Finance

China is willing to do more to address White House concerns about illicit fentanyl trade, but it will be “a different thing” if ongoing debate over the drug facilitates more U.S. tariffs on the world’s second largest economy, an official from the Chinese Ministry of Foreign Affairs told reporters Wednesday.
The U.S. should have “said a big thank you” to China on what it has done to restrict fentanyl, the official said, claiming the U.S. did not appreciate the effort and instead raised tariffs on Chinese goods twice this year over the fentanyl issue.
Since taking office in January, U.S. President Donald Trump has increased tariffs on Chinese goods by 20% on the basis of the country’s alleged role in the U.S. fentanyl crisis.

China’s and U.S.’ flags are seen printed on paper in this illustration taken January 27, 2022. 
Dado Ruvic | Reuters

BEIJING — China is willing to do more to address White House concerns about illicit fentanyl trade, but it will be “a different thing” if ongoing debate over the drug facilitates more U.S. tariffs on the world’s second largest economy, an official from the Chinese Ministry of Foreign Affairs told reporters Wednesday.
Washington should have “said a big thank you” to China on what it has done to restrict fentanyl trade in the U.S., the official said via an official English translation, claiming the White House did not appreciate the effort and instead raised duties on Chinese goods twice this year over the drug.

Since taking office in January, U.S. President Donald Trump has increased tariffs on Chinese goods by 20% on the basis of the country’s alleged role in the U.S. fentanyl crisis. The addictive drug, precursors to which are mostly produced in China and Mexico, has led to tens of thousands of overdose deaths each year in the U.S.
The White House did not immediately respond to a CNBC request for comment.
Earlier this month, the Chinese government published a white paper to publicize its efforts to curtail the production and export of fentanyl precursors over the last few years. The official did not respond directly to a question on whether China would stop its recent efforts to restrict such trade.
Under the Biden administration, the U.S. and China had said fentanyl was one of the few areas in which the two countries could cooperate. Both sides held dedicated talks in Beijing last year on the topic.

Trump indicated earlier this year that he could also use tariffs as a way to pressure China into forcing Beijing-based ByteDance to sell TikTok, which is running against an early April deadline to remain available in the U.S.

Trump had emphasized tariffs as a way to reduce the U.S. trade deficit with China during his first presidency. Just before the onset of the Covid-19 pandemic, the two sides reached a “Phase One” trade agreement requiring Beijing to increase its purchases of U.S. goods. U.S. data shows that the trade deficit with China narrowed to $295.4 billion in 2024, from $346.83 billion in 2016, just ahead of Trump’s first mandate.
But differences on trade have continued since the January start of the White House leader’s second mandate. The average effective U.S. tariff rate on Chinese goods is now set to hit 33%, up from around 13% before Trump began his latest term, according to estimates from Nomura’s Chief China Economist Ting Lu.
Beijing has responded to the latest U.S. tariffs with targeted duties on energy and agriculture products, while tightening restrictions on exports of critical minerals that the U.S. needs. China’s Ministry of Commerce has also added several U.S. companies, mostly in aerospace or defense, to lists that limit their ability to do business with China.
The Ministry of Foreign Affairs official said Wednesday that China’s countermeasures were “legitimate actions” to protect its own interests.
Allianz estimates the additional 20% U.S. tariffs on Chinese goods would hit China’s GDP growth by 0.6 percentage points this year and next. But the firm still expects the Chinese economy to grow by 4.6% this year and 4.2% in 2026, based on the assumption that stimulus can mitigate the tariff impact.
“I would tend to say the retaliation is not so strong, maybe leaving room for negotiations,” Francoise Huang, senior economist for Asia-Pacific and global trade at Allianz Trade, said in a CNBC interview last week. More

DeepSeek’s artificial intelligence breakthrough has led to an “avalanche” of interest in Chinese tech firms over recent months.
It could mark a much-needed boost for the country’s investment landscape. VC investment into China-based companies has fallen for the last three years, according to Pitchbook data.
“People are rushing just to find the next DeepSeek,” said Annabelle Yu Long, founding and managing partner of BAI Capital in Beijing.

