United States’ Tariff Gamble: China Sneaks Right Under the Nose of the United States

In 2018, the United States initiated a Section 301 investigation, exposing China’s allegedly discriminatory and unreasonable trade practices.  The US government imposed an additional tariff on imports from China to curb what is called the menace of stealing technology transfer, intellectual property, and innovation.

Illustration by The Geostrata

The tariff value ranged between 7.5% to 25% across four lists (lists 1- 4A). These stringent measures were enacted during President Trump’s administration and largely continued under President Joe Biden without any significant changes. However, the old practices have resurfaced, this time with much more vigour.

The reinstatement of Donald Trump as president with his ambitious vision of, ‘Make America Great Again’ echoes age-old mercantilist policies. Despite economic interdependence, the two largest economies in the world have locked horns over trade.

ESCALATIONS: FROM TARIFFS TO TRADE WAR

The trade war was fueled by the execution of a 10% increase in US tariffs on all Chinese imports. On 04 February 2025, under the International Emergency Powers Act, the United States raised tariffs to 20% to counter the illegal flow of synthetic opioids from China. In retaliation, China imposed duties on American coal, liquefied natural gas (LNG), and agricultural machinery.

On 02 April 2025, the United States announced reciprocal tariffs, which it marked symbolically as “Liberation Day”. These actions totalled tariffs on China to 54% when stacked on existing Section 301 tariffs. Tit-for-tat continued between two great powers without any respites.

What followed was a series of tariff impositions carried out by both states. This brought US tariffs on China to a peak of 145% and China’s tariffs on the US to 125%. The increase of tariffs haphazardly created an undeclared trade embargo. Trade impasse brought the states to the table on 12 May 2025 in Geneva.

Following talks, the United States dropped the tariff to 30% and China decreased it to 10%. Still, the impact on both states’ economies is high. When the world is embroiled in wars for the balance of power, the two great powers seem to be testing each other’s balance of dependencies. Trade wars do not follow the zero-sum principle. However, asymmetrical trade practices became a strategic tool to exert influence.

IS THE US WINNING THE GAMBLE?

Despite trade animosity, the US trade with China has increased significantly in recent years. China remains one of the largest export markets for US goods and services (followed by Canada and Mexico). For China, the United States is the top export destination.

This underscores that both countries ' markets are entwined. China’s entry into the World Trade Organisation in 2001 enabled a surge of low-cost Chinese goods into the US, benefiting consumers and corporations. Increased trade with China elevated the annual purchasing power of the average US household. Exports to China have helped to create millions of jobs in the United States, and sales in China have generated hundreds of billions of dollars for American companies.

Despite these gains, the United States has a trade deficit of $295 billion with China.  The US market imports 13.5% of Chinese goods. After Japan, China is the second-largest foreign creditor to the United States, holding roughly $760 billion in U.S. Treasury bonds.

Tariffs were designed to reposition the US as a producer nation and reduce trade dependency on China. While the ambition seems plausible, indirect reliance through other trading partners, such as Vietnam and Mexico, made the reliance intact. China has opened many back-door channels to get goods flowing into the US market.

CHINA’S BACK DOOR ENTRY AND SUPPLY CHAIN DIVERSIFICATION

Trump’s explicit moves reduced direct supplies; however, the Chinese value-added of goods produced by the US suppliers has increased. A key technique used by Chinese firms is white labelling, a method of using third countries to evade scrutiny. Chinese companies send their products to third countries where the new labels are slapped on before heading to the US.

The change of labels can be done only when the products undergo transformation or some value addition. Chinese companies get hand-in-hand with the foreign companies to make this possible. For example, South Korea’s Customs Service uncovered violations worth 29.5 billion won in the first quarter of 2025. About 97% of these were US-bound shipments.

Many included cathode materials imported from China, shipped to the US with South Korean labels to evade tariffs. It also reported how products are imported and then reassembled in South Korea to bypass U.S. restrictions.

Another strategy deployed by Chinese firms is the diversification of the supply chain. Chinese firms have started thronging in African nations as they represent a haven from sky-high tariffs. Chinese exporters have begun offshoring production lines.

Egypt has emerged as plan B for China, considering its strategic location and low US tariff rate on the country. Egypt runs a trade deficit with America, but it has not been subject to punitive trade measures.

The country has reported that Chinese operators from Southeast Asia are reaching out for investment. This shows Chinese adaptation to the shifting geopolitical winds. 

Tariffs may have restricted the Chinese direct supplies to the US market; however, with these techniques in practice, the US cannot obviate China from its market. This reminds us how China evaded US sanctions on Russia for high technologies with the help of Shell companies. Despite Western sanctions, the technologies and US-made chips are still found in Russian war equipment.

As we mentioned earlier, trade war is not a zero-sum game. No state emerges victorious. However, the US attempt to inflict pain on China has not succeeded. Instead, it made China rethink its policy of export dependency on the US and to diversify its market.

China reaching out to countries that are in a trade deficit with the US will further increase its strategic influence on their market. Initial setbacks in the Chinese economy from tariffs do not deter its vision of integrating it into the world economy. The battlefield may be economic, but the victory lies in influence. China is playing the long game.

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BY ARUN S

TEAM GEOSTRATA

info@thegeostrata.com