China on Tuesday hit back at the U.S. by imposing tariffs on some imports in a swift response to new American duties on Chinese goods, renewing a trade war between the world's top two economies even as President Donald Trump offered reprieves to Mexico and Canada.
An additional 10% tariff across all Chinese imports into the U.S. came into effect at 12:01 a.m. ET on Tuesday (5:01 a.m. GMT) after Trump repeatedly warned Beijing it was not doing enough to halt the flow of illicit drugs into the U.S.
Within minutes, China's Finance Ministry announced it would impose 15% levies on U.S. coal and liquified natural gas (LNG) and 10% on crude oil, farm equipment, and some autos.
China also said it was starting an anti-monopoly investigation in Alphabet Inc's Google while including PVH Corp., the holding company for brands including Calvin Klein, and U.S. biotechnology company Illumina on its "unreliable entities list."
Separately, China's Commerce Ministry and its Customs Administration said it is imposing export controls on some rare earths and metals, which are critical for high-tech gadgets and the clean energy transition.
China's new tariffs on the targeted U.S. exports will start on Feb. 10, the ministry said, giving Washington and Beijing some time to try and reach a deal. Trump plans to speak to Chinese President Xi Jinping later in the week, a White House spokesperson said.
On Monday, Trump suspended his threat of 25% tariffs on Mexico and Canada at the last minute, agreeing to a 30-day pause in return for concessions on border and crime enforcement with the two neighboring countries.
During his first term in 2018, Trump initiated a brutal two-year trade war with China over its massive U.S. trade surplus, with tit-for-tat tariffs on hundreds of billions of dollars worth of goods upending global supply chains and damaging the world economy.
"The trade war is in the early stages, so the likelihood of further tariffs is high," Oxford Economics said in a note as it downgraded its China economic growth forecast.
Trump warned he might increase tariffs on China further unless Beijing stemmed the flow of fentanyl, a deadly opioid, into the U.S.
"China hopefully is going to stop sending us fentanyl, and if they're not, the tariffs are going to go substantially higher," he said on Monday.
China has called fentanyl America's problem and said it would challenge the tariffs at the World Trade Organization (WTO) and take other countermeasures, but also left the door open for talks.
The U.S. is a relatively small source of crude oil for China, accounting for 1.7% of its imports last year, worth about $6 billion. Just over 5% of China's LNG imports come from the U.S.
Crude prices extended losses to tumble 2% after China's retaliation, and stocks in Hong Kong pared gains. The dollar strengthened while the Chinese yuan, the euro, Australian and Canadian dollars as well as the Mexican peso all fell, reflecting growing market concerns about the risk of a protracted global trade war.
“Unlike Canada and Mexico, it is clearly harder for the U.S. and China to agree on what Trump demands economically and politically. The previous market optimism on a quick deal still looks uncertain," said Gary Ng, senior economist at Natixis in Hong Kong.
"Even if the two countries can agree on some issues, it is possible to see tariffs being used as a recurrent tool, which can be a key source of market volatility this year."
There was relief in Ottawa and Mexico City after both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum said they had agreed to bolster border enforcement efforts in response to Trump's demand to crack down on immigration and drug smuggling. That would pause 25% tariffs that were due to take effect on Tuesday for 30 days.
Canada agreed to deploy new technology and personnel along its border with the U.S. and launch cooperative efforts to fight organized crime, fentanyl smuggling and money laundering.
Mexico agreed to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal migration and drugs.
"As President, it is my responsibility to ensure the safety of ALL Americans, and I am doing just that. I am very pleased with this initial outcome," Trump said on social media.
Canadian industry groups, fearful of disrupted supply chains, welcomed the pause.
"That's very encouraging news," said Chris Davison, who heads a trade group of Canadian canola producers. "We have a highly integrated industry that benefits both countries."
Trump suggested on Sunday the 27-nation European Union would be his next target but did not say when.
EU leaders, at an informal summit in Brussels on Monday, said Europe would be prepared to fight back if the U.S. imposes tariffs but also called for reason and negotiation. The U.S. is the EU's largest trade and investment partner.
Trump hinted that Britain, which left the EU in 2020, might be spared tariffs.
Trump acknowledged over the weekend that his tariffs could cause some short-term pain for U.S. consumers but says they are needed to curb immigration and narcotics trafficking and spur domestic industries.
