How business is bracing for a US-China trade war

President-elect Trump talked tough on tariffs on his way to securing a resounding win for Republicans in November, and now businesses are preparing for a trade war that could eclipse the one that Trump kicked off in 2018 during his first term.

While the tariff talk may have served as an early-stage negotiating tactic in addition to a policy proposal, it’s already having political and economic consequences.

U.S. ports are seeing a surge in cargo volumes ahead of the expected import taxes, which Trump has said could encompass a 10 percent to 20 percent general tariff and 60 percent tariffs on goods from China, one of the U.S.’s main trading partners.

The Port of Los Angeles, which is the U.S.’s main commercial gateway to China, handled almost a million 20-foot containers in October, an increase of 25 percent on the year that port officials attributed in part to the prospect of new tariffs. Volumes were up 16 percent in November and were tracking a 19 percent increase in December.

Following a threat by Trump to impose a 25 percent tariffs on goods imported from Canada, Canadian Prime Minister Justin Trudeau headed to Mar-a-Lago in Palm Beach, Fla., for a meeting with Trump, followed last month by the Canadian Finance Minister and Foreign Minister.

In Congress, lawmakers are debating whether to demote China as a most favored U.S. trading partner by doing away with permanent normal trade relations (PNTR), a classification awarded to the country when it joined the World Trade Organization (WTO) more than 20 years ago.

That move would be mostly symbolic since the U.S. has maintained tariffs on China for years and recently instituted new ones on electric vehicles and components. But it would nonetheless send a clear signal that the economic relationship between the U.S. and China is being downgraded.

“This would basically be smacking the WTO in the face,” Bill Reinsch, international business chair at the Center for Strategic and International Studies, told The Hill.

A spokesperson for the Trump-Vance transition team told The Hill the incoming administration “will work quickly” on tariffs and the economy, and intends to “re-shore” American jobs.

Here’s a look at how a reset in economic relations between the U.S. and China will affect the two countries and broader dynamics within the global economy.

Taking away PNTR status

Companion bills in the House and Senate that would revoke China’s PNTR status with the U.S. could pave the way for more comprehensive tariffs against the country than the federal government has enacted in recent years.

House bill sponsor and chair of the House Select Committee on the Chinese Communist Party John Moolenaar (R-Mich.) told The Hill the U.S. should seek nothing short of a reset in economic relations.

The bill gives the U.S. a chance “to reset our economic relationship with China and regain our industrial capacity while re-directing tariff revenue to American industries affected by Chinese retaliation,” Moolenaar said in a statement to The Hill.

“I can tell you that conceptually, [Trump] wants to be tough with China and make sure this relationship is put in the right direction. We need to reset,” he said.

While Trump’s team has said he wants to move fast on the issue, the scope of a 60 percent tariff on Chinese products — spanning chemicals, pharmaceuticals, electronics, metals, minerals and more — would likely require implementation in different stages.

“A 60 percent tariff on all this is going to be a gigantic shock to the system,” remarked Mary Lovely, an economist and senior fellow at the Peterson Institute, in November.

A prospective analysis by Swiss bank UBS has the tariffs being delivered in four tranches starting in the third quarter of 2025 and affecting three-quarters of total imports. The first two rounds would see 60 percent tariffs, while the last two would be levied at 30 percent, impacting $321 billion worth of imported goods.

Chinese President Xi Jinping told President Biden at a summit in Lima, Peru, that his government was “ready to work with a new administration to maintain communication.”

Tariffs don’t always affect prices, and inflation did not result directly from Trump’s 2018 trade war, but questions of affordability stemming from new tariffs are still top of mind for many economy watchers following the post-pandemic inflation.

The Federal Reserve increased its inflationary outlook for 2025 from a 2.1 percent annual increase to a 2.5 percent increase.

Greater scrutiny on U.S. investment in China

A downgrade in trade relations could be accompanied by new restrictions and reporting requirements on U.S. investments in China, as regulatory attitudes toward the country grow chillier.

