It was just last week that U.S. Defense Secretary Pete Hegseth was touringthe Indo-Pacific and pledging his support for U.S. allies in Asia. That was then. By Wednesday, the script had flipped, with President Donald Trump declaring economic war on some of those very same countries.
“In many cases, the friend is worse than the foe in terms of trade,” Trump said as he unveiled sweeping “reciprocal” tariffs, which sent markets on a downward spiral. The announcement, dubbed “Liberation Day” by Trump, brings the United States back to tariff levels not seen since theearly 1900s, with a baseline rate of 10 percent on all countries and rates reaching as high as50 percent. Even though the move was telegraphed for months, the final tariffs werehigher than anticipated, shocking investors and officials across the world.
China unsurprisingly came out near the top of Trump’s list with a 34 percent tariff rate. The administration has already imposed two rounds of 10 percent tariffs this year, for what it said was China’s failure to curb the fentanyl trade. Together, the tariffs amount to a 54 percent rate on Chinese imports—a historic high, with some goods, such as electric vehicles, under much higher individual rates in addition.
China’s cumulative tariff burden is now formidable. With Trump targeting all countries, Chinese companies that have moved their production to Southeast Asia or Mexico will also be impacted. On top of all that, Trump signed an executive order on Wednesdayeliminating thede minimisrule for China, which had allowed for packages under $800 to avoid customs inspection. Chinese companies in thedrop-shipping industry, such as Temu and Shein, have exploited the loophole to make huge profits.
Overall, the new trade war may make Trump’s first-term trade war on China look mild in retrospect. Economists predict that the new total tariff burden could shave as much as 2.4 percent off China’s GDP this year, according toone estimate from Citigroup. China had set a goal of 5 percent growth.
So far, China hascalmly weathered Trump’s tariffs, but the pressure is building. On Thursday, it vowed to retaliate. “China strongly opposes the move and will firmly take countermeasures to safeguard its own interests,” a Chinese Commerce Ministry spokespersonsaid, calling the tariffs a “typical unilateral bullying practice.”
China has responded to Trump’s earlier measures by imposing its own tariffs on a range of energy and agricultural products, blacklisting U.S. companies, and restricting the export of critical minerals. Wendy Cutler, a vice president at the Asia Society Policy Institute, said China would likely continue to use the full range of weapons in its arsenal to respond but would try not to further aggravate the situation. “Beijing will most likely be careful not to escalate but to respond proportionally,” she said.
Agriculture may be the softest target for China, following itsimpositionof 10 to 15 percent tariffs on key U.S. exports including chicken and soybeans this year. China is the largest agricultural market for U.S. exporters, and significant new tariffs would be highly painful for U.S. farmers, most of them in Republican-leaning states, who are alreadysuffering from the cancellation of U.S. government contracts andplunging prices.
U.S. Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer have both had preliminary calls with their Chinese counterparts, but the near-term possibility of a second trade deal seems increasingly unlikely. “While there seems to be interest on both the part of Beijing and Washington to negotiate a new trade deal, the prospects get more complicated with each action taken,” Cutler said. Any significant progress will likely require getting both leaders to the table. Chinese and U.S. officials havereportedly discussed a possible meeting between Chinese President Xi Jinping and Trump in June, but no further details have emerged.
In the meantime, China will look for other ways to offset its economic losses. Analysts said China would need to unleash hundreds of billionsin stimulus to make up for the loss in U.S. trade revenue. At the same time, Xi has been attempting to make China more appealing to global industry,meeting with foreign CEOs last Friday and promising equal treatment with domestic firms. It’s a hard sell, given China’s national security clampdown on private companies in recent years. China is also looking to bolster trade with other countries. Shortly after Trump’s decision,news broke that China and the European Union will return to the negotiating table to revisit tariffs on Chinese electric vehicles.
Although the Liberation Day plan will certainly harm the Chinese economy, weakening China doesn’t appear to be the Trump administration’s primary objective—since U.S. allies are being targeted as well. Japan and South Korea, key U.S. trade and defense partners, were slapped with 24 and 26 percent tariffs, respectively, in addition to the earlier announcement of 25 percent tariffs on imported cars, which will hit both countries’ auto giants particularly hard. Neither country immediately announced any countermeasures. In a press conference on Thursday, Japanese Prime Minister Shigeru Ishiba, who has spent months courting Trump,said the decision was “very disappointing.”
