In response to the US imposing an additional 10% tariff on Chinese goods starting March 4, China has announced a series of retaliatory measures.
These countermeasures include the introduction of new tariffs specifically targeting US agricultural products.
Furthermore, China has decided to expand its Unreliable Entities List.
This list, which already includes a number of foreign firms deemed to have acted against Chinese interests, will now encompass additional companies.
This action could potentially limit these companies’ operations within China and further strain international business relations.
However, ING Group believes that China’s countermeasures were measured, which keeps hopes for negotiations alive between Beijing and Washington.
Source: ING Research
China’s retaliatory measures
New tariffs by China against the US will take effect on March 10.
A 15% tariff will be applied to chicken, wheat, corn, and cotton.
Additionally, a 10% tariff will be applied to sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables, and dairy products.
In 2024, the US exported approximately $25 billion worth of agricultural products to China.
This represents around 15% of total US exports to China.
Although China’s retaliatory measures targeted around 10% of US goods, their response was relatively muted compared to the 10% broad-based tariffs imposed by the US.
Meanwhile, ten new companies were added to the unreliable entities list by China’s Ministry of Commerce.
This subjects them to potential restrictions, including bans on investment and trade with China, but has little immediate impact.
Lynn Song, ING’s chief economist, China, said in a report:
It’s possible that if we see a negotiation breakdown, companies on the Unreliable Entities list could start to face restrictions in their business dealings with China, so this list remains worth monitoring.
Hopes alive for US-China negotiations
“Our initial take is that China’s countermeasures are still relatively measured for now,” Song said.
Approximately 25% of US exports to China are subject to tariffs following the implementation of retaliatory measures to the February tariffs.
The risks of a stronger response escalate with each escalation, and the retaliation could have been much stronger.
New talks are unlikely to happen over the next week with the Two Sessions kicking off, but markets will watch for any progress before key dates in April.
While ING initially saw cooperation on the fentanyl issue as feasible, upcoming deadlines—including the Phase One Trade Deal review, the end of the TikTok ban moratorium, and Trump’s “reciprocal tariff” plans—make smaller, individual agreements increasingly unlikely.
Instead, negotiations may result in either a comprehensive agreement or no agreement at all, according to ING.
Tariff hikes on Mexico may require export rerouting
The increased tariffs on Mexico will also obstruct China’s attempts to find alternative export routes, according to Song.
China’s exports to Mexico saw a dramatic increase between 2017 and 2024, surging 150% from $36 billion to $90 billion.
This more than doubling of exports represents a jump from 1.6% to 2.5% of China’s total exports.
In contrast, US exports to Mexico only rose 21% during the same period, with their share of total US exports dropping from 19% to 14.6%.
Starting in 2018, China’s outward direct investment into Mexico increased, with $2.6 billion in new investments between 2018 and 2023.
However, if tariffs on Mexico persist, these relocated operations will likely face increasing challenges, Song added.
Source: ING Research
The actual impact of China’s outward direct investment into Mexico is not as significant as it seems; it only accounted for a mere 0.3% of China’s total outward direct investment, ING said.
“The biggest risk for China would be if tariffs start coming into effect on other Southeast Asian economies – China’s ODI to ASEAN countries were over 40x what was invested in Mexico in the same time period,” Song said.
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