On Tuesday, China implemented tariffs on certain U.S. imports in a rapid reaction to the newly imposed U.S. duties on Chinese products, reigniting a trade conflict between the two largest economies. This development occurred even as President Donald Trump extended temporary relief to Mexico and Canada.

A new 10% tariff on all Chinese imports entering the U.S. took effect at 12:01 a.m. ET on Tuesday (0501 GMT), following Trump’s repeated assertions that China was not adequately addressing the influx of illegal drugs into the United States.

Shortly thereafter, China’s Finance Ministry announced it would impose tariffs of 15% on U.S. coal and liquefied natural gas (LNG), along with 10% on crude oil, agricultural machinery, and certain automobiles. Additionally, China initiated an anti-monopoly investigation into Alphabet Inc’s Google and placed both PVH Corp, which owns brands like Calvin Klein, and U.S. biotech firm Illumina on its “unreliable entities list.”

In a separate announcement, China’s Commerce Ministry and Customs Administration revealed that they would enforce export controls on specific rare earth elements and metals essential for high-tech devices and the transition to clean energy. The new tariffs on targeted U.S. exports are set to commence on February 10, allowing time for Washington and Beijing to negotiate a potential agreement. A White House spokesperson indicated that Trump intends to speak with Chinese President Xi Jinping later this week.

On Monday, Trump had momentarily suspended his threat of imposing 25% tariffs on Mexico and Canada, agreeing to a 30-day delay in exchange for concessions related to border security and crime enforcement with the neighboring nations. During his first term in 2018, Trump launched a significant two-year trade war with China, driven by concerns over its substantial trade surplus with the U.S., resulting in reciprocal tariffs on hundreds of billions of dollars’ worth of goods, which disrupted global supply chains and adversely affected the world economy.

Oxford Economics indicated in a recent report that the trade war is still in its initial phases, suggesting a high probability of additional tariffs. President Trump has cautioned that he may escalate tariffs on China unless the country takes action to halt the influx of fentanyl, a potent opioid, into the U.S. “China hopefully is going to stop sending us fentanyl, and if they’re not, the tariffs are going to go substantially higher,” he stated on Monday.

In response, China has characterized fentanyl as an issue for the United States and announced plans to contest the tariffs at the World Trade Organization, while also considering other countermeasures, though it remains open to negotiations.

The U.S. represents a minor source of crude oil for China, contributing only 1.7% of its imports last year, valued at approximately $6 billion. Additionally, over 5% of China’s liquefied natural gas imports originated from the U.S.

Following China’s retaliatory measures, crude prices fell by 2%, and stock gains in Hong Kong were reduced. The U.S. dollar gained strength, while the Chinese yuan, euro, Australian and Canadian dollars, as well as the Mexican peso, all depreciated, highlighting increasing market apprehension regarding the potential for a prolonged global trade conflict.

The economic and political negotiations between the U.S. and China appear to be significantly more challenging than those with Canada and Mexico, according to Gary Ng, a senior economist at Natixis in Hong Kong. “The previous optimism regarding a swift agreement has now become uncertain. Even if both nations can find common ground on certain matters, the use of tariffs may become a frequent strategy, potentially leading to increased market volatility this year.”

REGIONAL AGREEMENTS

In response to Trump’s call for stricter immigration and drug trafficking measures, both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum expressed relief after announcing their commitment to enhance border enforcement. This agreement will temporarily suspend the 25% tariffs set to take effect on Tuesday for a period of 30 days. Canada plans to implement new technologies and personnel at its border with the U.S. and initiate joint efforts to combat organized crime, fentanyl trafficking, and money laundering. Meanwhile, Mexico will deploy 10,000 National Guard members to its northern border to curb illegal migration and drug smuggling.

“As President, my duty is to ensure the safety of all Americans, and I am fulfilling that responsibility. I am very pleased with this initial outcome,” Trump stated on social media.

Canadian industry representatives, concerned about potential disruptions to supply chains, welcomed the temporary halt. “This is very encouraging news,” remarked Chris Davison, leader of a trade association for Canadian canola producers. “Our industry is highly integrated, benefiting both nations.” Trump also indicated on Sunday that the 27-nation European Union might be his next focus, although he did not specify a timeline.

European leaders gathered for an informal summit in Brussels on Monday expressed their readiness to respond if the United States imposes tariffs, while simultaneously advocating for dialogue and rationality. The United States remains the EU’s most significant trade and investment ally.

Trump suggested that the United Kingdom, which exited the EU in 2020, could potentially be exempt from these tariffs. Over the weekend, Trump admitted that his tariffs might inflict some immediate discomfort on American consumers, but he maintains that they are essential for addressing immigration and drug trafficking issues, as well as for boosting domestic industries.