil, agricultural machinery, and vehicles (72 tariff lines), effective February 10, 2025. This was an initial response to earlier U.S. tariff increases, including a 10% fentanyl-related tariff in February 2025, later raised to 20% in March.

• March 4, 2025: Additional tariffs were applied, with 15% on U.S. chicken, wheat, corn, and cotton (29 tariff lines) and 10% on soybeans, sorghum, pork, beef, seafood, fruit, vegetables, and dairy (711 tariff lines), effective March 10, 2025.

• This targeted U.S. agricultural exports, a significant sector in bilateral trade.

• April 4, 2025: China announced a 34% additional tariff on all U.S. goods, effective April 10, 2025, in response to the U.S. raising its tariffs to 54% (34% new, plus 20% existing). This was part of a broader retaliatory package.

• April 9, 2025: Tariffs were increased to 84% on all U.S.-origin goods, effective immediately, following the U.S. clarification that its tariffs had reached 104% (50% additional on top of prior levies).

• April 11, 2025: China raised tariffs to 125% on all U.S. goods, effective April 12, 2025, matching the U.S. "reciprocal" tariff rate of 145%. The Chinese Finance Ministry stated that at this level, "there is no market acceptance for U.S. goods exported to China," suggesting trade is becoming unfeasible. It also declared it would not respond to further U.S. tariff hikes, calling them "a joke" in the history of world economy.

These tariff hikes are detailed in official announcements, such as those from the Chinese Ministry of Finance, accessible via China's Tariff Announcements.

The escalation reflects China's desire to be perceived as the epitome of “calm power” and to demonstrate control domestically and internationally, but at the same time to avoid unnecessary escalation given its trillion-dollar trade surplus and dependence on global markets. Every tariff action by China has been a response and therefore could not be internationally criticized.

3. Asymmetric Non-Tariff Measures: A Strategic Toolkit

China, however, has not stopped at just a mirror response to U.S. tariff aggression. It has supplemented the tariffs with a range of targeted non-tariff measures, using its market advantages to effectively pressure the U.S. without a broad economic backlash.

These include:

• Export Controls:

  
  

On February 4, 2025, China introduced licensing requirements for exporting tungsten, tellurium, bismuth, molybdenum, and indium, critical for electronics and defense industries.

This was expanded on April 4, 2025, to include seven rare earth elements (samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium), which are vital for clean energy and technology sectors.

The measures are framed as protecting national security and strategic industries, with state media like Global Times describing them as a "strategic toolkit" against U.S. aggression.

These controls exploit China's dominance in rare earth production (over 80% of global supply) to target U.S. vulnerabilities.

• Unreliable Entity List:

  
  

China has added multiple U.S. companies to its Unreliable Entity List, restricting their business with Chinese entities.

On February 4, 2025, two U.S. companies were listed; on March 4, 2025, ten more were added, along with a ban on importing gene sequencing equipment from these entities; and on April 4, 2025, eleven additional firms were included. This list, detailed in MOFCOM Listings, targets defense-related and technology firms, aligning with national security concerns.

The Commerce Ministry justified these moves by citing retaliation for U.S. sanctions, accusing American firms of supporting policies harmful to China.

• Antidumping and Anti-Circumvention Investigations:

  
  

On March 4, 2025, China initiated an anti-circumvention investigation into U.S. optical fiber products, and on April 4, 2025, launched an antidumping investigation against CT medical tubes from the U.S. and India. These investigations, detailed in MOFCOM Investigations, aim to impose further trade barriers and are part of China's broader enforcement strategy.

• Import Suspensions:

  
  

China has suspended imports from specific U.S. companies, citing contamination and pest issues under its Food Safety and Biosecurity Laws. On March 4, 2025, imports from three U.S. soybean exporters and U.S. logs were suspended, and on April 4, 2025, six more U.S. companies (dealing in sorghum, poultry, and bone meal) faced similar bans. These actions, detailed in Customs Suspensions, are timed to coincide with tariff escalations, though People's Daily portrays them as routine regulatory actions.

• WTO Complaints:

  
  

China has filed formal complaints with the WTO, challenging the legality of U.S. tariffs. These complaints, detailed in WTO Filings, argue that U.S. actions violate international trade rules, positioning China as a defender of the multilateral trading system.

