Trump Eyes 7.5% Tariff on China Over Cheap Exports
US President Donald Trump is considering an additional 7.5% tariff on Chinese goods over alleged industrial overcapacity and cheap exports. The proposal comes as Washington tries to keep its trade truce with Beijing intact while pressing China to stop providing Iran with an economic lifeline.
In a Nutshell:
- Trump is considering a 7.5% tariff on Chinese goods following a US investigation into China's industrial overcapacity.
- Last month, Trump imposed 10% or 12.5% tariffs on goods from 60 economies, including China and Bangladesh, accusing them of failing to effectively enforce bans on forced labour imports.
- China is already facing the 12.5% tariff ever since then while Trump is now considering a separate 7.5% duty which would take the relevant tariff to 20%.
- US officials believe the rate would not break the one year trade truce or interfere with a planned Trump-Xi meeting in September.
- The trade truce suspends higher US reciprocal tariffs until November 10, 2026, while separate tariffs and trade measures remain possible.
- The proposal comes after Treasury Secretary Scott Bessent’s statement on August 20 that allies are “either with us or against us” and a warning to China that “any remaining tie to Tehran will hasten a nation's economic oblivion".
Context
After the Supreme Court rejected Trump's plan for sweeping tariffs earlier this year, the administration launched an investigation into China’s industrial overcapacity, under Section 301 of the US Trade Act of 1974 which authorizes tariffs by the presidents on countries alleged of causing harm to US businesses or trade. The proposed tariffs also come alongside Treasury Secretary Scott Bessent’s recent warning to China that their economy would face severe consequences if they continued buying oil from Iran. China continues to be Iran’s most important trading partner at the moment, being the main remaining oil buyer. The threat of US secondary sanctions has not moved Beijing to reconsider their alliance with Iran with Beijing invoking its 2021 Blocking Rules and threatening lawsuits against firms that comply with Washington.
Why it matters
The proposed 7.5% tariff matters because Trump and Xi are due to decide what happens to their trade truce before it expires in November. Their September meeting is expected to cover the next phase of trade relations, including tariffs and other economic disputes, while Washington also has an interest in China's position on Iran. The US wants Beijing to stop providing Tehran with an economic lifeline, while Beijing continues to resist US secondary sanctions. Keeping the new tariff within the 20% ceiling Beijing says was agreed gives Trump more leverage in these talks without formally ending the current trade arrangement.
What we think
The immediate question is whether China will accept higher US tariffs and still refuse to change its Iran policy. Beijing has already invoked its Blocking Rules to resist US secondary sanctions, so another tariff may not make it more willing to stop buying Iranian oil. They could instead make China more determined to protect its economic ties with Tehran, particularly while Iran is facing a US campaign aimed at cutting off its remaining economic lifelines. That would complicate the September talks, where the two sides have to address what happens to the trade truce after November and whether Iran will become another major point of friction in their diplomatic relationship.