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In April 2025, the Trump administration invoked the International Emergency Economic Powers Act (IEEPA) to impose a 10% baseline tariff on imports to the US. The substantially high rates of 34% against China and 46% for Vietnam have far exceeded market projections of 15%. Although ¡°trade asymmetries¡± (including tariff disparities and VAT differentials) and non-tariff barriers were cited as the issues, the measures, in essence, are based on calculated trade deficit ratios, which conflict with both the World Trade Organisation (WTO) regulations and economic realities.

These measures disregard the ¡°special and differential treatment¡± applied to developing nations and mix up the concepts and logic of value-added taxes and consumption taxes. Chinese commodities, as a result, face a tariff escalation of 34%, even up to 145%. This has caused considerable volatility in the global market.

As a hit back, China hiked its ¡°reciprocal¡± levies on imports of US goods to 125%. The global supply chains and the ¡°friend shoring¡± economic model previously celebrated by democratic administrations are now greatly challenged and require restructuring.

This article briefly introduces the institutional context of the current tariff war, analyses the impacts and legal risks of relevant policies, and offers practical advice on how businesses should respond.

Institutional context

Following the 1944 Bretton Woods Conference, the US gradually outsourced its manufacturing sector while developing its financial services industry, promoting systematised global trade. Although reforms in the global trade order generated substantial fluidity in commodity markets, the trade deficit issue remained pronounced in the US.

Following the establishment of the WTO in 1995, global trade progressively shifted from quota-based to tariff-based, with particularly stringent regulations imposed on high-tech products to address global trade imbalances.

In terms of economic restrictions and legal policies, the Trump administration has recently embraced unilateralism and is poised to reshape the global economy and how the world does business, a big shift from the ¡°small yard, high fence¡± approach once taken by the Biden administration. Trump even used his authority under the IEEPA to circumvent complex constitutional procedures, bypassing congress approval on debt ceiling and consumption tax issues.

Impact of tariff policies

Impact on global and Chinese economies. Tariff policies exert the most severe impacts on export-dependent economies, including Europe, Vietnam and Mexico. China faces direct export setbacks due to the rising re-export costs and the potential co-ordinated efforts by US-allied nations to block Chinese commodities. The Trump-era tariffs are poised to intensify, with the focus expanding to strategic sectors such as copper, timber and semiconductors. The administration will be working to increase the co-ordination with its allies of containment measures against China.

Impact on the US economy. Tariffs have triggered supply chain strain, elevated corporate costs and exacerbated price increases for imported goods. Meanwhile, US countermeasures risk inducing stagflation in critical sectors such as finance and agriculture.

Legal risks for key regions

Southeast Asia. As Vietnam and Cambodia emerge as preferred destinations for the overseas expansion of Chinese companies, the US has imposed elevated tariffs on exports from these countries while intensifying enforcement against tariff evasion through transshipment practices.

Starting in 2025, tariffs on low-value parcels will increase to USD50, which will significantly constrain the postal exemption channel between Hong Kong and mainland China.

Mexico. The US-Mexico-Canada Agreement ensures duty-free access to the US market for Mexican products. However, Chinese companies establishing factories in Mexico must comply with the rules of origin. Failure to meet these standards will subject their exports to an additional 25% tariff.

North America. While the new US tariff policy is legally instituted domestically, it may go against the WTO rules. If a Chinese company is deemed to be engaged in sanctions circumvention, it could face legal exposures, including secondary sanctions and long-arm jurisdiction.

Legal risks for Chinese companies

False report of product origin. Companies falsely reporting the product¡¯s origins may be subject to substantial financial penalties and civil claims, with severe cases potentially triggering criminal prosecution.

Re-export compliance risks. Commodities diverted through intermediary jurisdictions may be subjected to additional tariffs and associated penalties if deemed to constitute tariff evasion.

Customs retroactive penalties. The US Customs may impose civil penalties that triple the duty value for non-compliant transactions, with potential criminal liability for wilful violations.

Secondary sanctions and asset freezing. Companies designated on the US entity lists for alleged sanction evasion may face long-arm jurisdiction and secondary sanctions, potentially resulting in asset freezing and business disruption.

Strategies and recommendations

Product origin and substantial transformation. Companies must verify whether their manufacturing processes comply with the US substantial transformation criteria (e.g. HS code changes) and make sure that the products can be clearly traced, especially when production chains in multiple countries are involved.

Investment restructuring in high-risk jurisdictions. Companies must establish joint ventures or pursue M&A through third-party locations to mitigate legal and economic exposures associated with high-risk regions.

Establishment of compliant overseas trade frameworks. Companies should form multinational compliance teams well-versed in customs policies and trade regulations of key markets (e.g. the US, EU and Japan) to ensure compliant operations.

Legal countermeasures against unilateral sanctions. China¡¯s Anti-Foreign Sanctions Law provides mechanisms to counteract improper extraterritorial application of foreign laws. Companies can also leverage international legal frameworks, such as the WTO, to address jurisdictional challenges.

Global tariff wars may become the norm. Businesses should strengthen their capabilities in structural transformation, build strong compliance teams and optimise their fiscal-financial systems. When making global strategies, companies should seek a more autonomous supply chain and a more flexible, agile legal team to navigate the increasingly complex trade landscape.

Jeffrey Quan is a senior partner at ETR Law Firm