Analysis of the Impact of the U.S. "Reciprocal Tariff" Policy on Global Supply Chains and China's Co

Introduction:

On April 2, 2025, U.S. President Trump announced the imposition of "reciprocal tariffs" on major global trading partners from the White House, with a particular escalation of tariffs on Chinese exports to the United States. By April 10, 2025, these tariffs had surged to 125%. In response, China implemented a series of countermeasures, including raising its own tariff rates. The U.S. "reciprocal tariff" policy, ostensibly aimed at "balancing the trade deficit," has, in reality, plunged global supply chains into a state of deep instability. For Chinese enterprises, this is not merely a matter of increased costs but a comprehensive challenge involving supply chain restructuring, upgrades to compliance systems, and a strategic market transformation.

1. The Genesis and Strategic Responses to the U.S. "Reciprocal Tariff" Policy
2. Evolution and Rationale of U.S. Tariff Policies on China

The United States has maintained a persistent trade deficit with China, which the Trump administration viewed as a consequence of unfair trade practices. In 2018, the Trump administration imposed tariffs on Chinese exports to the U.S., invoking Sections 201, 232, and 301. The Biden administration, which took office in 2021, largely retained these tariff policies. During this period, the average tariff rate on goods from China to the U.S. was approximately 19%. However, according to data from U.S. Customs and Border Protection (CBP), the U.S. goods trade deficit exceeded $1 trillion in 2023, the largest in the world, with China and Mexico being the top two sources of this deficit.

Following his election, one of Trump's primary objectives was to revitalize American manufacturing and fortify supply chain security. Through the imposition of tariffs, the Trump administration aimed to increase the cost of Chinese goods entering the U.S. market, thereby reducing the nation's reliance on Chinese manufacturing. Forcing U.S. companies to relocate their production lines back home, which drives employment and brings manufacturing jobs back to the United States.

The initial round of U.S. tariffs temporarily impacted Chinese exports to the U.S., but Chinese enterprises mitigated the impact through supply chain diversification (e.g., establishing factories in Southeast Asia) and product upgrades. Post-2023, the U.S. recognized the limited effectiveness of tariffs solely targeting China and shifted towards a "reciprocal tariff" policy, broadening its focus to major global trading partners and critical nodes in the global supply chain.

1. New Round of "Reciprocal Tariff" Policy

On April 2, 2025, Trump signed an executive order announcing the imposition of "reciprocal tariffs" on imported goods from all countries. This tariff measure includes two parts:

10% Baseline Tariff: Effective April 5, 2025, applicable to all trading partners. This "minimum tax rate" aims to unify the U.S. tariff threshold, replacing the original fragmented rate system.

"Specific Reciprocal Tariffs" for Deficit Countries: Effective April 9, 2025, higher specific reciprocal tariffs will be imposed on certain countries and regions with significant trade deficits with the United States.

According to Annex-I of the executive order, the "reciprocal tariff" rates for some major economies are as follows[1]:

According to the Executive Order, the following situations are not subject to the "reciprocal tariff" policy:

1. Goods exempted under 50 U.S.C. 1702 (b);
2. Steel, aluminum products, automobiles and auto parts that have been subject to the Section 232 tariff restrictions, as well as goods that may be subject to the Section 232 tariff restrictions in the future;
3. Other products listed in Annex II of the Executive Order, including copper, pharmaceuticals, semiconductors, wood products, specific key minerals, energy and energy products, gold and silver;
4. Energy and certain other minerals not available in the United States;
5. Excluding goods subject to the Section 232 tariffs of Mexico and Canada products that comply with the USMCA;
6. All goods from trading partners that apply the tax rate listed in column 2 of the Harmonized Tariff Schedule of the United States (HTSUS) [2].

In addition, the executive order also stipulates a flexible adjustment policy of "reciprocal tariffs", which means that the United States will increase or decrease the corresponding tariff measures based on whether its trading partners have taken retaliatory tariff measures.

