Continued tariff rounds create uncertainty between the countries – leads to economic and politics tensions

To quantify the degree of tariff changes that firms faced, we review the tariff changes implemented under the Trump administration up to the point where the trade war was put on pause by a Phase one agreement.

Immediately after taking office, the Trump administration dramatically reversed the longstanding U.S. course towards  by launching numerous actions which imposed new tariffs on named partners. The initial Trump tariffs, which were rationalized by argued threats to national security led to U.S. global safeguard tariffs on imports of washing machines and solar panels in January 2018, and tariffs on steel and aluminum imports in March 2018. The initial tariffs were focused on a few products and applied to all trading partners (with a few exceptions), and eventually led to retaliatory tariff action by some countries including China, Canada, Mexico, and the European Union.

In March 2018 Trump's trade policy turned its focus to Chinese trade following the completion of a Section 301 investigation into “China's laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American , innovation, or technology development”. On April 3, 2018 the U.S. government used this report to justify levying 25% tariffs on $50 billion of its imports from China. The very next day, China released its plan to retaliate against these U.S. tariffs by setting 25% tariffs of its own on $50 billion of its imports from the U.S. As these threats were converted into action, the U.S. and China engaged in further rounds of protection and retaliation.10 The first round of tariff penalties imposed by the U.S. on $50 billion in imports was rolled out in two rounds which levied new 25% tariffs on all covered products. The first wave launched in July 2018 covered 818 HS 8-digit products which were tied to $34 billion of U.S. imports, while the second tariff wave in August 2018 targeted 279 HS 8-digit products involving $16 billion in U.S. imports. China's first round of retaliatory tariffs also covered $50 billion in imports from the U.S. Paralleling U.S. actions, China's new 25% tariffs were implemented in July and August waves covering $34 billion and $16 billion of imports, as 545 and 333 HS 8-digit products were targeted in the respective rounds.11

The second U.S. tariff round, imposed in September 2018, applied a 10% tariff to 6056 HS 8-digit products covering $200 billion in imports. China unleashed its second round of tariffs in tandem with the U.S. actions, imposing new 5% and 10% rates in September 2018 on 5207 HS 8-digit products comprising $60 billion of China's imports.12

In December 2018 the U.S. announced its intention to levy further tariffs on the $200 billion product list. This new round included a future elevation of tariffs to 25% on the products the U.S. had just set 10% tariffs against. As before, China responded immediately with its intention to also increase its tariff charges. However, the December 2018 meeting of the U.S. and Chinese presidents culminated in a truce that postponed the increase in the rates on the products targeted by the U.S. $200 billion round and China's retaliatory round. In January 2019, China eliminated retaliatory tariffs on cars and car parts and unilaterally reduced some of its MFN tariffs.

In May 2019, the U.S. decided to raise its ad-valorem tariff rates on the product list for the $200 billion round from 10% to 25%. In June 2019, in response to this tariff hike, China also raised its tariff rates on the product list that was already targeted in September 2018, covering $36 billion. Finally, in September 2019 the U.S. imposed tariffs on $112 billion of imports from China. This was the first part of a larger $300 billion round, the second part of which was later suspended. China immediately retaliated announcing tariffs covering $75 billion to be imposed in September and December 2019, with the December list being later cancelled. Although tariffs have not been rescinded by the U.S. or China, the tit-for-tat escalation ended in December 2019 when the U.S. and China entered into a Phase One agreement. In total, at this point U.S. tariffs on Chinese products cover a list representing $362 billion (in terms of their 2017 value), which represents roughly 72% of the imports from China in 2017. Chinese tariffs apply to a list of products representing about 97% of U.S. exports to China in 2017.13 Even with a truce, continued uncertainty about the prospects for future trade actions remained.