China In Eurasia

U.S. President Donald Trump and Chinese leader Xi Jinping have fired the first shots of a new trade war with an exchange of hard-hitting tariffs that could have far-reaching consequences for the U.S.-China rivalry.

The tit-for-tat levies are a revival of the two years of trade tensions during Trump's first term in the White House, and they, once again, could bring economic pain to China.

But unlike that first episode fought between Beijing and Washington, Xi now comes into the second trade war with more cards to play. This could open up new opportunities for China as it looks to challenge the United States on the global stage.

In order to reap those gains, Beijing will first need to navigate the significant complications of a renewed trade war, which will be more damaging economically for itself than for the United States and comes as China is grappling with slowing economic growth at home.

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The Chinese economy is driven by manufacturing and exporting goods, and the United States is its largest single-country trading partner. The 10 percent U.S. tariffs that came into effect on February 4 will hurt the Chinese economy, and the new tax is additional to the remaining levies brought in by former U.S. President Joe Biden and Trump in his first term. The move by Trump also leaves the door open for more tariffs to be added by Washington that could further hit China.

But Xi is also better equipped than the last time he clashed with Trump.

Beijing seems to believe it can afford to escalate trade tensions and hit back with tariffs of its own that are set to enter into force on February 10. These include 15 percent Chinese levies on U.S. coal and liquefied natural gas (LNG), as well as 10 percent tariffs on crude oil, farm equipment, and some cars.

More strategically, Beijing has also hit back with tariffs targeting crucial materials needed by U.S. industry of which China mostly controls the global supply. Those include critical minerals such as tungsten, tellurium, ruthenium, and molybdenum, which are needed for the production of some batteries and other high-tech goods.

That follows a Chinese export ban in December 2024 to the United States of minerals like antimony and gallium that are needed to manufacture some semiconductors.

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This comes as both Beijing and Washington are locked in a deepening competition over the future of global technology. The United States has so far stayed ahead, in part given its access to advanced semiconductors -- largely designed in the United States and produced in Taiwan -- needed to fuel the next generation of goods, such as artificial intelligence (AI), that are forecast to shape the future global economy.

China has its own technology ambitions and has so far endured the pain brought by measures from both Trump and Biden, which have included lobbying U.S.-allied governments to reject Chinese equipment for next-generation telecom networks and export bans on some microchips.

Those measures were successful in part due to coordination with other countries, many of which Trump has also threatened to hit with tariffs -- and this is where Xi is already looking for openings.

While Trump has issued a monthlong suspension of tariffs against Canada and Mexico, he has said similar measures could be facing the European Union. After the announcement, EU foreign policy chief Kaja Kallas said that "the one laughing on the side is China" as it looks to further a wedge between Brussels and Washington and launch a charm offensive in the bloc.

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European Commission President Ursula von der Leyen -- who has previously been more hawkish on China and hit back at Beijing on trade issues recently -- also opened the door for something of a rapprochement when she said in January that she saw "an opportunity to engage and deepen our relationship with China and, where possible, even to expand our trade and investment ties.”

Similar opportunities could present themselves to Xi elsewhere around the world.

In the meantime, the exchange of tariffs sets the stage for further talks and a potential deal between Trump and Xi.

China still needs access to U.S. technology, and economic pain at home could create new pressure for Xi. The recent U.S. tariffs were primarily implemented over Beijing not halting the flow of illicit drugs into the United States and Trump has floated the idea of tying tariffs to the fate of TikTok, which he has said should be half owned by an American company.

The White House said the two leaders don’t plan to speak until later this week, but Trump has signaled that he's open to negotiations and reportedly also said he wants to visit China within the first 100 days of his administration.

U.S. President Donald Trump has imposed punishing new tariffs on Mexico, Canada, and China that set the stage for broader tensions with the United States’ three largest trade partners.

Trump announced the long-promised economic policy on the night of February 1, saying that Washington would hit Canada and Mexico with tariffs of 25 percent on all goods, although Canadian energy products will face a lower 10 percent tariff. The new tariffs also include a 10 percent levy on goods from China.

