China: An International Trade/WTO: Respondent (PRC Firms) Overview

Current Economic Conditions Pertaining to International Trade

The United States tariffs and their disruptive impact on global trade

The year 2025 was an extraordinary year for global trade. Despite the fact the world has experienced numerous unilateral tariffs and other trade-restrictive measures over the past few years, the global trade sector was still astonished at the “reciprocal tariffs” initiated by the Trump administration.

By invoking the International Emergency Economic Powers Act (IEEPA), Trump’s “reciprocal tariff” policy imposed a minimum 10% tariff worldwide, and rates higher than 10% for designated countries and regions. After much back-and-forth debate, the USA has reached some “reciprocal trade” agreements with certain countries and regions, facilitating the removal of tariffs and other “non-tariff trade barriers” to the USA. The United States has also reformed its domestic trade law and policies to protect US industries.

Reciprocal tariffs are not the only impactful tariff action initiated by the United States throughout 2025. The Trump administration invoked the IEEPA at the very beginning of its term in order to impose tariffs on China, Canada and Mexico. Further specific tariffs under the IEEPA were imposed on Brazil and India in mid-2025. Moreover, by invoking the IEEPA, the Trump administration suspended the duty-free treatment of all de minimis imports to the USA, necessitating all small-scale traders with low-value imports to pay the same tariffs as bulk importers.

In addition to the invocation of the IEEPA, the Trump administration also undertook tariff actions under Section 232 of the Trade Expansion Act. Specifically, it increased the pre-existing Section 232 tariffs on steel, aluminium and their derivatives (including merchandise imported in steel or aluminium packaging) from 25% to 50%, and initiated an array of new Section 232 tariffs on products including:

• automobiles (defined as passenger vehicles and light trucks) and automobile parts;
• copper and copper derivatives;
• timber and lumber;
• upholstered wooden furniture;
• medium and heavy vehicle and parts thereof;
• buses; and
• semiconductors, semiconductor derivatives and semiconductor manufacturing equipment (initiated at the beginning of 2026).

The breadth of tariffs imposed by the Trump administration had a disruptive effect on global trade in 2025. In response, the World Trade Organization, in its 2025 annual report, lowered its forecast of global merchandise trade volume from growth of 2.7% to a contraction of 0.2%: a roughly 3% downgrade (World Trade Organization, Annual Report 2025, page 13). The tariffs have also exacerbated the tensions in international trade, including a new round in the ongoing trade war between the USA and China, which is to be discussed in detail later.

Other more far-reaching and long-lasting impacts include the apparent application of tariffs as leverage for unilateral pressure, as well as the Trump administration’s seeming ambition to subvert the current international trade system. The Trump administration has repeatedly and undisguisedly expressed this as the “art of tariffs”, that is, to use tariffs as both leverage to cajole countries and regions to act according to the needs of the USA, and a method to reform the global trade system in line with US wishes. Such sophisticated egoism could prove more problematic to international trade practitioners than the short-term tariff shocks.

In fact, the tariff actions of the Trump administration, especially its overuse of the IEEPA, have triggered significant controversies within the USA itself in terms of the perceived overreach. Many global trade practitioners would be relieved if Trump’s IEEPA tariff actions were eventually overruled by the United States Supreme Court, yet not everyone has faith in this happening. Moreover, as the Biden administration did not abandon the trade policy of Trump’s first administration, the world may have limited confidence that any future administration will abolish the current approach of the Trump administration. Global trade practitioners need to be prepared for a long-term challenge.

The “second trade war” between the United States and China

As previously mentioned, a significant crisis that arose in 2025 was a second round of trade conflicts between the USA and China, following on from the “first trade war” between 2018 and 2020. Specifically, the two nations have brought actions and counteractions against each other regarding:

• the fentanyl IEEPA tariff;
• the reciprocal tariff;
• the measures on the maritime, logistics and shipbuilding sectors carried out under Section 301 of the US Trade Act; and
• other trade restrictive measures, including the expansion of the scope of the products/entities subject to export control.

At the conflict’s peak, the maximum tariff rates imposed against each other pertaining to the “reciprocal tariff” had reached 125%, which was horrendous and caused serious panic among practitioners in Sino-US trade.

After several rounds of negotiations, the USA and China have reached agreements on reductions and/or temporary suspensions of the tariffs and non-tariff measures. Although this positive outcome offers some relief from the major crisis of bilateral economic and trade relations between the two superpowers, at least for a while, people should not be over-optimistic.

On the one hand, the overall baseline tariff for most Chinese-originated goods remains at 45%, consisting of Section 301 tariffs (7.5% to 100%, with 25% for most of the subject merchandise), the fentanyl IEEPA tariff (10%) and the reciprocal tariff (10% until 10 November 2026). For products subject to specific Section 232 tariffs and/or anti-dumping and countervailing duties, the aggregate tariff rate would be even higher after stacking.

On the other hand, the current consensus reached by the parties is more like a temporary truce than a long-term peace. The USA, after the bilateral announcement of the Kuala Lumpur agreement, is continuing its Section 301 investigation of China’s implementation of commitments under the China-United States Phase One Agreement. Therefore, the future of the trade relationship between the two major powers is still surrounded by uncertainties.

Potential Hurdles, Difficulties and Risks Faced by Clients

Amid the turmoil caused by the trade actions of the USA, clients engaging in international trade business face additional hurdles and difficulties. Aside from the additional tariffs, clients should pay attention to both ongoing and prospective legislative actions and administrative enforcements happening in both exporting and importing countries and regions. For example, the USA has designated a specific 40% punitive rate in its reciprocal trade policy for “transshipment”, and the US Department of Justice has announced a strengthening of law enforcement and criminal penalties for illegal actions pertaining to customs and trade, such as false declaration of country of origin.

Moreover, as discussed above, the USA has added certain clauses in its “reciprocal trade” agreements with certain countries and regions, demanding the latter to reform their rules of origins standard and enforcement practices. This appears to some to be part of an effort to target investment and production carried out by Chinese enterprises in these countries and regions. Already, some countries have modified their administrative procedures for country-of-origin enforcement by revoking the authorisation of issuance of country-of-origin certificates and returning it to the authority of the governmental administration. In addition, countries such as Mexico have imposed additional tariffs on certain products from China, seemingly as a response to US concerns, even though such request has not been explicitly mentioned in any published treaties or agreements. Therefore, in order to carry out business in a friendlier environment and avoid risk of non-compliance, clients should not only be cautious and wise when selecting the destination of their investment and location of any foreign production facilities, but also pay sufficient attention to the ongoing requirements of – and prospective trends in – enforcement compliance within the countries/regions of export and import.