On April 8, 2025, White House Press Secretary Carolyn Levitt said that a 104% tariff would be imposed on Chinese exports to the United States, effective on April 9, Eastern Time, in retaliation for China's 34% tariff on U.S. exports.

On April 10, 2025, US President Trump tweeted that the US tariffs on China would be further increased to 125%. On the other hand, based on the fact that more than 75 countries have contacted the US representatives including the Ministry of Commerce, the Ministry of Finance and the Office of the United States Trade Representative to seek solutions to trade issues, trade barriers, tariffs, currency manipulation and non-monetary tariffs, and these countries have not taken any form of retaliatory measures against the United States, Trump has authorized a 90-day suspension period and reduced the reciprocal tariffs to 10% during this period.

1. Responses Adopted by China and Major Global Trading Partners to Address the U.S. "Reciprocal Tariff" Policy

In response to the U.S. "reciprocal tariff" policy, China adopted a series of relatively tough and comprehensive countermeasures. On April 4, the Tariff Commission of the State Council announced that, from 12:01 p.m. on April 10, 2025, an additional 34% tariff would be imposed on all imports originating from the United States, based on the currently applicable tariff rates [3]. On the same day, the Ministry of Commerce issued multiple announcements, including the implementation of export controls on seven categories of medium and heavy rare earths, the inclusion of 16 U.S. entities on the export control list, the listing of 11 U.S. companies as unreliable entities, the initiation of an industrial competitiveness investigation into imported medical CT tube housings, and the decision to conduct anti-dumping investigations into relevant medical CT tube housings imported from the United States and India from April 4, 2025. Meanwhile, due to issues such as non-compliance with China's food safety, inspection, and quarantine requirements, the General Administration of Customs suspended the qualification of one U.S. company to export sorghum to China, the qualification of three U.S. companies to export poultry meat and bone meal to China, and the importation of poultry meat products from two U.S. companies involved. On April 9, the Tariff Commission of the State Council announced adjustments to the tariff rates imposed on imports from the United States, increasing them from 34% to 84% [4].

However, there are also significant differences in the responses adopted by major global economies to the U.S. "reciprocal tariff" policy. On April 9, EU member states voted to approve the first round of retaliatory tariff measures against the United States, imposing tariffs of up to 25% on a series of U.S. products in response to the previous steel and aluminum tariffs imposed by the U.S. The retaliatory measures involve goods valued at approximately 21 billion Euros and cover a wide range of products, including soybeans, poultry, rice, fruits, nuts, lumber, textiles, and more. EU Trade Commissioner Šefčovič stated that the retaliatory measures against U.S. steel and aluminum tariffs will be implemented in two stages: the first part will take effect on April 15, the second part on May 15, and the third part of the tariff measures will take effect from December 1. However, we also note that countries and regions such as Israel, Argentina, and Vietnam have not adopted effective retaliatory measures but instead actively reduced their tariffs to zero for the United States, hoping to avoid high punitive tariffs imposed by the United States.

1. The Predicament Under the U.S. "Reciprocal Tariff" Policy

The U.S. "reciprocal tariff" policy will significantly impact the global supply chain system, necessitating realignment of exports and supply chains in manufacturing countries such as China and Southeast Asia, as traditional supply chain models are becoming increasingly ineffective. Although U.S. President Trump authorized a 90-day suspension period for over 75 countries on April 10, during which reciprocal tariffs were reduced to 10%, the "reciprocal tariff" remains a "sword of Damocles" hanging over countries worldwide.

1. Obstructed Export Demand

The imposition of U.S. tariffs has reduced the price competitiveness of Chinese products in the U.S. market, increasing procurement costs for U.S. importers and leading to a decrease in export demand, thereby affecting China's export volume to the United States. Industries significantly impacted include electronics, machinery and equipment, textiles, and furniture. U.S. importers may turn to other countries for procurement, resulting in a notable decline in orders for Chinese export enterprises.

