Trump’s Reciprocal Tariffs Exceed Expectations — CCP Economy Faces Existential Crisis

Trump's soft and hard tactics leave the CCP disoriented. (Image by Qing Yu / People News)

[People News] On what former U.S. President Donald Trump called “Liberation Day,” April 2, the White House invoked the International Emergency Economic Powers Act (IEEPA) to sign an executive order on “reciprocal tariffs,” a move poised to reshape the post-WWII global economic order. On April 3, Trump declared a national emergency, stating that for over 50 years the United States had been “plundered, looted, violated, and hollowed out by friends and foes near and far.” He called the order “our economic Declaration of Independence.”

The White House released a list of around 100 countries, along with the specific tariff rates the U.S. would impose on them. The executive order on reciprocal tariffs stipulates that beginning April 5, the U.S. will impose at least a 10% tariff on all imported goods. Starting April 9, significantly higher tariffs will apply to countries labeled as “serious trade violators.” These include: the European Union (20%), China (34%), Vietnam (46%), Thailand (36%), South Korea (25%), Japan (24%), Cambodia (49%), South Africa (30%), Taiwan (32%), and India (26%).

From this list of “serious violators,” it’s clear that the main targets of these steep tariffs are China and Southeast Asian countries, with China likely being the primary focus of the U.S. tariff crackdown. This is because China represents the largest trade deficit for the U.S.; in other words, over the past several decades, China has benefited more from the U.S. than any other country in the world.

If the tariffs Trump imposed on China in 2018 could be described as a “trade war,” then the tariffs announced on this “Liberation Day” are nothing short of an all-out economic nuclear war. So, what is the effective tariff rate the U.S. is now imposing on Chinese goods?

According to Bloomberg’s analysis, if you combine the new 34% tariff with the existing 13% average tariff carried over from the Trump 1.0 era (continued under the Biden administration), and the two additional 10% tariffs imposed by Trump in February and March this year due to the fentanyl issue, the actual average tariff rate on Chinese goods amounts to 67%.

Hong Kong’s South China Morning Post reported that Citigroup released a research report on April 3, indicating that following Trump’s reciprocal tariff announcement and the end of duty exemptions on packages under $800, the effective tariff rate on Chinese goods had risen to around 65%. This figure was calculated by adding the new 34% tariff to the 20% previously added by Trump and the roughly 11% effective tariff rate under Section 301 of the U.S. Trade Act.

Regardless of the calculation method, the U.S. tariffs on China now exceed the 60% that Trump had promised during his campaign, completely surpassing the Chinese Communist Party’s expectations. The CCP had previously been feeling rather self-assured. When Trump suddenly imposed a 25% tariff on Canada and Mexico while only levying a 10% tariff on China, and even by March, it had only increased it by another 10%, Beijing remained complacent. After the White House signaled global reciprocal tariffs in March, the CCP appeared even more relaxed, watching other nations complain about Trump’s policies with a sense of schadenfreude. It miscalculated that the U.S. would not make China a major target and assumed reciprocal tariffs would not exceed 15%, since the U.S. had already imposed a 20% tariff on China. According to The Wall Street Journal, Xi Jinping was even reportedly willing to make concessions on Chinese exports to the U.S. in exchange for a softer U.S. stance on the Taiwan issue.

Why has the Chinese Communist Party misjudged the situation again? This misjudgment arises from both internal and external factors. Externally, Xi Jinping observed that Trump was unable to resolve the Russia-Ukraine conflict as he had hoped, and the U.S. prioritization policy has led to rifts between the U.S. and its European allies. Additionally, the U.S. economy may face inflationary pressures due to comprehensive tariffs. The CCP assessed that U.S. tariffs on China would not immediately reach 60%. Internally, the decisive victory of China Manufacturing 2025 has bolstered confidence, and during the Two Sessions, it was announced that a moderately loose monetary policy and a 4% fiscal deficit would be implemented this year, which provided a sense of assurance.

However, this time it has backfired. The CCP celebrated too early and is now infuriated. On April 3, the Chinese Ministry of Commerce stated that the U.S. counterpart tariff measures "do not conform to international trade rules, severely harm the legitimate rights and interests of the parties involved, and are typical examples of unilateral hegemonic practices." The Ministry of Foreign Affairs also expressed disappointment, stating, "In a trade war, there are no winners; protectionism leads nowhere."

In reality, Trump has shown some restraint. The 34% tariff on China has already been significantly reduced. This figure is derived from the following calculation: the U.S.-China trade deficit for 2024 is $291.9 billion, while U.S. imports from China total $433.8 billion. Dividing these figures gives 0.6728, or 67%. Halving this results in 0.3364, which rounds to 0.34, or 34%. The U.S. has indicated that China imposed a 67% tariff on the U.S., while the U.S. only retaliated with a 34% tariff on China.

What impact will Trump's reciprocal tariffs have on the Chinese economy? It can be described as a devastating blow.