Dado Ruvic | Reuters

BEIJING — DeepSeek’s artificial intelligence breakthrough is stirring up China’s venture capital world after three straight years of decline.
As DeepSeek released its OpenAI rival in late January, AI drug discovery company Insilico Medicine was finalizing a $110 million series E financing round led by Hong Kong-based Value Partners, the startup’s CEO and founder Alex Zhavoronkov told CNBC in an exclusive interview. The deal closed last month.

But so many Chinese funds wanted to participate at the last minute — “like an avalanche” — that Insilico is planning a series “E2” raise, Zhavoronkov said. “We have never seen this level of interest before.”
Qiming Ventures-backed Insilico uses AI from DeepSeek and other companies to create models for developing drugs. Ten of the startup’s drugs have already received approval for clinical tests, according to Insilico, which lists research labs in China, the U.S. and the Middle East.
Zhavoronkov added that during his U.S. travels in the last few weeks, many U.S. and other global investors have asked him about ways to invest in Chinese AI companies.
“It looks like the DeepSeek moment, it created a lot of interest from global investors to invest in China,” he said Monday. “I think the funding is going to come back.”

Regulatory uncertainty in both China and the U.S., especially around IPOs, and slow economic growth have contributed to a sharp drop in Chinese venture capital activity in recent years. VC investment into China-based companies has fallen for the last three years, reaching just $48.86 billion in 2024, the lowest on record going back to at least 2016, according to Pitchbook data.

Now, as regulatory clarity emerges, sentiment is changing — and encouraging investors to take a different approach to the past, when internet-based startups such as Alibaba emerged.
“People are rushing just to find the next DeepSeek,” said Annabelle Yu Long, founding and managing partner of BAI Capital in Beijing. She also sits on the board of Coach parent Tapestry.
“Everybody is making investments, but I am asking my team to hold on new deals, because we see our core portfolio [of around 6 companies] are gaining very, very meaningful AI traction,” she said, noting that her firm is opting to increase its investments in existing holdings in coming months.
Part of her call stems from her view that Chinese funds have far less capital than U.S. ones to invest in AI, requiring a targeted approach. Instead of looking at new startups, Long said she expects entrepreneurs who are already using AI well to succeed in the near future.
For example, BAI Capital-backed Black Lake, which sells manufacturing management systems, has become profitable this quarter because AI has lowered service costs, Long said. Another of her investments, a healthcare company called Lejian, has become more profitable with the help of AI, and Goldman Sachs is preparing its IPO, she added.
Long said she plans to list nine portfolio companies this year, mostly in Hong Kong, and has received many calls from international investors about China’s economy and Chinese entrepreneurship beyond AI. “I definitely see a return of confidence.”
Other recent investment rounds also reflect how capital is piling into existing players. Insilico’s Zhavoronkov said some Chinese investors had previously lost nearly all their money on AI drug startups, and now recognize that only a few, likely more established, players will make it.
This month, AI model company Zhipu AI raised the equivalent of around $137.68 million from Alibaba Cloud and a Hangzhou city-backed fund, according to PitchBook’s records of 12 AI deals for the first 10 days of March. The data also showed robotics company LimX Dynamics raised an undisclosed amount from Alibaba Group and other investors.

A holiday turning point

China’s Lunar New Year in late January marked a turning point for AI investment. DeepSeek’s R1 model came out just before the holiday, while state media’s widely broadcast Spring Festival gala showcased dancing robots from Unitree.
“I think Unitree and DeepSeek encourage a lot of foreign investors to try to seek opportunities here,” said Hongye Wang, executive director at Shenzhen-based Forebright Capital, which has funds denominated in the U.S. dollar and Chinese yuan. He noted that some Middle East funds have recently been looking for opportunities in Chinese AI companies.
“I believe confidence [is] coming back,” he said of domestic VCs, noting many were traveling again for meetings.
Wang said his firm has invested in a company that makes cellphone chargers and AI glasses, and is looking for opportunities in humanoid robots, along with companies that provide solutions for computing reasoning. Forebright, which Wang says has several billion U.S. dollars in assets under management, plans to make at least five to six investments this year, he said.

