An aerial drone photo shows a view of the Tangshan Port in north China's Hebei Province, Jan. 13, 2025. (Photo/Xinhua)

Chongqing - As the U.S. escalates its tariff campaign, China is deepening trade ties and stabilizing supply chains. While the U.S. gains a short-term fiscal boost, its protectionist policies are driving GDP losses abroad, raising domestic prices, and straining industries. Meanwhile, China is advancing diplomacy and free trade to counterbalance American protectionism, reshaping global economic relations.

Sweeping U.S. tariffs disrupt alliances and global trade

Washington is expanding its tariffs on major trading partners, targeting those with large surpluses. Between July 7 and 15, Trump announced new tariffs on Truth Social, framing them as patriotic economic defense. 

Japan and South Korea face a 25% tariff, while Canada and Mexico are hit with 35% and 30%, respectively, with warnings of higher rates on non-compliant goods. As EU negotiations stall, a proposed 30% tariff looms, prompting Brussels to prepare a €72 billion retaliation.

After high-level talks in Geneva and London, the U.S. and China agreed to halt further tariff hikes, reducing previously high rates of 145% and 125%, while easing non-tariff barriers. China has resumed issuing export licenses for rare earth elements, and American products like Nvidia chips and Boeing aircraft are re-entering the Chinese market. However, due to residual duties and cumulative tariffs, the effective U.S. tariff on most Chinese goods remains above 30%.

High tariffs are also targeting China’s regional partners, with Vietnam facing a 20% rate and 40% on transshipment, while Laos and Cambodia are hit with 40% and 36%, respectively. 

On July 15, the Trump administration escalated matters by announcing a 10% blanket tariff on over 100 nations, mainly in Africa and the Caribbean. Commerce Secretary Howard Lutnick noted these economies are too small to affect the U.S. trade deficit. The blanket tariff was paired with threats of secondary sanctions on global buyers of Russian energy, merging trade policy with geopolitical punishment. Additionally, proposed tariffs include 50% on copper and 200% on pharmaceuticals.

A stop sign in front of the White House. (Photo/Xinhua)

How are U.S. tariffs affecting the global economy? According to the Wall Street Journal, in the first five months of 2025, the U.S. Treasury collected $68.9 billion in tariffs and excise taxes, delivering a short-term revenue boost. However, this gain is overshadowed by broader global disruptions. J.P. Morgan Global Research estimates that most countries are experiencing GDP declines of 0.2% to 0.6% due to U.S. tariffs. Vietnam, with its close trade ties to the U.S., could see a GDP drop of over 6%, while Brazil might face a 0.6% to 1.0% decline if the U.S. imposes a 50% tariff.

Boosting U.S. industry or burdening consumers?

The Trump administration is using tariffs, alongside the cancellation of subsidies under the One Big Beautiful Bill Act (OBBB), to bring industrial production back to the U.S. Ignoring potential diplomatic fallout, Trump aims to shift global manufacturing to U.S. supply chains, boost industrial output, and create quality jobs.

However, how are these tariffs affecting American consumers and their daily spending? How are these changes affecting U.S. manufacturing and supply chains?

Tariffs are becoming a direct tax on American consumers, driving up prices on goods like clothing and home furnishings. Consumer inflation hit 2.7% year-over-year in June, with core inflation at 2.9%, and could exceed 3% by the second half of 2025, according to J.P. Morgan. The Yale Budget Lab estimates that tariffs could add $2,800 to annual household spending. As prices rise, consumer sentiment weakens, with the University of Michigan index at 61.8 in July, below pre-pandemic levels. Despite overall spending staying steady, lower-income consumers are struggling, even as wealthier households benefit from tax cuts and stock market gains.

The industry-specific tariffs are also hurting people. According to ABC Radio National, pharmaceuticals are Australia’s second-largest export to the U.S., behind beef, with an annual value of around A$2.1 billion. The new pharma tariffs have already begun pushing up the cost of vaccines and essential medications in the U.S.

Furthermore, about half of U.S. imports are production inputs like machine tools and industrial metals, and tariffs on these goods are raising costs in key sectors, according to analysis by the Harvard Business Review. Automotive, luxury goods, and pharmaceutical industries are especially vulnerable, with copper prices surging after a 50% tariff on imports, according to J.P. Morgan. These price hikes are increasing costs for data centers, semiconductors, and housing, which were already under pressure from supply constraints.

Reshoring low-productivity manufacturing under the current tariff regime may lead to unintended costs, economists at J.P. Morgan warn. It could divert labor from higher-yield sectors, reducing overall efficiency. As the labor market tightens and immigration slows due to Trump’s border policies, industries may soon compete for a shrinking pool of workers, worsening supply chain disruptions.

Trump's tariffs push U.S. aside, China champions free trade

Beyond domestic impacts, Trump’s tariff strategy risks isolating the U.S. It has sparked trade disputes with nearly every major partner, but the rest of the world isn’t following suit. While countries continue to trade freely, China is positioning itself as a champion of free trade.

China is strengthening global trade networks and supply chains. On July 15, China and Australia signed a memorandum to resume talks under the China-Australia Free Trade Agreement (ChAFTA), aiming to expand tariff-free access in services, agriculture, and green industries. Over 90% of Australian goods can now enter China tariff-free, and recent duty lifts on Australian barley, coal, and wine signal broader normalization. Prime Minister Anthony Albanese’s week-long visit to China highlighted growing economic ties beyond US-centric markets.

On July 8, China expanded economic engagement with Sri Lanka by signing a maritime cooperation agreement that revived free-trade discussions tied to infrastructure projects in Hambantota and Colombo. 

China continues to prioritize international and regional frameworks. This year marks the third anniversary of the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade agreement, eliminating over 90% of tariffs among member states in the Asia-Pacific. On July 10, ASEAN+3 (China, Japan, and South Korea) foreign ministers met in Kuala Lumpur to discuss further economic coordination. In early July, BRICS+ leaders gathered in Rio to promote cross-border payment integration, a move that led to the U.S. imposing a 50% tariff on Brazil.

In sharp contrast to the U.S. approach of blanket tariffs on more than 100 nations with little distinction or negotiation, China is expanding its long-standing tariff-free treatment for Least Developed Countries (LDCs). As of July 1, 98 percent of imports from 25 LDCs, primarily in Africa and Asia, enter China duty-free. Beijing has notified the WTO of its plans to extend this policy to 53 African countries that maintain diplomatic ties with China.

Despite ongoing tensions, China and the European Union will hold a formal summit this month, with the U.S. creating friction with both sides. The agenda will cover carbon border measures, access to green technologies, and rare earth supply issues, highlighting China’s continued engagement with global trade as renewed openness becomes more critical.

European Council President Antonio Costa meets with Chinese Foreign Minister Wang Yi, also a member of the Political Bureau of the Communist Party of China Central Committee, in Brussels, Belgium, July 2, 2025. (Xinhua/Peng Ziyang)