Written by Kevin Huang and Trevor Hunnicutt

Reuters, Washington/Beijing After President Donald Trump put fresh tariffs on Chinese goods, China quickly imposed taxes on U.S. imports, intensifying the current trade war between the United States and China. Trump remained harsh toward Beijing even after granting reprieves to Canada and Mexico.

At 12:01 a.m. ET on Tuesday, the new 10% duty on all Chinese imports into the US went into effect (0501 GMT). Trump has stated time and time again that China needs to do more to prevent the importation of illegal drugs, especially fentanyl, into the United States.

China's Counterattack: Increased Trade Barriers and Tariffs

China's Finance Ministry declared fresh taxes on American imports in a matter of minutes, including:

15% tariffs on LNG and U.S. coal

10% taxes on certain cars, farm equipment, and crude oil

The trade war will get even more intense when these penalties on American exports go into force on February 10.

Furthermore, China's Commerce Ministry placed the biotech company Illumina (NASDAQ: ILMN) and PVH Corp (NYSE: PVH), which owns Calvin Klein, on its "unreliable entities list" and opened an anti-monopoly inquiry against Alphabet Inc.'s Google (NASDAQ: GOOGL).

Separately, citing national security concerns, China's Customs Administration placed export restrictions on indium, bismuth, molybdenum, tellurium, and tungsten. These rare earth elements, which are essential for high-tech industry and the shift to clean energy, are mostly supplied by China.

Trade War Heats Up: China Will Not Get a Break

No comparable reprieve was given to China, even if Trump suspended the 25% tariffs on Canada and Mexico in return for compromises on border security and law enforcement. Trump will postpone his meeting with Chinese President Xi Jinping until later this week, according to a White House official.

The U.S.-China trade war has been going on since Trump imposed tit-for-tat tariffs on imports valued at hundreds of billions of dollars in 2018. Global supply networks have been severely affected, and the global economy has suffered as a result of the dispute.

Oxford Economics downgraded its projection for China's economic growth because it believes that there is still a significant chance of more tariffs.

The Fentanyl Epidemic and Additional US Tariffs

Trump has threatened to increase taxes on China unless Beijing stops the flow of fentanyl, a deadly opioid that is causing the drug problem in the United States.

"China hopefully is going to stop sending us fentanyl, and if they're not, the tariffs are going to go substantially higher," Trump said on Monday.

In response, China has insisted that the United States is mostly to blame for the fentanyl problem and promised to contest the American tariffs at the World Trade Organization (WTO) while remaining open to any discussions.

Effects on International Trade in Energy and Markets

Just 1.7% of China's oil imports in 2024, or about $6 billion, came from the United States, making it a small provider of crude oil. The stakes are far larger in the LNG industry, though. In 2024, China acquired 4.16 million tons of U.S. LNG, valued at $2.41 billion, which was over twice as much as in 2018.

Hong Kong equities lost ground after China's retaliatory tariffs, while the Australian dollar declined as the U.S. dollar rose and the Chinese yuan depreciated.

Gary Ng, a senior economist at Hong Kong's Natixis:

It is more difficult for the United States and China to reach an economic and political consensus on Trump's demands than it is for Canada and Mexico. The market's earlier anticipation of a speedy resolution appears to be questionable.

He cautioned that tariffs might end up becoming a common tactic, which would increase market turbulence in 2025.

Temporary Agreements Are Reached Between Canada and Mexico

Both Canada and Mexico welcomed a little break from U.S. tariffs as tensions with China increase. In order to fight illegal immigration and drug smuggling, Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau decided to bolster border enforcement.

To combat organized crime, fentanyl smuggling, and money laundering, Canada will station personnel and sophisticated monitoring equipment along its border with the United States.

Ten thousand men of Mexico's National Guard will fortify its northern border to combat drug trafficking and illegal migration.

Trump praised the deal by saying:

"It is my duty as President to protect the safety of EVERY American, and I am doing precisely that. I am rather happy with this first result.

The tariff suspension was also welcomed by Canadian trade associations.

"That's very encouraging news," said Chris Davison, who leads a trade association for canola in Canada. "We have a highly integrated industry that benefits both countries."

Next Steps: Potential Trade Conflict Between the US and the EU

Trump said that the European Union might be his next target as the trade battle between the United States and China heats up.

While stressing a desire for talks, EU leaders at a summit in Brussels threatened to retaliate against U.S. tariffs. Since the US is the EU's biggest trading and investment partner, every trade conflict has significant ramifications.

Trump also hinted that tariffs might not apply to Britain, which left the EU in 2020.

Trump justified his hardline trade strategy by saying it was required to reduce illegal immigration, and drug trafficking, and to support domestic industries, even though he acknowledged that tariffs might inflict short-term pain for American consumers.

Important Takeaways:

China responds by imposing duties on American agriculture equipment, coal, LNG, and crude oil.

Export restrictions on rare earth materials have the potential to upend the global IT and clean energy industries.

Trump has threatened more tariffs on fentanyl trafficking, which is escalating trade tensions between the United States and China.

Canada and Mexico agree on border security measures in exchange for avoiding tariffs.

Trump may save Britain by hinting at a trade war with the EU.

With tariffs emerging as a key instrument in political and economic talks, the state of international trade is still unsettled.