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The US-China trade war has turned ugly. Both countries are now fighting a high-stakes economic battle, with neither side showing signs of backing down. A 245% China tariff on select imports has marked a dramatic turn, since Liberation Day tariffs were announced.
The International Trade Body, World Trade Organization, has warned that the tariff increase could cut world trade by 1.5% in 2025. It has also reduced its global GDP growth forecast in 2025 to 1.7%, reducing from its earlier estimate of 2.8%.
All the developments are now straining the global supply chain and fueling risking inflationary conditions. The impact of these decisions could have a lasting impact on global trade.
In this article, we will demystify Trump 2025 tariffs, its impact on American economy, trade, and US markets.
What are tariffs and how do they work?
Tariffs are not just more taxes on imports. They are strategic tools in economic diplomacy. Governments use it to alter the balance of trade, protect domestic industries, and negotiate for favorable trade deals. It’s prevalent worldwide in some form or other.
US Liberation Day tariffs drastically increased the cost of goods for foreign exporters, making their products unviable and hurt them financially. It also forces domestic buyers to reconsider buying foreign goods and prefer domestically manufactured products.
For example, if an electric vehicle from China sells at $30,000 before the trade war, a 245% China tariff would add over $73,500 in taxes, taking the total price of the EV above $100,000. Making it unviable for US customers.
Tariffs are like a double-edged sword. It can hurt the economies of both sides. Tariffs can raise costs for domestic manufacturers who rely on imported materials. In the past, the US had used tariffs to support its steel, aluminum, and agriculture industries.
Why is Trump using tariffs?
More than economics, Liberation Day tariffs are sort of a geopolitical maneuver. In Trump’s argument, the US has a large trade deficit with every major economy because of their liberal trade policies. As per him, China abuses the system most by subsidizing its industries and weakening US competitiveness.
By slapping a 245% tariff on China, Trump is sending a message, the US won’t tolerate economic aggression. Alongside, he is also forcing US companies to start producing domestically and reshape global supply chains.
Trump sees tariffs as a multi-purpose weapon: to punish trade practices he deems unfair, to gain leverage in negotiations, and bring manufacturing back to the US.
What has Trump announced on tariffs?
On April 2nd, Trump announced reciprocal tariffs on 90 countries with Asian countries facing the worst burnts. However, days later Trump announced a 90-day pause before the tariffs take effect, except for China.
In a series of retaliatory moves, the US raised the tariff bar to 245% on Chinese imports. The specific set of tariffs were imposed on steel, electric vehicles, and green energy components such as lithium-ion batteries and solar panels.
The choice of sectors targeted closely with current geopolitical and economic trends. For example, in 2023, China accounted for nearly 60% of the global EV supply and is rapidly gaining access in export markets. Similarly, China is the world’s largest producer and exporter of steel. And, it is exported at much lower prices due to unfair state subsidies. In solar panel production, Chinese companies control around 80% of the global manufacturing capacity, often outpricing competitors due to scale and government support.
With the US-China trade war, the global trade rules are being rewritten with aim of making it more equitable.
How much trade is there between the US and China?
In 2024, the US and China traded goods worth $582.4 billion. In this, US imports from China totalled $438.9 billion and US exports to China totalled $143.5 billion. With lower exports, the US trade deficit with China was $295.4 billion, bigger than any country.
However, there is a deeper shift. The US imports from China and the trade deficit is gradually decreasing. It was $506.4 billion and the trade deficit was $355 billion in 2021.
The decrease is primarily because the US companies have diversified their supply chains to Vietnam, Mexico, and India.
But, shifting the supply chain is easier said than done. China still dominates the critical sectors like electronics, rare earth metals, and solar manufacturing. According to the International Energy Agency, China accounts for more than 60% of rare earth metal mined and controls over 90% of the global output. For this very reason, the US and other countries have to depend on China.
Will prices go up for U.S. consumers?
Yes, the prices will go up for US consumers. Fed Chair Jerome Powell has said there is a risk of inflation and economic slowdown because of the impact of tariffs.
For steel and EV, higher costs are likely. The US doesn’t have enough capacity to absorb all demand without inflationary conditions.
But, now there is a bigger risk. China is retaliating with its own tariffs. It has put tight export control on critical rare earth metals. The Chinese government has placed export control over seven critical minerals and associated products. These are used in the electronics, semiconductors, Li-ion batteries, aircraft engines, oil refining, missiles and radar systems.
The inflationary impact will not be immediate or uniform, but it is highly likely as the situation evolves. It will have spill across multiple sectors and impact stock price, treasury yield, tech stocks, and bond market.
Conclusion
The 245% China tariff is a short escalation to the US China trade war and disruptive for global trade systems. Trump 2025 tariff success depends on primarily three things- How China retaliates, How fast can US adapt to new supply chains, and how the global market can absorb shocks.
In this evolving situation and rising uncertainty in the world, trade is now being used as an economic tool for power games. But one thing is clear, the global economy is no longer operating under old rules and rewritten constantly with trade as leverage.
