U.S. president-elect Donald Trump has made headlines with his recent declarations on trade policy just after securing victory in the presidential election. He took to Truth Social, promising new tariffs on imports from China, Mexico, and Canada as soon as he assumes office in January. During his campaign, Trump frequently emphasized imposing hefty tariffs on China and other top trading partners, suggesting that such measures would help bring jobs back to America.
On Monday evening, Trump announced plans to impose an additional 10% tariff on all Chinese imports, which would be on top of existing duties. He attributed this decision to what he perceives as China’s lack of action in controlling the influx of illegal drugs into the U.S. “I’ve had numerous discussions with China regarding the huge amounts of drugs, especially Fentanyl, being shipped into the U.S.,” he expressed. “Though Chinese representatives assured me they would enforce the highest possible penalties, including death, for drug traffickers, they never followed through.”
In reaction to Trump’s tariff threats, Chinese officials countered by emphasizing the “mutually beneficial” nature of China-U.S. economic collaboration, a stance they usually take when the country faces U.S. policies targeting its economy. Liu Pengyu, the spokesperson for China’s embassy in the U.S., commented on Monday, “No one emerges victorious in a trade or tariff war.”
In addition to targeting China, Trump also threatened to impose 25% tariffs on goods from Mexico and Canada, citing concerns over illegal immigration and drug smuggling. He vowed that these tariffs would remain until such activities were curbed.
Over in Asia, Trump’s tariff announcement didn’t seem to cause a significant ripple in the markets. Japan’s Nikkei 225 saw a 0.8% decline, while South Korea’s KOSPI dropped 0.6%. Meanwhile, Chinese equities, including those in Hong Kong, remained stable.
When it comes to the issue of fentanyl, opioid overdoses stand as one of the leading causes of death in the U.S., with about 75,000 fatalities reported last year, according to the U.S. Centers for Disease Control and Prevention. The illegal flow of fentanyl has been a major point of contention between the U.S. and China during both the Trump and Biden administrations. U.S. drug enforcement authorities allege that fentanyl, illicitly produced in China, often finds its way into the U.S. via Mexico.
Back in 2019, Beijing classified all fentanyl-related substances as controlled narcotic drugs, claiming that this would strengthen their ability to crack down on its trade. In November 2023, following a meeting in San Francisco between Chinese President Xi Jinping and U.S. President Joe Biden, China also agreed to monitor the export of chemicals used in making fentanyl precursors.
On Monday, Liu, representing the Chinese embassy, rejected accusations that China is intentionally allowing fentanyl precursors to enter the U.S., highlighting that Chinese and U.S. counternarcotics agencies have been in consistent communication since the San Francisco discussions.
Trump’s renewed trade war threats reflect his long-standing stance on tariffs, a key element of his campaign narrative. He proposed tariffs as steep as 60% on Chinese goods, asserting that this would not only reinvigorate U.S. manufacturing but also generate additional tax revenue. However, many economists argue that such tariffs could instead exacerbate inflation, ultimately affecting American consumers.
The Trump administration initially imposed tariffs on Chinese imports in 2018, with the Biden administration maintaining those tariffs and even introducing new ones, like a 100% import tax on Chinese electric vehicles. China’s economy is already facing challenges, such as a long-standing property crisis, weak domestic consumption, and high youth unemployment. Before the election, Goldman Sachs economists predicted that a sweeping 60% tariff could reduce China’s GDP growth by two percentage points.
Trump’s recent tariff announcement came on the heels of appointing hedge fund manager Scott Bessent as his Treasury Secretary. While Bessent was the market’s top choice, he has shown a willingness to consider tariffs as a negotiating strategy to pressure trade partners and as a means to counterbalance tax cuts.
Nick Marro, principal economist for Asia at the Economist Intelligence Unit, indicated on Tuesday that companies should brace for a more protectionist trade environment under a second Trump administration. “Though Trump is known to change his stance on many issues, his commitment to tariffs—particularly on China—has been a consistent ideological theme for the past decade,” Marro noted. “As a result, businesses and investors should start preparing for potential challenges ahead.”