He said he was imposing them until the flow of migrants and illegal fentanyl into the United States was stopped, although the cause of those issues is widely debated and involves a number of complex factors.

Trump said that the taxes on goods from all three countries will start to come into effect on February 4.

The sweeping measures risk igniting a trade war that could significantly damage the economies of the targeted countries and the United States, especially as Canada, Mexico, and China look to respond.

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In preparation for this, the executive order signed by Trump also includes a clause that allows the president to expand the tariffs if a country imposes retaliatory measures on the United States.

Shortly after Trump signed the executive order for the tariffs, both Canada and Mexico said they were preparing moves of their own.

Mexican President Claudia Sheinbaum said her country will impose tariffs in response, and Canadian Prime Minister Justin Trudeau announced “far-reaching” retaliatory moves.

China’s Ministry of Commerce also issued a statement saying that Beijing will file a legal case against the United States at the World Trade Organization (WTO) and “take corresponding countermeasures,” without elaborating further.

Canada, Mexico, China Respond

Together, the three countries hit by Trump’s tariffs accounted for more than 40 percent of imports into the United States last year.

In her televised response, Sheinbaum said she had instructed her economy minister to respond with a variety of measures, including potential tariffs of 25 percent on American products.

She also called allegations that the Mexican government had alliances with criminal organizations "slander" and said that Washington needs to do more to curb the flow of illegal weapons into Mexico that are used by cartels.

The Mexican president said that she was open to finding a solution with the United States, but added that “problems are not resolved by imposing tariffs, but by talking."

Canadian Prime Minister Justin Trudeau also said his country will respond with 25 percent tariffs on $155 billion worth of U.S. products, which will be implemented in stages in the coming weeks.

In a press conference, Trudeau also said there are measures being considered that are related to critical minerals and procurement from the United States, although he did not elaborate.

"We don't want to be here, we didn't ask for this," Trudeau said. "But we will not back down in standing up for Canadians."

He then countered Trump’s past statements that the U.S.-Canada border is a security concern, saying that less than one percent of the fentanyl entering the United States comes across the northern border.

Trudeau also called on Canadians to “buy less American products … choose Canadian products and services rather than American ones.”

The Canadian prime minister also opened the door for further discussion with Washington, saying that Canada was willing to implement a nearly $1 billion investment into border security in order to avoid the tariffs.

The 10 percent tariff placed on China will add to previous tariffs that were imposed by former U.S. President Joe Biden and Trump during his first term.

Beijing vowed to take action at the WTO and to carry out unspecified countermeasures that will “firmly safeguard its rights and interests.” China’s Foreign Ministry also defended its record on fentanyl, pointing to strict export restrictions it imposed in 2019.

What Happens Next?

The tariffs could lead to much higher costs for consumers, disrupt supply chains, and cost jobs in various sectors.

Canada, Mexico, and the United States have deeply integrated economies with an estimated $2 billion worth of manufactured goods crossing their borders daily.

Most economists say the tariffs and subsequent retaliation could raise prices on a wide range of products and cause inflation. That’s because importers, not the countries exporting the goods, pay the tariff, and they typically pass that cost on to consumers in the form of higher prices.

On January 31, Trump acknowledged there could be "some temporary, short-term disruption" from the tariffs when he was asked by reporters about the coming levies, but he defended the policy, saying "the tariffs are going to make us very rich and very strong -- and we’re going to treat other countries very fairly.”

A January report by the Peterson Institute for International Economics, a Washington D.C.-based think tank, suggested the tariffs would slow growth and accelerate inflation, and that the measures would harm the economies of Canada, China, Mexico, and the United States.

Others have championed Trump’s tariffs.

Congressman Jason Smith (Republican-Missouri), who chairs the influential Ways and Means Committee -- which oversees issues related to taxation, revenue generation, and government spending -- praised the move.

“The tariffs on imports from Canada, Mexico, and China send a powerful message that the United States will no longer stand by as other nations fail to halt the flow of illegal drugs and immigrants into our country,” he said in a February 1 statement. “These measures will also bring in billions in new revenue to the U.S. government.”