1. Severely Compressed Profit Margins

Under high tariffs, manufacturing enterprises experience reduced product price competitiveness and decreased orders. According to the "Four-Year Review Report on Section 301 Investigation of China" released by the Office of the U.S. Trade Representative (USTR), in 2024, U.S. tariffs on China covered the manufacturing and high-tech industries, with electric vehicles, batteries, and semiconductors among the first industries affected [5]. The additional tariff costs cannot be fully passed on to U.S. buyers, thereby compressing the profit margins of foreign trade enterprises.

1. Collapse of the "re-export trade" model

Research by the International Monetary Fund (IMF) indicates that trade disruptions and technological "decoupling" could reduce global GDP by 5%, with supply chain restructuring costs accounting for over 30% of this decline [6].

1. Breakthrough Strategies for Chinese Enterprises in the New Context

For China, which has implemented retaliatory measures without providing a suspension period, the impact of the latest tariff policies on Chinese overseas enterprises will be comprehensive, necessitating a reevaluation of their global layout. However, the United States remains a major market for numerous overseas enterprises. From a fundamental perspective of supply and demand, no significant changes have occurred thus far—on the demand side, demand in the U.S. market still exists, much of which is rigid; on the supply side, Chinese manufacturing remains the world's most efficient supply chain, with sales growth continuing as the primary trend. Therefore, the immediate priority for Chinese overseas enterprises is to seek "breakthrough strategies."

1. Diversified Market Layout

Enterprises can accelerate the development of other low-tariff country markets, such as countries along the Belt and Road Initiative, ASEAN, the Middle East, and Latin America, to reduce dependence on U.S. exports. These markets exhibit significant growth potential and are more favorable to China's tariff policies, aiding enterprises in expanding their business landscapes and diversifying trade risks.

1. Optimized Supply Chain System

Enterprises can seek alternative suppliers globally to avoid disruptions in raw material supply or significant cost increases due to U.S. tariffs. Simultaneously, optimizing supply chain layouts and enhancing their flexibility and resilience are crucial. Establishing long-term, stable cooperative relationships with suppliers can reduce procurement costs and ensure supply stability.

1. Strengthened Cost Control

Enterprises should enhance communication with raw material suppliers, seeking reasonable procurement strategies to reduce raw material procurement costs. Simultaneously, increasing investment in automation and digital transformation can improve production efficiency and reduce labor costs. Additionally, negotiating prices with customers to jointly share the increased costs of tariffs can prevent profit margin compression due to unilateral price reductions.

1. Promoted Product Upgrades and Strengthened Brand Building

Increasing research and development investments to enhance product technological content and added value, transitioning from low-added-value to high-added-value products is essential. Technological innovation can improve production efficiency, reduce production costs, and enhance product market competitiveness. Strengthening brand building to create internationally influential brands and enhance brand awareness and reputation can offset cost increases due to tariff adjustments to a certain extent and enhance consumer recognition and loyalty to products.

1. Conclusion

The U.S. "reciprocal tariff" policy has exposed the fragility of traditional supply chains but has also spurred new business paradigms. The "reciprocal tariff" is not an endpoint but rather a prelude to the restructuring of the global industrial chain. Chinese enterprises must focus on "technological autonomy, diversified layouts, and digitalize operations" to turn crises into opportunities amid the restructuring of the global supply chain. As Manuel Montoya, head of the Mexican automotive industry cluster, stated, "When old chains break, new networks are forming—this requires courage and even more wisdom."

Author: Hong Zhu, Wenxin Chen, Sheng Tan

Reference:

[1]https://www.whitehouse.gov/wp-content/uploads/2025/04/Annex-I.pdf

[2]https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/

[3]https://gss.mof.gov.cn/gzdt/zhengcefabu/202504/t20250404_3961451.htm

[4]https://gss.mof.gov.cn/gzdt/zhengcefabu/202504/t20250409_3961684.htm

[5]https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/may/us-trade-representative-katherine-tai-take-further-action-china-tariffs-after-releasing-statutory

[6]https://www.imf.org/en/Publications/fandd/issues/2023/06/pillar-of-economic-security-ralph-ossa