The China Tariffs Are Here to Stay
The trade war with China is escalating. Tariffs are rising, impacting hundreds of billions in imports—businesses must act now.
This post outlines the reasons behind the enduring tariffs on Chinese goods and provides actionable strategies to safeguard your business.
Geopolitical and Economic Drivers of Continued Tariffs
For years businesses have been advised to reduce their reliance on Chinese manufacturing. The recent pause on Mexico and Canada tariffs, while those on China remain, confirms this strategy. See Would the Last Company Manufacturing in China Please Turn Off the Lights.
In yesterday’s blog post, I predicted that the tariffs on Mexico and Canada would be temporary, while those on China would remain:
I believe the 10 percent increase on China tariffs will remain in place—and could even rise further over time. However, I expect tariffs on Mexico and Canada to be lifted within 60 days.
Within hours of the publication of yesterday’s blog post, there was already “a pause” in the tariffs against Mexico and Canada, and I am expecting both Mexico and Canada will negotiate agreements that will secure a long-term elimination of these tariffs, in return for their agreeing to reduce their economic ties with China.
Geopolitics Favors Tariffs on Chinese Products
Several factors indicate that tariffs on Chinese goods are here to stay and may even escalate.
Economically, the U.S. benefits far more from trade with Mexico and Canada, which feature significantly higher integration of American-made components (approximately 40%) compared to China (a mere 4%). This deeper economic interdependence, coupled with a U.S. trade deficit with China that is one-third larger than the combined deficit with Mexico and Canada provides a strong economic rationale for prioritizing trade relationships with our North American neighbors.
Furthermore, Canada and Mexico’s increased efforts to curb illegal immigration create additional incentives for the U.S. to foster positive trade relations with them, further solidifying the likelihood of continued tariffs on Chinese goods.
Geopolitical tensions provide another compelling reason for the persistence of these tariffs. The U.S. and China find themselves at odds on numerous global issues, creating a climate of strategic competition rather than partnership. These tensions manifest in several key areas:
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Support for Adversaries: China’s support for Russia in the Ukraine war and its backing of groups like Hamas and Hezbollah in the Middle East directly conflict with U.S. interests and undermine efforts toward stability in these regions. This support for U.S. adversaries creates friction and diminishes trust, making trade cooperation less likely.
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Regional Competition: China’s assertive actions in the South and East China Seas, including border clashes with India and its stance on Taiwan, create instability and are countered by U.S. alliances and military support. These regional disputes exacerbate tensions and make it harder to build the trust necessary for smooth trade relations.
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Global Influence: China’s growing influence in Latin America and its relationship with North Korea also contribute to friction with the U.S. These efforts to expand its global footprint are seen by some in the U.S. as a challenge to its own influence and further complicate trade negotiations.
China’s Broken Promises on Trade and Fentanyl
In 2020, China pledged to purchase $200 billion in U.S. goods over two years as part of a trade deal with President Trump. China fulfilled only 40 percent of its purchasing commitment and President Trump has not likely forgotten this.
Despite years of promises by China to crack down on fentanyl exports, little has changed. China remains the primary supplier of fentanyl precursors to the U.S.
China’s unmet trade commitments and its lead role in the fentanyl crisis erode trust and provide additional justification for the U.S. to impose tariffs against China as a means of leverage.
Actionable Strategies to Minimize Tariff Impacts
Yesterday, in What To Do About the New Trump Tariffs, I discussed who will be most affected by the new tariffs and how they can mitigate these impacts. I emphasized that there is significant room to negotiate lower prices with Chinese manufacturers—an insight based on my experience during President Trump’s first round of tariffs on China.
When the U.S. imposes tariffs, foreign manufacturers in affected countries—such as Mexico, China, and Canada—face immediate pressure. Their goods become more expensive for American buyers, threatening their market share. Historically, most manufacturers absorb at least some of the tariff costs by lowering prices, but for industries already operating on thin profit margins, this strategy is often unsustainable.
From my experience during President Trump’s previous tariff rounds on Chinese companies, nearly all Chinese manufacturers—when pushed correctly—substantially lowered their prices for our clients. This happened for two key reasons:
- The Chinese Yuan depreciated, automatically reducing the price in U.S. dollars.
- The Chinese government provided increased subsidies, allowing factories to offset the tariff impact.
If you’re buying products from China, you should aggressively negotiate with your Chinese suppliers to ensure they absorb as much of the tariff cost as possible. However, these negotiations must be handled strategically and correctly—otherwise, you risk long-term supply chain issues. For detailed guidance on how to do this safely, I strongly recommend reading How to SAFELY Reduce Your China Product Prices.
To stay competitive, businesses must assess their exposure, anticipate changes, and take proactive steps to minimize disruptions. Those that adapt quickly will be in a stronger position to protect profitability and maintain supply chain resilience.
One example that stands out is a client of ours who made the bold decision to exit China entirely way back in 2016, even though all ten of its suppliers were there. It took them a year to fully transition, but by leaving before their competitors, they became the low-cost leader and avoided China’s COVID-era supply chain chaos.
The Incredibly High Cost of Chinese Sourcing Agents
One of the biggest revelations from previous tariff rounds was how much businesses were unknowingly overpaying due to sourcing agents. Many Chinese sourcing companies claimed to take a modest 5-10% commission, but in reality, they were inflating prices by 45-100%, significantly increasing costs for importers.
Companies that eliminated these middlemen often secured price reductions that more than offset the tariffs themselves, and they also gained greater control over their supply chains.
For a deeper dive into how sourcing agents impact pricing and increase risk, read Sourcing Agents When Manufacturing Overseas: The Long Version. I also urge you to read yesterday’s blog post, Trump’s New Tariffs and Their Impact on U.S. Trade with China, Mexico, and Canada, where I described various other tariff mitigation methods.