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China recently declared that it would no longer engage in retaliatory measures against U.S. tariffs imposed by President Donald Trump, labeling any future increases by the United States as a “joke” and stating that Beijing would simply “ignore” them.
Instead of continuing the focus on tariffs, China is taking a different approach by implementing measures that specifically target the American services sector.
Over the last few weeks, Trump has escalated U.S. tariffs on selected goods from China, raising them by as much as 245%. In response, China, branding these actions as a “meaningless numbers game,” imposed additional duties on U.S. imports amounting to as much as 125%.
While the Trump administration is focused on pushing its tariff agenda, China has opted for various non-tariff measures, which include tightening export controls on rare-earth minerals and initiating antitrust investigations into American firms such as DuPont and Google.
Before this latest escalation, Beijing had designated a multitude of U.S. businesses as part of an “unreliable entity” list, which could restrict or ban their trading activities and investments in China. This list features companies like PVH, the parent of Tommy Hilfiger, and Illumina, a provider of gene-sequencing technology.
China’s strict export policies regarding crucial mineral elements now require companies to obtain special licenses to export these materials, which could limit U.S. access to essential resources needed for devices like semiconductors and missile defense systems.
In a significant blow to the U.S. aerospace industry, Chinese authorities ordered local airlines to cease accepting further deliveries of Boeing jets and recommended that these airlines stop purchasing any aircraft-related equipment from U.S. companies, as reported by Bloomberg.
This cut in deliveries adds to the difficulties faced by Boeing, which is already grappling with ongoing quality-control issues.
Additionally, signs of escalating tensions were evident when Chinese law enforcement issued notices seeking the apprehension of three individuals accused of conducting cyberattacks against China on behalf of the U.S. National Security Agency. Chinese state media have urged citizens and companies to refrain from utilizing American technology, promoting domestic alternatives instead.
Wendy Cutler, vice president at the Asia Society Policy Institute, stated, “Beijing is clearly indicating to Washington that it is prepared to retaliate and has numerous tools at its disposal, all of which could inflict varying degrees of harm on U.S. enterprises.” She further noted that, with elevated tariffs and other restrictions in place, the disentanglement of the two economies seems fully underway.
Expanding Focus to Services Trade
Some analysts suggest that China is looking to widen the trade conflict to include the services sector, which encompasses areas like travel, legal, consulting, and financial services, where the U.S. has historically enjoyed a significant surplus.
A recent post from a social media account linked to the Chinese state-affiliated Xinhua News Agency indicated potential restrictions on U.S. legal consultancy firms and hinted at investigations into U.S. companies operating in China, targeting the “monopoly benefits” derived from intellectual-property rights.
Nomura estimates that U.S. service exports to China have exponentially increased, reaching $55 billion in 2024, contributing to a U.S. services trade surplus of $32 billion last year.
As part of its strategy, China announced reductions in imports of American films and issued advisories to its citizens against traveling or studying in the United States, signaling a deliberate effort to exert pressure on the U.S. entertainment, tourism, and education sectors.
Jing Qian, managing director at the Center for China Analysis, observed, “These moves target highly visible sectors like aviation, media, and education that hold significant political weight in the U.S.” He cautioned that while the actual financial implications may be minimal considering the scale of these sectors, the “reputational effects — such as a decrease in Chinese students or wariness among Chinese employees — could cascade through academic and tech talent networks.” Nomura estimates that about $24 billion may be at risk if China enhances restrictions on travel to the U.S.
Nomura’s analysis reveals that travel remains the dominant component of U.S. service exports to China, largely due to the spending from millions of Chinese tourists in the U.S. Notably, education-related expenses make up 71% of this category, primarily attributed to tuition and living costs for over 270,000 Chinese students studying in American institutions.
In contrast, entertainment exports, which cover films, music, and television, represented only 6% of U.S. exports within this sector. The latest Chinese restrictions on film imports are considered more symbolic than economically impactful.
“We may observe a deeper disconnection not only in supply chains but also in personal relationships, knowledge exchanges, and regulatory structures. This could indicate a transition from transactional conflicts to broader systemic divides,” Qian noted.
Potential for Increased Aggression from Beijing
Experts largely predict that Beijing will persist in utilizing its suite of non-tariff policy instruments to enhance its position in any upcoming discussions with the Trump administration.
Gabriel Wildau, managing director at the risk advisory firm Teneo, remarked that from Beijing’s viewpoint, the operations of U.S. companies in China are the remaining avenue through which it can inflict damage on American interests.
Entities such as Apple, Tesla, and various pharmaceutical and medical device companies could face the brunt of China’s continued non-tariff measures like sanctions, regulatory challenges, and export controls.
While there is potential for a trade agreement that could lead to the easing of some retaliatory actions, expectations for immediate talks between the two nations are diminishing rapidly.
Chinese officials have continuously criticized Trump’s “unilateral tariffs” as acts of “bullying,” asserting their resolve to resist until the very end. Nonetheless, Beijing remains open to negotiations, provided they are conducted “on equal footing.”
Recently, White House press secretary Karoline Leavitt indicated that Trump is willing to negotiate but emphasized that any move must originate from Beijing.
Jianwei Xu, an economist at Natixis, echoed concerns that only when a nation experiences significant self-inflicted damage might it consider softening its stance and earnestly return to negotiations.
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