Trump promises new 10% tariffs on China, blames illegal fentanyl

On Monday evening, Trump announced he would impose additional 10% tariffs on all imports from China, on top of existing tariffs.

“I have had numerous discussions with China regarding the massive quantities of drugs, particularly Fentanyl, being sent to the United States, but to no avail,” he wrote. Chinese officials told me they would impose the maximum penalty of death on any drug trafficker caught doing this, but unfortunately they never followed through.

In response to Trump's tariff threats, Chinese officials have said that Sino-U.S. economic cooperation is mutually beneficial, an argument often used in response to U.S. policies targeting the world's second-largest economy. No one will win a trade war or a tariff war, said Liu Pengyu, a spokesperson for the Chinese Embassy in the United States. said Monday.

In addition to new tariffs on imports from China, Trump also threatened to impose 25% tariffs on goods entering the United States from Mexico and Canada, due to the illegal immigration and drug trafficking. He promised that the tariffs would remain in effect until these activities cease.

Asian markets have largely ignored Trump's tariff threat. Japan's Nikkei 225 fell 0.8%, while Korea's KOSPI is down 0.6%. Chinese stock markets, including those in Hong Kong, remained stable.

The fentanyl issue

Opioid overdoses, particularly fentanyl, are a leading cause of death in the United States, killing about 75,000 people last year. according to at the United States Centers for Disease Control and Prevention.

The flow of illegal fentanyl has been a sticking point in U.S.-China relations, both under the first Trump administration and the subsequent Biden administration. U.S. drug enforcement officials say fentanyl, produced illegally in China, is imported into the country via Mexico.

In 2019, Beijing added all fentanyl-related substances to a list of controlled narcotics, which authorities say would provide a strong legal basis for cracking down on the fentanyl trade.

China then accepted control exports of chemicals used to make fentanyl precursors in November 2023, following a meeting in San Francisco between Chinese President Xi Jinping and US President Joe Biden.

On Monday, Chinese embassy spokesperson Liu refuted allegations that China knowingly allowed fentanyl precursors into the United States, noting that Chinese and U.S. counternarcotics agencies were in communication regularly from the summit of San Francisco.

Trump restarts the trade war

Trump leaned heavily on tariffs during his presidential campaign, pledging to impose tariffs of up to 60% on goods from China. Trump argued that the tariffs could both bring manufacturing jobs back to the United States and generate new tax revenue. Yet many economists believe the tariffs will instead fuel inflation, with the tax burden falling on American consumers.

The first Trump administration first imposed tariffs on Chinese imports in 2018; the Biden administration has largely kept these tariffs in place and imposed new taxes, such as a 100% import duty on Chinese electric vehicles.

China's economy is in a difficult position, even without Trump's threats of tariffs. Beijing faces a prolonged real estate crisis, sluggish domestic consumption and relatively high youth unemployment.

Before the election, economists at Goldman Sachs predicted that a 60% global tariff could reduce China's GDP growth by two percentage points.

Trump's tariff announcement follows his decision to nominate hedge fund manager Scott Bessent as Treasury secretary. While Bessent was the markets' favored choice, he also signaled an openness to tariffs, seeing them as a negotiating tool to put pressure on trading partners and as a way to offset tax cuts.

Businesses will need to start preparing for a more protectionist approach from the United States under a second Trump administration, Nick Marro, senior Asia economist at the Economist Intelligence Unit, predicted in a note published Tuesday.

Trump changes his mind on a lot of things, but tariffs, and tariffs on China, in particular, are one of the key areas of ideological consistency we've seen from him over the past 10 years, he said. writes Marro. As a result, businesses and investors should consider how to prepare for the worst.