4. Economic Stabilization and Global Outreach

Beyond retaliation, China has taken steps to stabilize its economy and mitigate the impact of the trade war, reflecting a dual strategy of defence and diversification:

• Domestic Policy: China's leadership has planned high-level meetings to craft economic support measures, focusing on boosting consumption and stabilizing markets. These include potential interest rate cuts and fiscal stimulus, estimated at 2.9 trillion RMB annually (2.3% of 2023 GDP). People's Daily emphasized "extraordinary efforts" to counter tariff impacts, framing China's economy as resilient due to its large trade surplus and domestic demand potential.

  
  

• Global Outreach: China has sought to rally trading partners against U.S. tariffs. President Xi Jinping met with Spain's Pedro Sánchez on April 11, 2025, urging Europe to oppose "unilateral bullying", and planned visits to Vietnam, Malaysia, and Cambodia to strengthen Asian ties. Commerce Minister Wang Wentao held talks with the EU, Malaysia, Saudi Arabia, and South Africa to negotiate trade relief, particularly on electric vehicles, signalling a pivot to diversify markets.

  
  

Xinhua framed these efforts as China "fulfilling international responsibilities", contrasting with U.S. "protectionism". This communication strategy has been very successful in contrasting China as a country that strictly abides by the letter and spirit of international rules and obligations with the U.S. as a reckless and selfish economic aggressor.

5. Framing and Narrative

Chinese state media and official statements have consistently framed U.S. tariffs as "unilateral bullying" and a violation of international trade rules. For instance, Global Times described China's response as "calm and measured", contrasting with the U.S.'s "erratic" tariff hikes, and emphasized restraint to avoid escalation.

People's Daily portrayed import suspensions as routine, downplaying their retaliatory nature, while Xinhua highlighted Xi's call for multilateralism, positioning China as a global trade leader. This narrative aims to rally domestic support and international sympathy, contrasting with Western depictions of China as isolated or defiant.

In this way, China has managed in a short time to create a new image, hitherto unknown to the world public, of China as a calm, just force standing up for generally accepted international rules and weaker countries that individually are afraid to oppose the United States. The most interesting thing is that the US itself had such an image in previous decades. China seized the moment to make a bid for the vacant place of an international hegemon standing in defense of the world order.

6.     Impact and Implications

6.1 Impact on China

Research suggests that China's countermeasures, while signalling resolve, have significant economic costs. The CSIS report, "China and the Impact of 'Liberation Day' Tariffs", highlights that U.S. tariffs could reduce China's GDP growth by 0.5–2.5% over 2025–2027, with a recent estimate predicting a 2.4% decline in 2025 alone. This is due to the trade shock and second-order effects on investment and consumption, as noted in the EIU's "The impact of US tariffs on China: three scenarios".

China's strategy includes boosting domestic demand, reducing credit costs, and seeking third-market exports, but these are challenged by a $1 trillion trade surplus in 2024 and existing restrictions, such as EU tariffs on Chinese electric vehicles.

The Holland & Knight report, "China's Comprehensive Retaliation Against U.S. Tariffs", details specific measures like a 125% tariff by April 11, 2025, which makes U.S. exports are "effectively unmarketable". While this tactic may succeed in sidelining U.S. goods in the short term, it comes with significant long-term economic downsides, potentially reducing China's GDP, as stated above. To counter these costs, China is prioritizing technology-driven growth and increasing household consumption through measures like higher wages, stronger social safety nets, and housing market stabilization. However, the success of these efforts hinges on effectively managing the broader economic fallout from the trade conflict.

6.2 Impact on the U.S. from the U.S.-China Tariff War

• Impact on the Stock Market and Bonds

China’s retaliatory tariffs, particularly the 125% tariffs imposed on U.S. goods by April 11, 2025, triggered significant volatility in U.S. financial markets. On April 4, 2025, U.S. equities plummeted, with the S&P 500 dropping 3.2% in a single day, driven by fears of reduced corporate earnings in export-dependent sectors like agriculture and manufacturing. The tech-heavy Nasdaq also fell 2.8%, reflecting concerns over supply chain disruptions due to China’s restrictions on rare earth exports. Bond markets faced pressure as well, with yields on 10-year U.S. Treasury notes rising to 4.1% by mid-April 2025, as investors anticipated higher inflation from trade disruptions and sought safer assets. This yield spike increased borrowing costs, adding strain to corporate and consumer debt markets. While markets have partially stabilized, ongoing trade tensions continue to fuel uncertainty, depressing investor confidence.

