The trade war between China and the US intensified this week with both nations imposing new port fees on each other’s ships.
The latest escalation in tensions between the world’s two largest economies sent bilateral relations, and the markets, into a tailspin.
After Beijing announced stricter restrictions on rare earth exports – in retaliation for the US dramatically expanding sanctions on Chinese firms – president Donald Trump threatened 100 per cent tariffs and new curbs on “all critical software”.
Trade analysts suspect that Mr Trump’s threatened three-digit tariff will heighten market uncertainty in the near term, especially in sectors with strong supply chain exposure to China like manufacturing and technology.
Rare earths, vital for use in electric vehicles, aircraft engines, military radars and a range of everyday electronics, are a key sticking point in negotiations between the sparring nations.
China produces almost 70 per cent and processes nearly 90 per cent of the world’s rare earth elements.
The Chinese announcement was an apparent surprise to Mr Trump, who called it an “out of the blue” move. But, over the weekend, he sounded more conciliatory than in the past, although he still refused to withdraw the tariff threat.
In a post on Truth Social, Mr Trump said: “The U.S.A. wants to help China, not hurt it!!!”
China seems unfazed by Mr Trump’s threats and its export boom suggests Beijing may be gaining the upper hand in the trade war.
“China’s position is consistent. If there’s a fight, we will fight to the end; if there’s a talk, the door is open,” a Chinese commerce ministry spokesperson said on Tuesday.
“The US cannot demand talks while simultaneously imposing new restrictive measures with threats and intimidation. This is not the right way to engage with China.”
Is China winning the trade war?
China appears to be gaining the upper hand in the ongoing trade dispute with the US, nearly six months after Mr Trump imposed steep import levies on the Asian economic giant.
Chinese exports rose 8.3 per cent in September from a year earlier to about £246bn even as shipments to the US fell about 27 per cent.
After Mr Trump declared his worldwide tariffs in April, several major countries moved to diversify their foreign trade, signalling a global shift towards a system where the US was no longer the central market.
In line with this shift, Chinese shipments to non-US destinations grew 14.8 per cent, the fastest since March 2023, according to data from the General Administration of Customs. The exports to the EU grew 14 per cent, to Asean countries by 16 per cent and to Africa about 56 per cent.
The minimal impact of the Trump tariffs on its overall trade only strengthened China’s resolve to adopt a firmer position in negotiations with Washington, as reflected in the stricter restrictions on exports.
Strong demand from markets beyond the US indicates that Chinese exporters may be less vulnerable to the additional tariffs threatened by Mr Trump. Chinese imports were up 7.4 per cent last month, pointing to a potential recovery in domestic consumption.
A self-driven recovery in China would mark a clear erosion of US dominance in the global economy. But analysts caution it is too soon to declare a winner in the trade dispute.
“While China’s recent export growth suggests some resilience, it doesn’t necessarily indicate that Beijing has gained an advantage in the trade war,” Lukman Otunuga, a senior market analyst at broker FXTM, told The Independent.
“Much of that uptick could reflect front-loading of shipments ahead of new tariffs or shifts in trade routes. The overall picture remains mixed, with both economies experiencing structural challenges amid the prolonged trade tensions.”
Mr Otunuga said the additional US levies were likely to heighten market uncertainty in the near term, and “investors may see higher volatility as markets weigh the impact on corporate earnings and global growth prospects”.
What are the new levies?
Mr Trump last week unveiled an additional levy of 100 per cent on Chinese imports to the US, along with new export controls on critical software, from 1 November. He also threatened to cancel a planned in-person meeting with President Xi Jinping, their first in six years, but US treasury secretary Scott Bessent later told Reuters the two leaders were on track to meet in South Korea in late October.
Bloomberg Economics estimates that a 100 per cent tariff hike by the US will raise effective rates on Chinese goods to 140 per cent, which could halt trade altogether.
“So far this year, China has shown that while it does not wish for a trade war, it is willing to retaliate to escalations as needed,” Lynn Song, chief Greater China economist at ING Bank NV, told Bloomberg.
“The export resilience will likely strengthen confidence in this approach ahead of the talks later this month.”
According to the Peterson Institute for International Economics, average US tariffs on Chinese imports reached 58 per cent by end of September, while Chinese tariffs were at 33 per cent.
Despite current rates already sitting 25 percentage points above the global average, China’s manufacturing strength continues to drive export growth.
In a tit-for-tat move, China hit US-owned vessels docking in the country with new port fees, which came into effect on Tuesday.
Vessels owned or operated by American companies or individuals would be subjected to a 400 yuan (£42) per net tonne fee per voyage if they were to dock in China, Beijing announced last week. The fees would be applied on the same ship for a maximum of five voyages each year, and would rise every year until 2028, when it would jump to 1,120 yuan (£117) per net tonne.
The duties are largely aligned with the port fees introduced by the US. Vessels owned or operated by Chinese entities will be charged $50 (£37) per net tonne for each voyage to the US, which will rise by $30 (£22) per net tonne each year until 2028.
China’s new port fees could affect oil tankers accounting for 15 per cent of global capacity, according to Clarksons Research.
Will Donald Trump meet Xi Jinping to negotiate trade?
Mr Trump and Mr Xi were expected to meet at the Apec summit in South Korea at the end of October. There was also talk of the US president visiting Beijing in January, but those meetings appeared less probable after the recent escalation in tensions.
Mr Bessent said the US president remained on track to meet the Chinese leader as he sought to reassure traders and investors on both sides of the Pacific, highlighting the cooperation between their negotiating teams and the possibility they could yet find a way forward from the current tariff truce.
“We have substantially de-escalated,” Mr Bessent told Fox Business Network on Monday.
Substantial communications between the two sides had taken place over the weekend and there would be US-China staff-level meetings this week in Washington on the sidelines of the World Bank and International Monetary Fund annual gatherings, he added.
“The 100 per cent tariff does not have to happen,” Mr Bessent said. “The relationship, despite this announcement last week, is good. Lines of communication have reopened, so we’ll see where it goes.”
“President Trump said the tariffs would not go into effect until November 1,” he added. “He will be meeting with Party Chair Xi in Korea. I believe that meeting will still be on.”
Washington and Beijing have been negotiating since May.
China’s commerce ministry confirmed on Tuesday that a working-level meeting had taken place the previous day.
It also highlighted formal negotiations held earlier in London, Stockholm and Madrid, culminating in a 90-day tariff extension.
The ministry, however, warned that “the US cannot ask for talks while simultaneously threatening new restrictive measures”.
