Trump felt that US needed a more ‘balanced’ deal and decided to levy an extra tariff on goods imports from its trade partners. The rates were country specific, and China with which US has the biggest trade deficit ($295.5 billion in 2024) was the prime target of reciprocal tariffs.
Months later, after some preliminary bilateral talks, US tariffs on Chinese products, though temporary in nature, are just over 30%, down from close to 70% as was proposed by the US initially. On the other hand, India, a much smaller player when it comes to bilateral trade with a trade deficit of $45.8 billion in 2024, is facing a 50% tariff – 25% reciprocal tariff and another 25% tariff as a punishment for buying Russian oil – on its goods exports to the US.
If trade deficit is the biggest problem before the US, why is Trump going soft on China vis-à-vis India?
In a presentation made at KPMG India’s flagship annual event ENRich 2025, Anish De, Global Sector Head, Energy Natural Resources & Chemicals, KPMG International, gives four key reasons why the US cannot take China for granted.
The first is China’s global dominance in trade and U.S dependence on Chinese imports. According to the statistics published by the office of the US Trade Representative, U.S. goods exports to China in 2024 were $143.2 billion, down 3.0 percent ($4.4 billion) from 2023 while U.S. goods imports from China in 2024 totaled $438.7 billion, up 2.7 percent ($11.5 billion) from 2023. The U.S. goods trade deficit with China was $295.5 billion in 2024, a 5.7 percent increase ($15.9 billion) over 2023.
The second factor why the US feels threatened by China is the speed with which China is catching up with the US in advanced technology and artificial intelligence (AI).
Citing the disruption in GenAI space created by Chinese Deepseek, KPMG’s Anish De illustrates the Chinese advance in advanced technology through the increasing number of scientific articles arising from Chinese universities.
De points out that in 2015, there were only one university i.e, Peking University, in the top 10 global universities in terms of fractional count of author contributions to scientific articles. Five were US Universities including the top three – Harvard University, Standord University and Massachusetts Institute of Technology – and, UC Berkeley and University of Michigan. In 2016, Peking University, still the only Chinese University in the top 10 list, improved its position from 9th to 7th.
In 2017, Tsinghua University got added to the top 10 list thereby increasing Chinese presence to two, while the number of US universities came down to four. By 2019, the top three universities continued to be US, but the contribution of Chinese universities, with four of them in the top 10 list, showed a steady growth.
In 2024, of the top 10 universities globally by fractional count of author contributions to scientific articles, eight were Chinese with Harward university being the only US institution to remain in the list. The message is clear. Chinese research and interest in advanced technology has been growing over the years, and has reached a stage where it threatens US early mover advantage.
The third factor that makes US wary of China is the growing role of Chinese currency Yuan.
The US dollar has been the reserve global currency and it continues to be so, but China seems to be increasing its trade in Yuan, and also using its cross border interbank payment system as an alternative to SWIFT system, which is overseen by the central banks of G-10 countries.
KPMG’s De notes that China today issues all its foreign debt in Yuan and has currency swap arrangements with 32 central banks. It also has a system where cross border transactions happen without Swift, which has been a chock-point, often in the past.
He also notes that China’s holding of US Treasury securities have been coming down from $ 1220 billion in 2012 to $ 759 billion in 2024. This year dollar is down 10% against the Euro. It is still the currency of the world, but very different from it used to be earlier, he says.
Forth factor where US cannot ignore China is new energy, where China has a near monopoly.
De’s presentation shows that 77% of global battery cell manufacturing capacity (893 GWh of a total of 1164 GWh capacity in 2022) is in China and in terms of the share of solar manufacturing capacity by country, China has 79% share in polysilicon manufacturing, 97% in wafers, 85% in cells, and 75% in modules.
This is the dominance which the US is worried about.
