Five Big Questions About Trump’s Plan for Tariffs on China

President-elect Donald Trump made the geopolitical rivalry between China and the United States a key theme of his campaign during the 2024 election cycle. Trump and his advisers have apparently taken his victory earlier this month as an endorsement of a plan to enact a stiff tariff regime against China. Although many economists believe U.S. consumers will ultimately end up picking up the tab for new taxes on imported goods from China, Trump’s team is already working to put his strategy in motion.

“To me, the most beautiful word in the world is ‘tariff,’” Trump said in an interview last month.

The lack of details about the tariffs, however, has raised plenty of questions about what the new administration has planned. Here are five important ones.

What does the new administration want to do?

The 47^th (and 45^th) President has called for a 60% tariff on Chinese imports to go along with tougher restrictions on goods entering the U.S. from China. If Trump gets his way, Chinese-owned companies won’t be allowed to send exported goods from other countries to the U.S., either. That means, for instance, that imported cars built by Chinese-owned companies in Mexico could face tariffs of up to 200%.

Can it do this?

Generally, the power to enact tariffs lies with Congress. Exceptions do exist, such as allowing the executive branch to put tariffs in place in the interest of national security. Another such exception is levying tariffs as a response to actions by another government that hinder U.S. commerce.

So, given the current geopolitical climate, there’s a solid argument in favor of Trump’s position.

What will happen to the Biden administration’s restrictions for technology and national security issues?

The incoming President and the current occupant of the White House do appear to be of like mind about punishing China for some of its recent actions. President Biden recently ordered the Treasury Department to draw up regulations to either outlaw outbound investment in China or require disclosure about such investments. An executive order issued by Biden applies the policy to three different sectors: semiconductors and microelectronics, quantum information technologies and select artificial intelligence technologies.

Trump and his transition team have indicated they may expand on Biden’s executive order. Notably, Republican Senator Marco Rubio of Florida, Trump’s nominee to lead the State Department, has a hawkish streak when it comes to dealing with the Chinese government. He has championed tactics along the lines of preventing U.S. companies that invest in China from taking advantage of lower tax rates on capital gains. Meanwhile, Rubio supports throttling back the number of U.S.-produced tech exports going to China.

All of which points to the Trump administration building on what Biden started.

How do business interests in the United States feel about Trump’s tariff plan?

It seems fair to say that some U.S. companies fear the impact of the tariffs on their businesses. Based on data from public filings since November 6 compiled using the Intelligize platform, there are about three dozen corporate disclosures on risk factors referring to tariffs in their titles and mentioning “China” or “Chinese” in the description. These include lifestyle footwear brand Allbirds Inc., which noted in its 10-Q filed on November 7 that, “[T]he U.S. government has in recent years imposed increased tariffs on imports from certain foreign countries, such as China, and any imposition of additional tariffs by the United States could result in the adoption of tariffs by other countries, leading to a global trade war. Any such future tariffs by the United States or other countries could have a significant impact on our business.”

A few dozen companies may be a small percentage of the total number of issuers that exist, but we’re also talking about a timeframe of under two weeks. More will likely join their ranks soon.

How will China respond?

Trump enacted tariffs on Chinese goods once before when he first held the presidency. As a result, Chinese President Xi Jinping knows more now about what those policies look like in practice as Trump prepares to return to office.

The tariffs on China during Trump’s previous term prompted the Chinese to enact tariffs of their own on U.S. agriculture. The move triggered a reset of global trade flows as China sought alternative sources of agricultural products. Farming trade groups in the U.S. are now warning that another tariff gambit by Trump will put further strain on the industry.

Importantly, China has reduced its exposure to the U.S. market in recent years. Chinese listed companies now count on 3.7% of their revenues coming from the U.S., down from 5.7% in 2017. China also could look to slash its imports of U.S. goods as a counterattack against the U.S. tariffs.

As such, a new round of tariffs may not produce the crushing blow to China’s economic power that the Trump administration desires.