Policy support

Importantly for a market that’s been hit by regulatory crackdowns, Beijing is signaling clear support.
“The fact that President Xi [Jinping in February] shook the hand of DeepSeek’s founder and pretty much gave the green light for generative AI to be used at scale, now you should expect a massive number of DeepSeek-like clones … that will be popping out and just disclosing what they have been doing over the past three years,” Zhavoronkov said.
Premier Li Qiang’s work report last week said China would work to “accelerate the development of venture capital investment and the growth of patient capital,” referring to long-term investment.
A day after Li presented that plan, Zheng Shanjie, head of the National Development and Reform Commission, told reporters the central government is planning a fund that’s expected to mobilize 1 trillion yuan ($137.7 billion) for tech investment. Central bank governor Pan Gongsheng announced at the same press conference that a loan program for tech innovation would nearly double to as much as 1 trillion yuan.
“From early stage investment to exit, policy is more complete and clearer,” Liu Rui, vice president of China Renaissance Capital, said in Mandarin, translated by CNBC.
He expects more resources to go toward AI applications this year, given the faster-than-expected decline in model operating costs and China’s large consumer base.
Tensions with the U.S. — ranging from tariffs to tech restrictions — remain a hurdle for international investors contemplating China AI opportunities, however.
Unlike U.S.-based companies that can access the global market, China-based ones will also likely find it harder to expand abroad given the sensitivities around AI and data, said Xuhui Shao, Palo Alto-based managing partner at Foothill Ventures. His firm focuses on the U.S. and doesn’t invest in China.
Even with the potential of China’s large market, foreign investors need to understand the risks of investing in China, such as restrictions on capital flow, Shao said. But he pointed out that “innovative breakthroughs” such as DeepSeek shouldn’t be a surprise given that China has many college-educated engineers and data scientists, who can represent half of the AI researchers at an industry conference.
“I think,” he said, “competition always pushes the whole sector [to move] forward and technology would not be contained by borders.” More

It seems like five minutes ago that America’s stockmarket was the only game in town. Prices were breaking records every other week; rivals around the world had been left behind. Now investors’ faith in the country’s exceptionalism has been shaken by a deteriorating outlook for economic growth and Donald Trump’s erratic protectionism (see chart 1). Indeed, on March 11th the president said that he would double new tariffs on Canadian aluminium and steel before reversing course. Investors are therefore less willing to pay far higher multiples of underlying earnings for shares in American firms than for those listed elsewhere, a decision that had been justified by fatter profit margins and stronger growth prospects. More

A trader works on the floor of the New York Stock Exchange at the opening bell on March 10, 2025.
Charly Triballeau | Afp | Getty Images

The majority of the stocks in the S&P 500 are already in correction territory as the sell-off on Wall Street continues to drag the benchmark closer to that key threshold.
As of Monday’s close, 366 S&P 500 components, or 73%, were trading 10% or more below their respective 52-week highs, which means they have already suffered a correction. A total of 203 components closed more than 20% below 52-week highs as of Monday, meaning they are in bear market territory.

The S&P 500 is in the red again Tuesday, sitting about 9% below its 52-week high reached on Feb. 19. The market decline accelerated over the past week as President Donald Trump’s aggressive tariffs stoke fears of slowing economic growth and even a recession.

Stock chart icon

Five out of 11 S&P 500 sectors are in correction territory: consumer discretionary, tech, communication services, materials and energy.
The biggest laggards in the S&P 500 include drugmaker Moderna and the highly volatile artificial intelligence play Super Micro Computer, which have fallen 79% and 69% from their record highs, respectively.First Solar, Intel, Enphase Energy, Dollar Tree, Estée Lauder and Tesla have all declined at least 50% from their recent peaks.

Arrows pointing outwards

Arrows pointing outwards

Arrows pointing outwards More

Net mainland Chinese purchases of Hong Kong stocks hit a record 29.62 billion Hong Kong dollars ($3.81 billion) on Monday, according to the Wind Information database.
That was the most since the Hong Kong stock market launched its “connect” program with the mainland, allowing local investors easier to access a select number of stocks traded offshore.
Hong Kong-traded shares of Alibaba and Tencent, both of which are not traded in mainland China, saw the largest net purchases, according to Wind data.

