By the Basilinna Team

April 7, 2025

Donald Trump with the new Presidential tariff chart at the White House, White House Rose Garden, U.S., April 2, 2025 (Flickr, The White House)

The brief

The Administration’s “Liberation Day” tariff announcement has already sparked retaliation and potential escalation with China, the world’s second largest economy. While a tariff rate of an additional 34% was announced, combined with pre-existing tariffs, the rate came closer to the 60% that the President said he would impose during the campaign.

China rapidly retaliated with its own 34% additional tariff, restricted the export of critical minerals, launched investigations into certain major U.S. firms and added a few U.S. companies to its unreliable entities list for good measure. President Xi Jinping was prepared to hit back and did not follow the path of other markets that have a “waiting period” before retaliating. China’s steps are commensurate with those of the U.S., but it is preparing for additional action should these tariffs persist.

President Trump on April 7 suspended discussions with China and threatened an additional 50% tariffs if China does not lift its retaliatory tariffs by April 10. The situation is highly fluid.

While the tariffs on China will have the most significant impact on trade, it is not apparent that China has yet reached out to negotiate. While the situation unfolds, here are a few considerations that U.S. firms should have top of mind in light of the tariffs on China.

your talking points

Negotiations – If and When They Happen – Will Be Broader than Trade

Yes, it is in the interest of both countries to find a solution. As Trump has indicated, any final solution, however, is likely to be broader than trade to include progress on limiting the export of Fentanyl, a deal on TikTok, and possibly support for ending wars in the Middle East and Ukraine.

Senior Level Engagement Will Be a Key Indicator for Negotiations

Outside of a few phone calls, there has been limited engagement between the two countries. A significant sign will be a visit or direct engagement in either direction by a Chinese or U.S. official.

For China, Vice Premier He Lifeng and Vice Minister of Commerce, Wang Shouwen, have been made the point people for addressing the trade issues with the United States. The United States has yet to indicate who will be their counterpart.

Ultimately, this deal will require the two Presidents speaking.

U.S. Companies Should Take Steps to Mitigate Risk

While the tariff situation unfolds, U.S. companies in China are vulnerable. Those in high-tech, finance, and other U.S. dominated sectors face the greatest risk of retaliatory action which could range from raids and regulatory investigations to being targeted for an anti-monopoly review or even deemed “unreliable suppliers.”

In this environment, U.S. firms should consider ways to mitigate risk:

In the near term, scenario plan across functions, including communications, legal, and operational, to manage potential regulatory or reputational risks stemming from the new trade approach.

Consider engaging Chinese stakeholders or regulators directly – either by visiting China or meeting with the Embassy or Consulates – to gauge your positioning. Be cognizant of the security landscape and thoughtful about who you might send from headquarters should you travel to China at this time.

For the longer term, develop a comprehensive geopolitical warning system with indicators on when and how you need to make important operational decisions and how you’ll respond to the shifting geopolitical landscape.

Trade Realignment will Deepen

As the U.S. is withdrawing from the global trading system, China has been reducing tariffs for all but the United States. And it has stepped up rhetoric emphasizing China’s role as a champion for the existing global trade order and as a reliable economic partner. Furthermore, for the last decade, it has been diversifying its trade and investment patterns as much as possible from the United States.

ASEAN has already overtaken the U.S. as China’s largest export destination, highlighting the growing importance of intra-Asian trade. Japan, South Korea and China just held their first joint economic dialogue in five years.

China is deepening its economic engagement in the Middle East and Latin America. Trade between China and Gulf states is projected to surpass the region’s trade with Western countries by 2027, while China has already become Latin America’s second-largest trading partner—growing nearly nine times faster than Latin trade with other markets as, in part, China is using Mexico as a workaround on tariffs. China is now the largest trading partner of 70% of the world – and that number is likely to grow.

Ironically, the tariff increases on traditional U.S. allies such as Europe, Japan, South Korea and Australia are likely to encourage the increase – not decline – of trade with China.

Tariff Escalation Is Accelerating Global Strategic Recalibrations

Trump’s tariff escalation is accelerating strategic realignments far beyond trade. In Europe, it reinforces momentum toward “strategic autonomy” as the EU moves to reduce reliance on the U.S. and builds independent industrial, digital, and trade frameworks.

For China, sustained pressure from Washington is driving closer ties with Russia and Iran—underscored by President Xi’s upcoming visit to Moscow and expanding cooperation with Tehran—forming part of a broader bloc seeking alternatives to U.S.-led institutions.

Meanwhile, U.S. allies in Asia, including Japan, South Korea, and the Philippines, are investing more heavily in independent defense and regional planning, signaling a shift away from overreliance on U.S. security guarantees. Together, these moves are reshaping a more fragmented and multipolar geopolitical landscape.

Talking Points | U.S.-China Post-“Liberation Day” - What’s Ahead