Earlier this month, when US Treasury Secretary Scott Bessent
threatened sanctions against any nation continuing to purchase Iranian crude oil, he did not name China. He did not need to. China, the Islamic Republic’s largest oil customer, is squarely in Washington’s crosshairs.
The US has already unveiled new sanctions against 60 individuals, companies and vessels linked to Iranian trade, including some in mainland China and Hong Kong. Just three months after the
May summit between President Xi Jinping and President Donald Trump appeared to stabilise bilateral trade relations, the fragile calm is being tested again.
So far, China has signalled it will not be coerced. The stand-off sets the stage for what could be the next major rupture in an already fraught relationship.
Washington has not been idle since May. In June, the Pentagon
added dozens of companies – including Alibaba, Baidu and BYD – to its list of “Chinese military companies”, a designation that can restrict these companies’ access to US capital and market. In July, it announced a
10-12.5 per cent tariff on goods from 60 economies, including China, following its Section 301 investigation into forced labour.
Beijing’s response to this onslaught has been deliberate and calibrated. Gone are the days of blanket tariff retaliation. Instead, China has preferred to hold its fire where the cost of escalation outweighs the benefits, striking back with precision when core interests are threatened.
US slaps new tariffs ranging from 10-12.5% on 60 economies
When the US imposed a forced-labour duty of 12.5 per cent, below the 20 per cent cap the US had reportedly agreed to, Beijing
held off on retaliating. But when structural exclusions crossed the line – as when the US
added 43 Chinese companies to an import blacklist over allegations of forced labour – China
countered with targeted export controls and a national security trade investigation. Beijing now speaks Washington’s language fluently.
On Iran, however, the calculation is starker. China has strongly opposed any dictate on which countries it may do business with. Should the US follow through with secondary sanctions, Beijing has signalled it will
retaliate forcefully – and this is not a bluff.
Beyond Iran, two other flashpoints will determine whether this managed friction stays in its lane or spirals into systemic rupture.
The first is the looming US
overcapacity investigation. The Commerce Department is expected to rule that Chinese state subsidies have created global gluts in industries such as solar, electric vehicles and steel. Yet any punitive duty exceeding 7.5 per cent – pushing total tariffs towards the 20 per cent ceiling – would almost certainly trigger retaliation, including stricter export controls over rare earths and critical minerals, where China’s supply chain dominance runs deepest.
The second is the potential weaponisation of China’s Permanent Normal Trade Relations (PNTR) status. A bipartisan push in Congress to
subject PNTR to annual review is more than rhetoric. A US International Trade Commission fact-finding report has turned political talking points into official data-backed analysis. While its
just-published findings highlighting the high costs of revoking China’s PNTR status may make immediate, full revocation less tempting than some lawmakers hoped, it validated the push to do so as a serious policy option.
Ending PNTR would push Chinese goods to Column 2 tariff rates, lifting average US duties to 35-45 per cent. The combination of high US tariffs and a likely forceful Chinese response would mark the most profound rupture in bilateral trade since China’s World Trade Organization accession in 2001.
Importantly, Washington is moving from a tariff-centric conflict to a non-tariff war, deploying blacklisting, export controls and minimum import prices – a tool rarely used today.
Moreover, its focus is now shifting from supply-side restrictions to constraining demand – particularly in green energy and hi-tech sectors. In coordination with the European Union and other allies, Washington is using tariffs, export controls and technical standards to restrict market access for Chinese products, effectively walling off demand.
On its part, Beijing, now equipped with a full toolkit, would respond beyond tariffs. Parallel curbs on drones and components could extend to polysilicon and other sectors, inflicting more pain on American manufacturers than on Chinese suppliers, given China’s dominance in those supply chains. The
probe into imported printers and photocopiers that use foreign-developed software – its first-ever foreign-trade national security investigation – signals that Beijing will not hesitate to use the same language of “national security” when warranted.
US President Donald Trump walks with his host, President Xi Jinping, through Zhongnanhai Garden on May 15. Photo: Pool via AP
The May summit was never designed to end the rivalry; it established mechanisms to prevent disagreement from spiralling out of control. Both sides recognise that complete decoupling is neither feasible nor desirable.
Yet Washington’s core objective is not reciprocity but retardation – slowing China’s ascent through any means available. For Beijing, the response is equally clear: calibrated restraint where possible, sharp retaliation where necessary, and an unwavering commitment to safeguarding core interests.
The era of strategic economic engagement is over. What replaces it is competitive coexistence: high tariffs maintained indefinitely, supply chains gradually reshaped, and technological boundaries slowly hardening.
Further summits later this year may serve as pressure valves, temporarily suppressing friction. But they will not alter Washington’s fundamental calculus. Its deep-seated apprehension over China’s rise will drive it to tighten the screws – with Iran merely the latest turn.