• Impact on Industries Dependent on China

Industries reliant on trade with China, particularly agriculture, energy, and manufacturing, have been severely hit. China’s import suspensions on U.S. agricultural products, affecting over nine exporters by April 2025, have disrupted $12 billion in annual exports, including soybeans, pork, and corn, threatening rural economies. Energy exports, such as liquefied natural gas, face reduced demand due to China’s pivot to alternative suppliers, costing the U.S. an estimated $3 billion in 2025. Manufacturing sectors, especially those dependent on Chinese rare earths and components, are grappling with supply chain bottlenecks. Restrictions on approximately 60 U.S. companies, including those in defense and electronics, have further strained production, with potential delays in military and consumer tech projects. These disruptions have led to layoffs and reduced output, with the National Association of Manufacturers estimating a 1.5% decline in industrial production for 2025.

• Temporary Tariff Freeze on Chinese Electronics, Causes, and Trump’s Hesitation

Electronics, a critical U.S. import from China valued at $150 billion annually (U.S. Census Bureau data), have been partially shielded from the tariff war. President Trump temporarily suspended tariffs on select Chinese electronics, including smartphones and semiconductors, as reported by Reuters on April 13, 2025, and Bloomberg on April 16, 2025. This decision was driven by concerns over consumer price increases, as tariffs could raise smartphone costs by 15-20%, and fears of supply chain chaos, given China’s dominance in electronics manufacturing. The pause has allowed trade in these goods to continue, preserving access to affordable tech for U.S. consumers and businesses. However, Trump’s indecision about reimposing tariffs reflects competing pressures: domestic manufacturers and labor unions push for protectionism, while tech firms and retailers warn of economic fallout. His hesitation signals a broader uncertainty in trade policy, with no clear timeline for a final decision, keeping markets and industries on edge.

• Potential Long-Term Consequences

The tariff war’s long-term effects on the U.S. could be profound. Persistent trade barriers risk permanently reducing U.S. export markets, particularly in agriculture, where China may shift to suppliers like Brazil and Australia, costing the U.S. $20 billion annually by 2030. Supply chain disruptions in manufacturing could accelerate reshoring efforts but at a high cost, with estimates suggesting $1 trillion in investments needed to relocate electronics production domestically. Inflationary pressures from higher consumer goods prices may persist, eroding purchasing power and potentially triggering tighter monetary policy, which could slow economic growth. The Congressional Budget Office projects a 0.8% GDP reduction by 2027 if tariffs remain elevated. Geopolitically, strained U.S.-China relations may weaken bilateral cooperation on issues like climate change and global security. While the electronics tariff pause offers short-term relief, failure to resolve the broader trade conflict could lock in these economic and strategic costs, reshaping U.S. industries and global trade patterns for decades.

7. Political and Strategic Outcomes

China's countermeasures have demonstrated a willingness to stand up to U.S. pressure, strengthening domestic support through patriotic messaging, such as publishing Mao Zedong's "never yield" speech on X. This aligns with its focus on maintaining strategic autonomy. However, the effectiveness in forcing the U.S. to negotiate or retract tariffs is uncertain, as the U.S. has continued to escalate, with no signs of de-escalation.

All signs point to the fact that China is planning a long confrontation for which it is competently preparing, using its non-tariff advantages and increasing its influence in the foreign policy field. The U.S., on the other hand, seems to have adopted a "cavalry attack" tactic designed to produce quick results. If China can withstand this attack, its more deliberate strategy will give it a long-term advantage.

In this case, China's global standing could rise if U.S. strategy weakens its own economy, but this is speculative and depends on long-term outcomes. The ongoing escalation, with both sides unwilling to back down, suggests a prolonged standoff, potentially benefiting neither.

However, both the United States and China view the conflict not simply as an economic competition, but as a geopolitical struggle for survival in which economic losses are acceptable if the primary goal of forcing the opponent to make significant political and economic concessions sufficient to eliminate it as a direct threat is achieved.