“I think they will want to avoid really angering Trump, but I think for domestic political purposes, there will have to be some response. They can’t just allow tariffs this high to go without any response at all,” said Zack Cooper, a senior fellow at the American Enterprise Institute.Japanese and Korean companies that announced investments in the United States recently—in order to curry favor with Trump—might come under pressure from their governments to walk them back in light of the tariffs, according to Cooper.
Taiwan is also in a precarious position. It has been saddled with a 32 percent tariff, just 2 percentage points below China’s, and Trump repeated on Wednesday his frequent complaint about the island’s chip dominance. “They took all of our computer chips and semiconductors. We used to be the king, right? We were everything. We had all of it. Now we have almost none of it,” he said. He lauded Taiwanese chip giant TSMC’s recent announcement to invest $100 billion in the United States, but that deal clearly wasn’t enough to dissuade Trump from levying tariffs.
With Chinese military exercises increasing around Taiwan, Taiwanese officials have little room to maneuver. “Taiwan is in no position to retaliate. The Taiwanese government will try to express dismay through diplomatic channels, but this won’t result in any change,” said Jason Hsu, a senior fellow at Hudson Institute who previously served as a legislator in Taiwan.
The U.S. tariffs imposed on Australia, a longtime allycritical to military logistics in Asia, have madeTrump a target across the political spectrum there. The ruling Labor Party is now turning against the AUKUS deal, a trilateral security partnership under which Australia would buy U.S.-made nuclear submarines and cooperate closely with Washington. China hadstrongly protested the arrangement.
Trump’s cudgel also landed heavily on Southeast Asian nations that havehedged between Washington and Beijing, with Vietnam facing a 46 percent tariff. These countries will likely be drawn closer into Beijing’s orbit as they look to its market to absorb their goods.
“I think the reality is that Trump just doesn’t see economic issues and security issues as very connected and he doesn’t really care that much about security issues,” Cooper said. “Trump is undermining the case of those in these countries who want to maintain robust relations with the United States, and what will probably happen is that many of these countries will just slowly back away from from the United States, both as an economic partner but I think over time as a security partner as well.”
It’s difficult to see a coherent U.S. strategy for taking on Beijing in these measures. There are multiplecompeting factions of China hawks inside the Trump administration, some of whom are tariff enthusiasts. “Decoupling” from China is one possible end goal, which would require erecting major trade barriers.
But this round of tariffs looks like an attempt at decoupling from the entire world, including the United States’ closest allies. The hope among China hawks may be that Trump’s supercharged trade war will force China’s economy into a crisis that threatens the Communist Party’s stability—potentially at the cost of a global recession.
Many advocates of decoupling with China have looked tofriendshoring as a solution, where key parts of supply chains previously dependent on China would be transferred to friendlier countries such as Mexico and Vietnam. Placing tariff barriers on these states—in Vietnam’s case, an even higher one than on China—makes that impossible and imposes harsh costs on firms that have spenthundreds of millions of dollars diversifying from China.
Reshoring industrial production to the United States entirely is extremely difficult, since the country lacks the basic infrastructure for many industries, fromrare-earth processing toboard game production, that moved overseas. Labor costs in the United States are also higher.
The new tariff list also signifies a carelessness that runs counter to any notion of grand strategy and bodes ill for future trade negotiations, which requireintense attention to detail. The tariff rate for each country wascalculated using auniversal formula based on the size of its trade surplus in goods with the United States, meaning that states that produce goods Americans want—most noticeably cheap textiles—were among those hardest hit. The near-universal application of this rate leaves no room for other strategic considerations.
The list of target countries isparticularly incoherent. It includes numerous territories with no claim to separate sovereignty, from Australia’sNorfolk Island and the uninhabited Heard and McDonald Islands to theBritish Indian Ocean Territory, whose only inhabitants are U.S. and U.K. service members at the Diego Garcia military base.