Firstly, the substantial tariffs will significantly impact China's exports to the United States. In 2024, exports of Chinese goods to the U.S. will represent 15% of China's total exports, nearly one-sixth. By 2025, the export volume from the Chinese Communist Party (CCP) to the U.S. is expected to decline sharply, and the CCP has limited options to respond. They might lower the renminbi exchange rate, shifting the burden onto consumers, or impose retaliatory tariffs, which would likely provoke the U.S. to increase its tariffs further. U.S. Treasury Secretary Janet Yellen has indicated that if countries do not implement retaliatory measures, the current equivalent tariffs will be the highest tariffs in place. Various international organizations forecast that due to the negative impact of tariffs, the CCP's GDP could decrease by 1% to 1.5% in 2025.

Secondly, China's cross-border e-commerce is facing a catastrophic outcome. In 2024, the total export value of China's cross-border e-commerce is projected to reach 180.7 billion USD, which represents 5% of the country's overall exports. The United States has eliminated the tariff exemption for small goods valued under 800 USD, putting cross-border e-commerce platforms like Temu, Shein, and AliExpress in jeopardy. In 2024, Temu ranked first for two consecutive years in the list of free download apps in the U.S., while Shein's sales surpassed 30 billion USD. Starting May 2, the U.S. will impose a 30% tariff on these small goods, or a minimum charge of 25 USD per item (which will rise to 50 USD by June 2025). Morgan Stanley estimates that these tariffs will increase the cost of Chinese goods by 20%-40%. According to the U.S. Department of Commerce, 85% of products on Chinese cross-border e-commerce platforms are priced below 50 USD, which already operates on thin profit margins. The imposition of tariffs effectively pushes merchants towards closing their businesses. Following this announcement, Pinduoduo's stock price fell by 8%. Additionally, these cross-border e-commerce platforms support between one to two million jobs domestically.

Third, the Chinese Communist Party's (CCP) re-export trade is set to be completely obstructed. The CCP operates like a clever rabbit with multiple hiding places; when faced with U.S. tariff pressures, it frequently utilizes Southeast Asia as a re-export platform, disguising its products to continue selling to the U.S. at lower prices. Recently, the U.S. imposed tariffs of 46% on Vietnam and 49% on Cambodia, effectively dismantling the CCP's re-export strategy. In 2024, Vietnam is projected to be the second-largest trade deficit country for the U.S., with 40% of the goods exported from Vietnam to the U.S. being re-exported as Chinese products. The Mexican automotive industry is also a target for China; over 40% of the parts used by U.S. automakers are imported from Mexico, with many sourced from Chinese-funded factories. Under pressure from Trump, Mexico has halted BYD's plans to invest in a factory.

Fourth, U.S. tariff policies are expected to shrink global trade, which will negatively impact other economies' demand for imports from China. In 2024, the CCP's trade surplus is anticipated to reach trillions of dollars, but by 2025, this surplus will be challenged by Trump's global equivalent tariffs. The imposition of tariffs by the U.S. on other economies will likely result in a decrease in those economies' exports to the U.S., thereby dragging down their economic performance. As global economic growth slows and import demand weakens worldwide, China's overall exports will be adversely affected.

Fifth, in exchange for U.S. tariff exemptions, some countries may cooperate with the U.S. in imposing additional tariffs on China, which would further impact Chinese exports. U.S. Treasury Secretary Bessent, along with officials from Canada and Mexico, have revealed that during tariff negotiations, both Canada and Mexico were actively considering cooperating with the U.S. in curbing Chinese goods in return for tariff exemptions. The Trump administration may also request other economies to impose tariffs on China and work with the U.S. on import traceability investigations to block all possible channels through which Chinese products enter the American market.

Sixth, reciprocal tariffs will cause the Chinese yuan (RMB) exchange rate to fall, accelerating capital flight and discouraging foreign enterprises from setting up operations in mainland China. On April 2, following the White House’s announcement of a new round of reciprocal tariffs, the onshore yuan fell below the 7.3 mark. As the full range of tariffs is implemented, it is possible that the Chinese Communist Party (CCP) will deliberately devalue the yuan to offset part of the tariff impact. However, trying to press down one problem will only cause another to surface — a depreciated yuan will prompt foreign capital to flee. At a time of economic downturn, the CCP’s economy is heavily reliant on exports and foreign investment. Now, this “golden pipeline” has collapsed.

Seventh, reciprocal tariffs will deal a heavy blow to China’s manufacturing industry. The CCP has long boasted of being a manufacturing powerhouse, with its "Made in China 2025" strategy aimed at transforming into a global manufacturing leader. However, Trump’s global reciprocal tariffs will drive up prices for bulk commodities such as iron ore, oil, and natural gas, leading to increased production costs for Chinese manufacturers. Many of these industries already struggle to survive and depend on state subsidies; now, they face an even deeper crisis.

In short, Trump’s big stick of reciprocal tariffs is set to pummel the CCP, leaving it reeling. Let’s see how long it can keep up its bluster and talk of tit-for-tat retaliation! △

(Originally published by People News)