WASHINGTON/BEIJING – China on Feb 4 slapped tariffs on US imports in a swift response to new US duties on Chinese goods, renewing a trade war between the world’s top two economies even as President Donald Trump offered reprieves to Mexico and Canada.

Additional 10 per cent tariff across all Chinese imports into the US came into effect at 12.01am Eastern time on Feb 4 after Mr Trump repeatedly warned Beijing it was not doing enough to halt the flow of illicit drugs into the United States.

Within minutes, China’s Finance Ministry said it would impose levies of 15 per cent for US coal and LNG and 10 per cent for crude oil, farm equipment and a small number of trucks as well as big-engine sedans shipped to China from the United States.

China also said it was starting an anti-monopoly investigation in Alphabet Inc’s Google, while including both PVH Corp, the holding company for brands including Calvin Klein, and US biotechnology company Illumina on its “unreliable entities list”.

Separately, China’s Commerce Ministry and its Customs Administration said it is imposing export controls on some rare earths and metals that are critical for electronics, military equipment and solar panels.

A 10 per cent duty China announced on electric trucks imported from the US could apply to future sales for tech entrepreneur Elon Musk’s Cybertruck, a niche offering Tesla has been promoting in China. Tesla had no immediate comment.

China’s new tariffs on the targeted US exports will start on Feb 10, giving Washington and Beijing some time to try and reach a deal that Chinese policymakers have indicated they hope to strike with Mr Trump.

China’s counter measures were limited in scope compared to the Trump administration’s across-the-board tax on imports, a continuation of Beijing’s more measured response to this round of trade tensions with the US.

Mr Trump plans to speak to Chinese President Xi Jinping later in the week, a White House spokesperson said.

Mr Trump on Feb 3 suspended his threat of 25 per cent tariffs on Mexico and Canada at the last minute, agreeing to a 30-day pause in return for concessions on border and crime enforcement with the two neighbouring countries.

But there was no such reprieve for China, and a White House spokesperson said Mr Trump would not be speaking with Chinese President Xi Jinping until later in the week.

During his first term in 2018, Mr Trump initiated a brutal two-year trade war with China over its massive US trade surplus, with tit-for-tat tariffs on hundreds of billions of dollars worth of goods upending global supply chains and damaging the world economy.

To end that trade war, China agreed in 2020 to spend an extra US$200 billion (S$272 billion) a year on US goods but the plan was derailed by the Covid-19 pandemic and its annual trade deficit had widened to US$361 billion, according to Chinese customs data released in January.

“The trade war is in the early stages so the likelihood of further tariffs is high,” Oxford Economics said in a note as it downgraded its China economic growth forecast.

Mr Trump warned he might increase tariffs on China further unless Beijing stemmed the flow of fentanyl, a deadly opioid, into the United States.

“China hopefully is going to stop sending us fentanyl, and if they’re not, the tariffs are going to go substantially higher,” he said on Feb 3.

China has called fentanyl America’s problem and said it would challenge the tariffs at the World Trade Organisation and take other countermeasures, but also left the door open for talks.

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The US is a relatively small source of crude oil for China, accounting for 1.7 per cent of its imports in 2024, worth about US$6 billion.

In 2019, Beijing slapped punitive tariffs on US LNG, retaliating for Washington’s increase in tariffs on Chinese goods. The stakes are higher now, with China importing 4.16 million tonnes of US LNG in 2024 worth US$2.41 billion, nearly double 2018 volumes.

Crude prices extended losses to tumble 2 per cent after China’s retaliation, and stocks in Hong Kong pared gains. The dollar strengthened while the Chinese yuan, the euro, Australian and Canadian dollars as well as the Mexican peso all fell, reflecting growing market concerns about the risk of a protracted global trade war.

“Unlike Canada and Mexico, it is clearly harder for the US and China to agree on what Trump demands economically and politically. The previous market optimism on a quick deal still looks uncertain,” said Mr Gary Ng, senior economist at Natixis in Hong Kong.

“Even if the two countries can agree on some issues, it is possible to see tariffs being used as a recurrent tool, which can be a key source of market volatility this year.”

Neighhbourly deals

There was relief in Ottawa and Mexico City, as well as global financial markets, after the deals to avert the hefty tariffs on Canada and Mexico.

Both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum said they had agreed to bolster border enforcement efforts in response to Mr Trump’s demand to crack down on immigration and drug smuggling. That would pause 25 per cent tariffs due to take effect on Feb 4 for 30 days.

Canada agreed to deploy new technology and personnel along its border with the United States and launch cooperative efforts to fight organised crime, fentanyl smuggling and money laundering.

Mexico agreed to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal migration and drugs.

The United States also made a commitment to prevent trafficking of high-powered weapons to Mexico, Ms Sheinbaum said.

“As President, it is my responsibility to ensure the safety of ALL Americans, and I am doing just that. I am very pleased with this initial outcome,” Mr Trump said on social media.

After speaking by phone with both leaders, Mr Trump said he would try to negotiate economic agreements over the coming month with the two largest US trading partners, whose economies have become tightly intertwined with the United States since a landmark free-trade deal was struck in the 1990s.

The Canadian dollar earlier soared after slumping to its lowest in more than two decades. The news also gave US stock index futures a lift after a day of losses on Wall Street, and sent oil prices lower.

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Industry groups, fearful of disrupted supply chains, welcomed the pause.

“That’s very encouraging news,” said Mr Chris Davison, who heads a trade group of Canadian canola producers. “We have a highly integrated industry that benefits both countries.”

Mr Trump suggested on Feb 2 the 27-nation European Union would be his next target, but did not say when.

EU leaders at an informal summit in Brussels on Feb 3 said Europe would be prepared to fight back if the US imposes tariffs, but also called for reason and negotiation. The US is the EU’s largest trade and investment partner.

Mr Trump hinted that Britain, which left the EU in 2020, might be spared tariffs.

Mr Trump acknowledged over the weekend that his tariffs could cause some short-term pain for US consumers, but says they are needed to curb immigration and narcotics trafficking and spur domestic industries.

The tariffs as originally planned would cover almost half of all US imports and would require the US to more than double its own manufacturing output to cover the gap – an unfeasible task in the near term, ING analysts wrote.

Other analysts said the tariffs could throw Canada and Mexico into recession and trigger “stagflation” – high inflation, stagnant growth and elevated unemployment – at home. REUTERS

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