America’s tariff wars are far from over

The US Supreme Court’s decision striking down Donald Trump’s sweeping “reciprocal tariffs” imposed under the International Emergency Economic Powers Act of 1977 (IEEPA) looks like a decisive legal defeat. In reality, it marks the start of a new phase in America’s tariff wars rather than their conclusion.

The ruling is a textbook example of the US’s system of checks and balances. Yet within hours, Trump announced that he would invoke Section 122 of the Trade Act of 1974 to impose a 10% tariff on imports.

The Supreme Court decision should therefore be understood as a legal correction rather than an economic turning point. The political logic behind tariffs remains intact, and the future of US trade policy will be decided less in the courts than in Congress and among voters.

Whether Congress ultimately grants broader tariff authority will depend largely on how Americans judge the economic impact of the tariffs imposed over the past year.

Research by the Federal Reserve Bank of New York suggests that roughly 90% of tariff costs have been borne by US companies and consumers, reinforcing economists’ longstanding warnings that tariffs would fuel inflation.

But the actual economic outcomes have been more complex than expected.

Inflation has remained broadly stable. Consumer price growth has moderated, and increases in the Federal Reserve’s preferred PCE inflation measure have been limited. The US economy expanded strongly through most of 2025, slowing only late in the year amid a government shutdown.

The labour market presents a more ambiguous picture. Employment growth has slowed and manufacturing has not returned on a significant scale. Most new jobs are found to concentrate in healthcare.

Despite these mixed results, the White House has defended tariffs as part of a longer-term strategy to reduce trade deficits and rebuild American manufacturing.

The logic is straightforward: access to the US market is used as leverage to attract foreign investment and advanced production capacity. Japan, South Korea and the Middle Eastern economies have all been encouraged to expand industrial investment in the US. In effect, the policy amounts to trading market access for investment and technology.

Trump has used major political platforms, such as his recent State of the Union Address, to present this argument and mobilise public opinion to pressure Congress. The legal dispute over IEEPA may be settled, but the political contest over tariffs has only begun.

The administration’s pivot to the Trade Act of 1974 offers a more durable legal foundation for tariffs, though with important constraints.

Unlike IEEPA, the 1974 law explicitly authorises the US president to levy tariffs in response to large and persistent balance of payment issues, often triggered by trade deficits. This clearer statutory language makes it less vulnerable to judicial challenge.

However, Section 122 imposes two key limits. Tariffs cannot exceed 15% and can remain in force for only 150 days without congressional approval. Trump’s proposed 10% tariff fits comfortably within these limits but would require legislative backing to become permanent.

The law also contains a general principle of non-discrimination that, in theory, prevents the US from treating trading partners differently. Historically, this provision was intended to restrict arbitrary presidential action and could work in favour of major exporters such as China.

At the same time, the legislation allows exceptions for countries with large and persistent trade surpluses with the US, through Section 301 investigations and levies. In practice, this means that China — along with other major surplus economies such as Vietnam, Japan and Germany — could still face targeted measures.

The overall framework may appear more neutral, but the largest exporters will remain under pressure.

Some observers interpret the Supreme Court ruling as a sign that global trade tensions may ease. That is unlikely.

The tariff conflicts of recent years have already triggered structural changes that will not easily be reversed. Supply chain autonomy has become a bipartisan priority in the US, justified on national security grounds. China is accelerating efforts to close gaps in high-end industrial capabilities, while Europe is increasingly determined to reduce dependence on both Washington and Beijing. Governments alike are shifting away from the efficiency-driven “just-in-time” model — an efficiency-focused strategy — towards a more resilient “just-in-case” approach designed to withstand geopolitical risks.

Globalisation is not ending, but it is being reshaped into a system where security concerns carry as much weight as cost efficiency.

Even as governments pursue economic security, the industrial ties between the US and China remain difficult to unwind.

The lead plaintiff in the Supreme Court case, Learning Resources Incorporated, a US educational toy company, saw its annual tariff costs surge from about US$2.3 million to more than US$100 million. Court filings revealed that its main manufacturing partner is a longstanding supplier in southern China operating dozens of large industrial injection-moulding machines capable of producing thousands of precision moulds.

After more than a decade of cooperation, the company’s chief executive acknowledged that the supplier cannot be replaced in the short term. Chinese manufacturers’ familiarity with strict US safety standards and their ability to deliver consistent quality remain difficult to match elsewhere.

Like many multinational companies, Learning Resources is diversifying production by shifting lower-value components to Vietnam and India and considering partial assembly in the US. Yet Chinese manufacturing remains central to its operations.

This case captures the central paradox of today’s tariff wars: political momentum is pushing economies apart even as industrial realities continue to bind them together.

The Supreme Court has limited presidential tariff powers, but it has not altered the deeper forces driving economic rivalry.

America’s tariff wars are entering a new phase — and there is no easy path back. Amid the gathering storm of global tariff conflicts, Chinese companies stand at a crossroads that demands more than short-term relief — it demands reinvention. While temporary tariff reductions may offer a welcome reprieve, they should not lull businesses into complacency. China remains uniquely vulnerable to targeted trade actions, from anti-dumping and countervailing investigations to sweeping national security reviews and tightening technology restrictions. 

In this climate, for Chinese businesses, survival — let alone success — hinges on a threefold transformation. 

First, firms must harness innovation and push decisively upmarket, shedding dependence on low-margin manufacturing in favour of high-end, technology-driven products. 

Second, they must think beyond borders, reconfiguring supply chains and shifting production toward ASEAN and the broader Global South to dilute geopolitical risk. 

Finally, they must look inward, sharpening management practices for both technological upgrade and globalisation, and strengthening core capabilities to build resilience from within. 

In an era where global trade is increasingly weaponised, adaptability is no longer optional; it is the defining test of China’s corporate future.

While US President Donald Trump has requested a one-month delay to his first trip to China during his second term, citing the escalating situation in the Middle East, delegations from both his administration and President Xi’s government have just concluded another round of trade negotiations in Paris. Leading the US team, Treasury Secretary Scott Bessent told reporters that the talks were “very productive” and emphasised that the delay in Trump’s China visit has no connection to the trade negotiations themselves.

This outcome signals that the US and China will continue the tariff truce that followed the dramatic escalation of bilateral tariffs in 2025 — a truce now further reinforced by the US Supreme Court ruling, which has constrained the president’s authority to impose sweeping, unilateral tariffs. Economically, it has become imperative for Trump to keep tariff levels reasonably low: the ongoing Middle East crisis has heightened US inflationary pressures and exacerbated affordability concerns for American consumers, issues that are widely expected to be crucial factors in the upcoming November 2026 midterm elections.

For its part, China is prepared to make targeted concessions, such as purchasing US soybeans, Boeing aircraft and potentially some US energy products. However, the country remains firmly committed to pursuing independence in food security, energy supply and technological development — with the latter being a key focus of its recently unveiled 15th Five-Year Plan, which prioritises advancing high-level technological self-reliance to secure its development initiative. This balance of flexibility and resolve reflects China’s approach to safeguarding its core interests while maintaining constructive economic engagement with the US.

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