China’s Shift in Trade Strategy Amidst Ongoing Tariff Disputes
Recently, China declared that it will no longer retaliate against tariffs imposed by U.S. President Donald Trump, dismissing any future increases from the U.S. as insignificant. Instead of continuing the cycle of tariffs, China appears to be redirecting its focus toward other strategies that impact specific sectors, notably targeting the American services industry.
While the Trump administration has heightened tariffs on various Chinese goods, rising to as much as 245% for some items after consecutive rounds of escalations, China responded with its own measures. These include imposing tariffs as high as 125% on U.S. imports. Although Trump’s administration remains committed to its tariff agenda, China has initiated various non-tariff measures, including implementing stricter export controls on rare-earth minerals and launching antitrust investigations into American companies such as Google and DuPont.
In a significant move earlier this year, China added several U.S. companies to its “unreliable entity” list, restricting their ability to trade or invest within China. Notable entries included American firms like PVH Corp., which owns Tommy Hilfiger, and Illumina, a supplier of gene-sequencing technology. The tightening of export regulations on essential minerals compels Chinese companies to secure special licenses, effectively limiting U.S. access to critical components for semiconductors, missile-defensive systems, and solar technologies.
One of China’s latest actions involved Boeing, the largest exporter in the U.S. The Chinese government ordered its airlines to cease all future deliveries from Boeing and urged carriers to halt any purchases of additional aircraft and related products from U.S. manufacturers. This interruption comes at a time when Boeing is already struggling with financial challenges stemming from ongoing quality-control issues.
Amid these developments, reports surfaced that Chinese authorities were pursuing individuals allegedly involved in cyberattacks against China for the U.S. National Security Agency. State media emphasized a shift towards domestic technologies to replace American tech, further intensifying the hostility between the two nations.
Experts suggest that China is signaling its capabilities in the ongoing trade feud, demonstrating that it can leverage various tools to inflict pain on American companies. Wendy Cutler from the Asia Society Policy Institute remarked on the growing separation of the two economies, indicating that the decoupling process is accelerating amidst these rising tensions.
Expanding the Trade Conflict to Services
China appears to be broadening its focus in the trade war to include services, which encompass travel, legal, consulting, and financial services. For years, the U.S. has enjoyed a significant trade surplus in this area with China.
In early discussions, a Chinese state-affiliated social media account hinted that Beijing might impose restrictions on U.S. legal consultancy firms and investigate U.S. companies for perceived monopolistic advantages derived from intellectual property rights. According to estimates by Nomura, U.S. services exports to China increased dramatically over the last two decades, reaching $55 billion in 2024, with the trade surplus amounting to $32 billion last year.
In a clear demonstration of its capability to exert pressure, China announced plans to reduce imports of U.S. films and cautioned its citizens regarding travel or study in the United States. These responses aim to impact high-profile sectors like aviation, media, and education, resonating politically in the U.S. While the immediate financial implications may be limited since these sectors are relatively smaller, the reputational fallout—such as a decline in Chinese students or more cautious employment decisions among Chinese professionals—could influence the academic and tech talent landscape significantly.
Nomura’s analysis predicts that if China escalates travel restrictions to the U.S., the impact could reach an estimated $24 billion.
As tensions persist, many analysts anticipate that Beijing will continue to utilize its array of non-tariff policies to enhance its bargaining position before potential negotiations with the Trump administration. Companies like Apple, Tesla, and various pharmaceutical and medical device manufacturers may find themselves in China’s crosshairs as the government moves forward with non-tariff actions, which could include sanctions, regulatory hurdles, and export limitations.
Future Negotiations on Trade Issues
While the potential for negotiations exists, optimism for swift discussions between the two governments appears to be waning. Chinese officials have openly criticized Trump’s "unilateral tariffs," describing them as bullying tactics, yet they have suggested willingness to negotiate under equitable conditions.
According to White House press secretary Karoline Leavitt, there’s an openness to a deal from the U.S. side, placing the onus on China to take the first step. Conversely, China’s commerce ministry reiterated its readiness for dialogue but demanded that the U.S. cease its threats. Economic analysts emphasize that a significant amount of self-inflicted damage would likely prompt a reevaluation of China’s hardened stance, potentially creating openings for future negotiations.
