US President Donald Trump has now imposed two rounds of tariffs on China since he took office in January, opening a new phase of tit-for-tat reprisals between both sides
This assessment was issued to clients of Dragonfly’s Security Intelligence & Analysis Service (SIAS) on 07 March 2025.
- We assess that US firms and imports will face a high risk of Chinese retaliatory measures over the coming year
- China is highly likely to retaliate against the US with tariffs, as well as other measures like legal probes and revoking firms’ licences
China appears highly likely to investigate and restrict the operations of some US firms this year. This would be in retaliation for US tariffs and sanctions against China; the US put in place a second round of tariffs on Beijing on 4 March, with the Trump administration citing insufficient progress by China to curb fentanyl flows into the US. This, combined with a wider context of economic and military competition between the two, suggests neither side is likely to back down. We anticipate further tit-for-tat measures this year.
For now, China’s measures seem to be calibrated to respond in line with US measures to avoid prompting escalation. In addition to increasing import levies on US agricultural and food products by 10-15%, China responded to the latest tariffs by placing 25 US firms – including those from the defence, due diligence and security sectors – under export and investment restrictions on national security grounds. China has also previously sanctioned and put export controls on US firms in the tech and defence sectors.
Tit-for-tat tariffs likely to continue this year
There are likely to be several further rounds of tariffs and retaliations between China and the US this year. Chinese officials accuse the US of using Trump’s complaints about fentanyl flows as a ‘pretext’ to impose tariffs. Whatever the accuracy of this, Trump appears to be intensifying longstanding US-China competition over military, economic and political power. And he has said he wants to reduce the US trade deficit and rebuild its industrial capacity. As the US’s bilateral trade deficit with China is its largest, additional increases to the levies are highly likely.
There are few indications that negotiations to de-escalate will happen in the coming months. Both sides seem to be engaging in brinkmanship over retaliatory measures. During Trump’s first term, he put tariffs in place to strengthen his position ahead of formal trade negotiations a few months later. But this time around, they have stressed they are not going to back down even while acknowledging that the measures will probably harm their respective economies. Chinese officials said on 4 March, ‘we’re ready to fight till the end’; Trump told Congress the same day that he is ‘just getting started on tariffs’.
China’s likely to retaliate with measured responses
Aside from reciprocal tariffs, Beijing has a range of other measures enshrined in Chinese law to retaliate against US commercial interests. These include broadly defined powers found within the anti-foreign sanctions law and the Foreign Relations law. Article 33 of the latter states ‘China has the right to take corresponding countermeasures and restrictive measures against acts that…endanger the sovereignty, security, and development interests of…China’.
These measures have been used against foreign governments and companies. Over the past few years, Beijing has imposed restrictions on corporate mergers involving overseas companies and investigated a US semiconductor firm. The timing of these strongly suggests these were in retaliation to US economic restrictions on China. Other options include revoking firms’ operating permits, export licences, as well as seizing or freezing company assets.
China also frequently uses tariffs to target specific industries, seemingly to harm the support base of foreign politicians as a form of pressure for negotiations. It has done so several times by targeting agricultural industries in the electoral districts of political parties it seeks to undermine, for instance in Taiwan and Australia.
China’s response to the US has so far been largely calibrated to prevent further escalation. On current indications, China will probably only use these if the US imposes harsher measures against Chinese firms or nationals operating in the US. Or for a particularly severe round of US tariffs. For example, Trump floated the idea of 60% tariffs on Chinese imports during the 2024 election campaign.
Chinese retaliation likely at short notice
US businesses are likely to face non-tariff commercial reprisals at short notice. This includes export controls, corporate investigations, and blacklisting. Within hours of the US tariffs coming into effect in February, Beijing placed the US clothing company PVH Group and a US biotechnology firm on an unreliable entity list. It also launched an anti-trust investigation into Google. On 4 March it put export and investment restrictions on 25 US firms almost immediately after Trump announced the latest round of tariffs.
The latest measures against US firms appear to be in line with similar Chinese retaliatory measures, including against well-known foreign brands. China has often retaliated against symbolic national products during previous geopolitical disputes, such as by implementing tariffs on Australian wines and Norwegian Salmon. China’s latest moves to also retaliate against well-known US apparel firms are a sign of this. For now, it is unlikely that China would implement broad-based tariffs or restrictions on all US firms in China.
State agencies’ risk remains critical
China’s existing legislation also contains targeted measures it can use against foreign nationals. This includes deporting or cancelling visas for travellers. Detentions of foreign business travellers by Chinese officials during diplomatic spat have been uncommon. The arrest of two Canadians during a bilateral diplomatic crisis in 2018 was the most high-profile example of this in recent years.
Several security professionals we spoke with recently told us they have not experienced inspections or questioning by the Chinese authorities during their travel over the past year, nor were they aware of anyone who did. But several clients who we have spoken with in recent months told us they are maintaining mitigation measures for executives, including pre-travel briefings and a clean electronic devices policy.
Foreign companies and nationals will probably continue to be exposed to seemingly arbitrary enforcement of laws in China this year. Official data for all nationals is not complete, but China wrongfully detained eight US citizens in 2024, according to a 2025 report by the usually reliable Foley Foundation. And in August 2024, the Chinese authorities indicted a Japanese pharmaceutical executive on charges of espionage.
Beijing also implemented exit bans on executives from firms involved in legal disputes in recent years. There is no indication that China will alter its laws that have led to the arbitrary detention of foreigners on perceived criminal or national security grounds.
Image: Liu Jieyi (R), spokesperson for the Chinese People’s Political Consultative Conference (CPPCC), gestures after a press conference at the Great Hall of the People in Beijing on 3 March 2025; Photo by WANG Zhao / AFP via Getty Images.
