A year into his first term as President of the US, Donald Trump made the first move in a tit-for-tat trade war with China that is now in its seventh year. As it stands, Trump’s second term has witnessed the US and China impose additional tariff rates of 30% and 10% respectively on imports of all goods from each other. At the start of May, these rates were 145% and 125% respectively. The lower rates reflect the outcome of talks held in Geneva from 9 to 12 May.
The lower tariff rate will remain in place for 90 days, after which there is great uncertainty about what will happen. The best outcome would be a deal between the US and China that makes the lower tariff rates permanent with a slim possibility that rates are lowered further. Such a deal would be difficult to negotiate in 90 days. Trade deals of this magnitude take years to negotiate and so it is our base case that the pause is extended until an agreement on a way forward is reached.
However, it is also possible that the 90-day pause does expire, in which case additional tariffs imposed on imports of goods from China by the US will rise to 54% and those imposed by China on the US will rise to 34%. In the same vein, it is reasonable to expect tariffs to rise above these rates again. Nobody knows what will happen, though it is pragmatic to assume tariffs will settle above the level they were at before Trump’s second term began.
China shock 2.0?
That the share of China’s exports going to the US has declined since 2017 but its share of world exports has increased reflects a shift in where China is selling its goods. The goods China once sold to the US are now being exported to other economies.
For the most part, ASEAN economies have been the recipients of these goods. Since Trump’s first term, these economies have overtaken the US to become the main destination for Chinese exports.
The term ‘China shock’ was first used to describe the impact of the rise in China’s share of US imports in the 90’s on the US labour market. When Trump began imposing higher tariff rates on Chinese goods in 2018, China pivoted to other markets, beginning a new ‘China shock’ centered in ASEAN economies.
This helps to explain why ASEAN economies have been pushing back against cheap Chinese goods imports. Last year, Malaysia introduced a 10% sales tax on low-value goods, and e-commerce platforms Temu and Shein were ordered to suspend selling in Vietnam. Additionally, in February 2025, Thailand introduced a 7% value-added tax on low-value goods imports.
However, imposing measures aimed at reducing imports of China’s low-value goods carries risks for ASEAN economies. Nine of the ten ASEAN countries are members of China’s ‘Belt and Road’ initiative, which sees China invest in their infrastructure. By country, China represents the second largest source of foreign direct investment (FDI) into ASEAN economies when excluding intra-ASEAN investment.