The current tariff ping pong match between the US and China has escalated into a full-blown economic standoff. Let’s take a closer look at tit-for-tat exchange straining diplomatic relations between the two juggernauts.
A timeline of escalation
Trade tensions reignited when President Trump, upon returning to office, immediately increased tariffs on Chinese imports by 10 percent on 1st February. China swiftly retaliated with a 15 percent tariff on US coal and liquefied natural gas, and a 10 percent tariff on crude oil and agricultural machinery on 4th February. That was round one.
The situation intensified a month later on 3rd March, as the US raised levies by another 10 percent, bringing the total to 20 percent, and introduced new 25 percent tariffs on imports from Mexico and Canada. China responded the day after with additional tariffs on US agricultural products.
However, the most significant escalation occurred on 2nd April when President Trump announced a 34 percent tariff increase on Chinese goods, citing China’s trade barriers. China then countered with a 34 percent tariff on all US goods effective 10th April. The US threatened further increases, and on 9th April, raised tariffs on Chinese goods to 125 percent, later picking them up to 145 percent. China responded with a 125 percent tariff on all American imports effective 12th April. Additionally, China suspended exports of key minerals and magnets essential to various industries.
e-commerce shakeup
A staple of our daily lives for some time now, e-commerce platforms, particularly those reliant on Chinese manufacturing, are grappling with the sudden imposition of the steep tariffs. Chinese fast-fashion retailer Shein, known for its budget-friendly offerings, is facing major challenges. The termination of the de minimis provision, which previously allowed duty-free imports for goods under US$800, means that Shein’s products are now subject to full tariffs. This shift has led to a noticeable decline in US orders, with some recent reports showing drops between 20 percent to 50 percent in March alone. The company’s attempts to diversify manufacturing to countries like Vietnam and Brazil have been hampered by new tariffs and political uncertainties, further complicating their operations.
Another widely-used Chinese discount shopping app, Temu, has also seen a downturn. At one point, the top free shopping app in the US Apple Store, Temu has slipped to fifth place following the tariff hikes and the elimination of the de minimis provision. The app’s US downloads have also declined by a whopping 41 percent in the first quarter, magnifying the challenges faced by Chinese e-commerce platforms in the US market.
Bracing for impact
The air cargo sector, which has naturally thrived as a result of booming e-commerce, could very well face a seismic shock due to these new trade policies. The elimination of the de minimis provision is particularly impactful. In the last fiscal year, approximately 1.36 billion shipments entered the US under this exemption, a figure that had doubled over four years. With this provision now revoked, the volume of low-value parcels transported via airfreight is expected to plummet, disrupting operations for logistics companies and air carriers alike.
Niall van de Wouw, chief airfreight officer at Xeneta, described the policy change as unprecedented, stating, “I cannot remember any other unilateral trade policy decision with the potential to have such a profound impact on the market at a global level.” The anticipated decline in parcel volumes has already led to a drop in shares for major firms like FedEx, UPS, and DHL, highlighting the market apprehension.
Global trade dynamics shift
In response to the tariffs, Chinese exporters are seeking alternative markets and strategies. The Yiwu wholesale market, one of the largest in the world, has witnessed a sudden halt in US orders, seriously affecting local vendors. Some manufacturers are exploring rerouting goods through countries like Vietnam and Thailand to avoid the tariffs.
Chinese President Xi Jinping is on a diplomatic tour of Southeast Asia, looking to reinforce alliances with key trading partners in the region affected by the tariffs.