A recent bill from former Sen. Bob Casey (R-Pa.) and Sen. John Cornyn (R-Texas) that would require investors to notify the Treasury Department before putting funds into sensitive technologies flew through the Senate last year by a margin of 91-6, but it didn’t make it into the fiscal year 2025 national defense authorization act.

However, the Treasury Department put out updated rules on outbound investment in October.

And Congress is considering other similar measures as well, including a prohibition of investments in “critical capabilities” in “countries of concern” and a codification of an executive order Biden issued that limited investment related to military technology.

Venture capital funding into China has been decreasing, dropping by 19.5 percent between 2023 and 2024, according to analytics company Global Data. Total deal volumes were down by 21.2 percent from 2,480 to 1,954 over that period.

Export controls beyond chips

Export controls for advanced technologies like artificial intelligence chips are already in place against China, but these could be expanded to other technologies as economic relations cool off and geopolitical tensions heat up.

Reinsch told The Hill he was expecting a new round of export controls to be announced by the Biden administration before the end of his term, a move that could presage broader sanctions from the Trump administration.

“For the Trump team, there won’t be much left to do on chips … But the question will be if they want to look at geospatial technologies, satellite-related technologies, submersible and deep-sea technologies. There’s a whole range of stuff that’s militarily critical,” he said.

New pressures on traditional trade allies

The coming trade beef between the U.S. and China is implicating U.S. allies, who already have been thrown for a loop by Trump’s proposed general tariff that would contradict multiple U.S. trade deals, including the 2018 NAFTA update known as U.S.-Mexico-Canada Agreement (USMCA). 

Squeezed most forcefully between U.S. and Chinese economic interests is Mexico, which acts as an intermediate supplier for many Chinese commodities imported to the U.S.

“China is actively avoiding U.S. tariffs by moving its manufacturing to Mexico,” former Sen. Sherrod Brown (D-Ohio) said in September. “Stopping China’s abuse of USMCA and Mexico’s steel surge is about protecting American industry.”

Tensions over Chinese trade ties to Mexico have led Canadian leaders to start seeking a new exclusive deal with the U.S. that could undermine the traditional North American trade framework, in place since the early 1990s.

“There’s a clear consensus that everyone agrees that we need a bilateral trade deal with the U.S. and a separate bilateral trade deal with Mexico,” Ontario Premier Doug Ford told reporters in November, as reported by the Toronto Star.

“We know Mexico is bringing in cheap Chinese parts, slapping ‘Made in Mexico’ stickers on, shipping [them] up through the U.S. and Canada,” he said.

There’s also a possibility that allies, particularly in Europe, wouldn’t follow the United States’s lead in moving away from China and that China could strengthen relations as the U.S. pulls back.

“China would be wise to seek to improve economic relations with Europe specifically, because there are a lot of things in common,” said UBS economist Tao Wang, head of Asia economic research, during a presentation in November.

Dimensions of Chinese retaliation

However far the Trump administration decides to go with tariffs on China, the Chinese response is already going beyond simple tit-for-tat retaliatory tariffs, such as those levied in 2018 against U.S. agricultural producers.

China's Ministry of Commerce hit 28 U.S. companies last week, including General Dynamics and Boeing, with export controls, prohibiting them from buying goods that have both civilian and military applications. It also put 10 companies on an “unreliable entities list” pertaining to weapons sales to Taiwan.

China’s response will likely have a macroeconomic dimension, as well. Policies could aim to land Chinese goods in new markets, especially South America where China recently opened a huge new port in Peru.

“There would definitely be trade diversion away from the United States,” Reinsch said. “All that production has to go somewhere. It’s not going to sit on a shelf in China.”

It could also involve currency depreciation to cheapen costs and preserve China’s overall export strategy, as well as direct stimulus by the Chinese government to prop up domestic demand for products.

“I don’t think China will retaliate as much or as aggressively compared to the first time, because China understands that the U.S. wants to decouple from China, but China’s interest is to stay integrated with the rest of the world,” UBS’s Tao Wang predicted.