US-China Trade War Enters a One-Year ‘Cooling-off Period

Since Trump's first term in 2018, the US-China trade war has persisted for over eight years. Despite a decline in the proportion of the U.S. trade deficit accounted for by China, from 47.9% in 2018 to 24.6% in 2024, China persisted as its largest deficit source.

Following the meeting between the President of China and the U.S. in South Korea on November 3, the two sides simultaneously implemented a series of adjustments to trade measures. These outbreaks primarily include tariff reductions and exemptions, export control, the US-China port fee, and soybean purchasing commitments. These steps represent mutual concessions made by both sides in the context of the trade war, marking the entry of bilateral economic and trade relations into a one-year "cooling-off period." However, the future policy direction will depend on various factors, and the risk of tariffs being reinstated remains. We will continue to monitor and report on its developments.

Tariff Reductions and Exemption

-The U.S. has lowered its fentanyl tariffs from 20% to 10%. The Tariff covers 127 categories, including 56 categories of chemical raw materials and pharmaceutical intermediates. According to China Customs data from 2023, exports of the 56 categories to the U.S. totaled $4.7 billion. The overall 10% tariff reduction is expected to reduce the drag on China's overall export growth by 1.3%.

- The U.S. has extended the suspension of its 24% reciprocal tariffs for one year while maintaining the 10% tier. China has implemented corresponding measures in response.  China concurrently eliminated the 15% additional tariffs on imports of U.S.-origin chicken, wheat, corn, and cotton, as well as the 10% additional tariffs applied to sorghum, soybeans, pork, beef, and aquatic products.

- The U.S. has extended the Section 301 tariff exemptions for 178 Chinese-origin commodities for an additional year. The exemption comprises 164 industrial and consumer goods,including, child safety seat components, pump parts, specialty chemical materials, electronic connectors, and ventilator components, alongside 14 clean energy equipment items exclusively related to solar energy manufacturing, such as silicon growth furnaces, polysilicon ingot casting machines, wafer cutting equipment, and diamond wire saws. These products hold a significant position in U.S.-China trade.The renewal of exemptions is expected to further facilitate exports in these sectors. In response, China extended the tariff exemptions for 124 commodities included in the 16th round of its list for extending exclusions from additional tariffs on U.S. imports for one year.

According to the U.S. officials , the overall U.S. tariff on Chinese products will decrease from 57% to 47%.  In fact, the tariff rates paid will vary depending on the specific goods, as the U.S. still maintains a comprehensive tariff framework on Chinese imports, primarily comprising:

• Section 301 tariffs (ranging from 7.5% to 25%, with specific individual products reaching 100%)

• Section 232 tariffs covering steel, aluminum, copper, and their derivative (50%)

• Automobiles and auto parts tariffs (50%)

• Timber and wood derivative products tariffs (25%)

• Anti-dumping/Countervailing duties (determined on a case-specific basis without fixed rates)

The general tariff framework of the U.S. comprises the following components: Most-Favored-Nation (MFN) tariff rates + 25% + fentanyl tariffs (10%) + reciprocal tariffs (10%) + Section 301 tariffs (7.5%-25% or 100%) + Section 232 tariffs (25%-50%) + anti-dumping/countervailing duties (determined case by case). Given the complexity of specific tariff calculations and import declaration procedures, it is highly recommended to consult with your customs broker or relevant local authorities for precise guidance.

Immediate Market Response Under the New Tariffs

We scanned the Chinese market responses after the bilateral tariff adjustments. The affected enterprises in both countries are expected to generate short-term benefits, primarily through reduced business costs and enhanced trade cooperation.

** A company in Shenzhen said their orders for Bluetooth headphones from their American customers soared by 300% in the first week of the tariff reduction.

** The comprehensive additional tariff rate on Chinese textile and apparel exports to the U.S. will also decrease to approximately 27.5%-45%, bringing it closer to the tariff levels faced by major competitors such as Vietnam and Bangladesh.

** For key electronic components and lithium battery cathode materials, the tariff reduction will benefit U.S. companies, as about 28% of the chip packaging and testing materials they import annually from China were previously constrained by high tariffs. This adjustment is expected to reduce related procurement costs by 1.2 to 1.8%.

** The removal of the 10% fentanyl tariff directly benefits the chemical fiber industry chain. According to estimates by a textile group in Zhejiang, the procurement cost of Polyamide-6 granula may decrease by about 1,200 RMB per ton.

Over the past few years, amid tariffs, geopolitical tensions, and pandemic-related disruptions, the "China Plus N" supply chain strategy has become a consensus among many multinational corporations. A one year suspension will not reverse this long-term trend. It is advised to:

-      Quickly consider strategic stockpiling for products benefiting from tariff reductions during this lower tariff period, while simultaneously managing the inventory complexities that may arise from diversified supply chain layouts.;

-      Continue diversifying operations in countries such as Vietnam, Mexico, and India to mitigate risks.

Export Controls

One-Year Suspension of Affiliated Party Rule

The Bureau of Industry and Security (BIS) imposes a one-year suspension of the Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities (Affiliated Party Rule). The Suspension has two phases.

Phase 1: All changes previously made to the EAR by the Affiliates Rule will be suspended through November 9, 2026, unless extended by BIS.

Phase 2: The Suspension reimposes the Affiliates Rule’s license requirements and related provisions back into the EAR “effective November 10, 2026, and extending indefinitely.”

