US tariffs on China now 145% – What it means for China, what will China do next?

The Guardian reports that a previous US tariff of 20% will remain, so that the total tariffs on Chinese goods sold to the US will be subject to 145% tariffs.

The 20% tariff is based on the claim that China does not act on fentanyl drugs shipped to the US. The US accuses China to je responsible for the terrible drug sold nationwide to US citizens with terrible health consequences. The 20% tariff must be considered as a sanction.

145% on all goods will have a heavy effect on trade between China and the US. On the one side, consumers will be asked to pay much more for Chinese products which were otherwise relatively cheap in the US. Consumers may turn to other than Chinese goods. Some essential products, such as IPhones or other electronics manufactured in China even by/for US companies, may be hit by reduced demand. But where will the trillions raised through tariffs be applied?

What will be the consequence for the Chinese economy when the most important trading partner and export destination breaks away? Surprisingly, the main stream media does not at all discuss all the consequences for China, and is only blaming Trump for possible negative consequences on the US economy – as if China will not suffer. But that’s absolutely not the case.

China exported USD 430 billions to the US in 2024. This represent ca. 3% of China’s GDP. Goldman Sachs estimates a GDP reduction of 2.4%.

Economists think that China’s 20 trillion economy can absorb the tariff shock. But the latest trade war with the US comes as China is struggling with deflation, a crisis-stricken property market and elevated debt levels. Already these symptoms could be destabilizing for the Chinese economy. The additional, maybe long term issue of a reduced exports to the US may increase the economic problems in China. China must at all costs stabilize the economic, because economic destabilization will create social unrest and a difficult political environment.

China will need to further diversify its export, maybe at some higher costs, risks for export financing and political engagements. China may turn more to the Global South, as well as to Russia, to compensate losses in the US. Eventually, China will direct its initiatives towards Europe again.

It is therefore, very likely that China will free handed enter in a long term trade war with the US and that China will use other, non-tariff instruments to target the US otherwise. At a certain moment, the absolute percentage of a high tariff will have less meaning, therefore, it may be foreseeable that China will not continue the overbidding of US tariffs.