The suspended "Affiliated Party Rule"  stipulated that any entity, directly or indirectly, individually or collectively, owned 50% or more by one or multiple entities on the Entity List, Military End-User List, or specific SDN List would automatically become subject to restrictions. This rule not only mandated stricter screening of suppliers and enhanced awareness of entity ownership, but also imposed more thorough due diligence on all parties involved in the export of U.S.-origin commodities and technologies. Estimated that this rule has affected tens of thousands of Chinese companies.

This one-year suspension provides a temporary opportunity for associated organizations to reassess their ownership structures, compliance posture, and exposure to U.S. export controls. We recommend elevating compliance capabilities by conducting deeper due diligence on partners and suppliers, including ownership structure verification and end-user screening; establishing dedicated compliance teams; and continuously monitoring dynamic export controls, entity lists, and tariff policy changes in both the U.S. and China.

One-Year Suspension for Rare Earth Minerals and Magnets Export Control

In exchange for the one-year suspension of the U.S Affiliates Party Rule, China delayed the imposition of the proposed new export controls on rare earth minerals and magnets for one year, subject to China’s export license requirements, including:

-      Suspension of export controls on five heavy rare earth elements, including holmium, erbium, thulium, europium, and ytterbium for non-military uses.

-      Suspension of export controls on technologies and materials related to rare earth mining, smelting and separation, permanent magnet manufacturing, along with their carriers, including technical data and process parameters.

-      Suspension of export controls on lithium battery cathode materials, graphite anode materials, and related products.

-      Suspension of export controls on synthetic diamonds, boron nitride, and other superhard materials;

-      Suspension of the Extra-Territorial Control Rule, which extends restrictions to foreign-produced items containing Chinese rare earth content or technology.

China dominates nearly every stage of the critical-materials value chain, controlling over 90% of global rare-earth processing and the overwhelming share of graphite anode and gallium refining capacity. China’s heavy rare earth separation can achieve purity levels of up to 99.999%. The pause reflects a temporary easing in trade and technology tensions between China and the U.S., offering relief to global buyers after a tumultuous year and giving major economies more time to grapple with China’s grip on the industry  despite of China has not yet made any further announcements with respect to its April 2025 export licensing requirements for medium- and heavy-rare-earth.

From 2020 to 2023, approximately 70% of U.S. imports of rare earth compounds and metals originated from China. In the case of rare earth permanent magnets, essential for applications such as electric vehicles and military equipment, the U.S. is almost entirely dependent on Chinese supply. A 2024 U.S. Department of Defense report highlighted that, among the 17 critical rare earth elements required for the defense industrial base, the U.S. depends on China for more than 80% of 14 of these elements. Key systems such as the navigation systems of the F-35 fighter jet and the guidance components of the Patriot missile systems rely on high-purity neodymium iron boron (NdFeB) permanent magnets supplied by China.

One Year Pause on US-China Port Fee

The U.S. and China successively announced a one-year suspension of port fees on each other's vessels and a parallel halt to related investigations in the shipping and shipbuilding sectors. China will also suspend countermeasures against five U.S.-affiliated subsidiaries of Hanwha for one year. The U.S. will continue to strengthen its shipbuilding industry in collaboration with major allies and partners, including Japan and the Republic of Korea. This suspension defuses a looming "cost bomb" in shipping. Nikkei Asia described the suspension of reciprocal "port fees" and a series of other measures by the U.S. and China as "undoubtedly welcome moves." Quoting its analysts, the report stated that imposing these fees could result in losses of billions of dollars.

Soybean Purchasing Commitment

The White House announced that China will purchase at least 12 million tons of US soybeans in the last two months of 2025, and at least 25 million tons each year in 2026, 2027, and 2028, and will resume purchasing U.S. sorghum and wood logs. However, this announcement has not yet been confirmed by Chinese authorities, and its implementation remains uncertain.

China officially restored the eligibility of three U.S. companies, including CHS Inc., to export soybeans to China in November, though actual procurement progress has been slow. U.S. Department of Agriculture data shows that China likely purchased about 24 million bushels of U.S. soybeans in the past six weeks, which is about 5.5% of the supposed 12-million-ton commitment. The reasons may include:

- The U.S. beans will not be price-competitive in the market. The total tariff on U.S. soybeans remains at 13%, making American soybeans currently uncompetitive against South American soybeans (subject to 3% tariffs). Unless U.S. soybean FOB export prices drop sharply, trading at a discount of 45–50 US dollars per ton, commercial oil crushers (private crushing companies) in China still find it unprofitable to purchase U.S. soybeans. Large-scale procurement in the future may primarily rely on state-owned enterprises such as Sinograin and COFCO to execute policy-driven purchases.

- Due to earlier concerns about U.S. soybean imports, China’s cumulative soybean imports from January to September reached 95.672 million tons, an increase of 5.742 million tons year-on-year, hitting a record high. Currently, soybean and soybean meal inventories at crushers are at their highest levels in three years for the same period, and stocks may continue to rise in the coming months.

About us: CCA-IM is a US and Asia-based team. Since 2003, CCA-IM has helped 300+ North American companies and 40+ PE firms in over 500 projects to develop and execute their business strategies in China and Asia in broad range of areas, including market research, sales strategy, business establishment, supply chain management, due diligence, etc. For more details about CCA-IM, please check out our website: www.cca-im.com.