Hong Kong’s stock exchange reported its highest quarterly profit in nearly four years after China’s stimulus measures boosted trading and listing volume.
Bloomberg | Bloomberg | Getty Images

BEIJING — Mainland Chinese investors are piling into the Hong Kong stock market at record volumes as its tech-heavy Hang Seng Index trades around three-year highs.
Net mainland Chinese purchases of Hong Kong stocks hit a record 29.62 billion Hong Kong dollars ($3.81 billion) on Monday, according to the Wind Information database.

That was the most since the Hong Kong stock market launched its “connect” program with the mainland, allowing local investors easier access to a select number of stocks traded offshore. The Shanghai Connect launched in November 2014, while the Shenzhen Connect opened in December 2016.
The Hang Seng Index traded around 0.7% lower Tuesday morning following a sharp sell-off in U.S. stocks overnight on worries about the impact of tariffs on global growth.
Net buys via the Shanghai Connect reached nearly 18 billion HKD on Monday, while those from the Shenzhen Connect reached 11.63 billion HKD, the data showed.
Hong Kong-traded shares of Alibaba and Tencent, both of which are not traded in mainland China, saw the largest net purchases, according to Wind data.
China last week affirmed its pro-growth stance by emphasizing plans to support private sector tech innovation, and increasing its fiscal deficit to a rare 4% of gross domestic product — including an expanded consumer subsidies program.

Citi’s global macro strategy team on Monday upgraded its view on Chinese stocks — namely the Hang Seng China Enterprises Index — to overweight, while downgrading the U.S. to neutral.
“One key reason why we have not been focused on Chinese equities is tariff risk,” the analysts said.
“Abstracting from this issue, we believe the case for China tech was clear. A) DeepSeek proved that China tech is at the Western technological frontier (or beyond), despite the export controls. This was followed by the release of Tencent’s Hunyuan (an AI video generator) and Alibaba’s QwQ-32B,” they added.

‘Cheap and under-owned’ stocks

Chinese and foreign institutional investors started piling back into Chinese stocks after Beijing started announcing more forceful stimulus plans in late September. Chinese equities got another boost after the emergence of DeepSeek’s latest model in late January prompted a global tech sell-off. More major tech companies are traded in Hong Kong than in mainland China.
Manishi Raychaudhuri, CEO of Emmer Capital Partners, said investors could soon pour money back into emerging markets, particularly Asian emerging markets, once global stocks emerge from the current rut.
“I would say largely it would still be Greater China, which means largely Hong Kong, China. The stocks are cheap and under-owned,” Raychaudhuri told CNBC’s “Street Signs Asia” on Tuesday.
“We have seen some degree of consumption boost in the form of what the policymakers have been doing since January. It is not yet to the full extent that the market would like to have but at least it is a departure from the trend of many years,” he continued.
“So, right on top of my list, it would still be Hong Kong, China, the internet stocks, the large internet platforms and also some of the consumption-related names, mostly in athleisure, the restaurant stocks and other travel and tourism-related names,” Raychaudhuri said.
— CNBC’s Sam Meredith and Anniek Bao contributed to this report. More

Chinese Premier Li Qiang last week delivered an annual report on government work that named boosting consumption as the top task for the year ahead.
The state planner calls for efforts to “increase spending power” and encourage the development of products and scenarios that would encourage consumers to spend. But it’s not a call to support all kinds of shopping.
Economists have long called for a structural re-calibration of the income distribution system and policies seen necessary to stimulating domestic consumption in a meaningful way.

QINGDAO, CHINA – JANUARY 08: Customers browse at an electronics shop amid an ongoing nationwide trade-in subsidy program on January 8, 2025 in Qingdao, Shandong Province of China.  
Zhang Ying | Visual China Group | Getty Images

BEIJING — China’s latest move to boost consumption isn’t meant to jolt all kinds of spending.
Policymakers last week doubled subsidies for a consumer trade-in program to 300 billion yuan ($41.47 billion) this year, matching market expectations — and again steering clear of cash handouts. The subsidies will go toward around 15% to 20% of the purchase price for select products, including mid-range smartphones and home appliances.

That’s an expansion from last year’s 150 billion yuan program, announced in the summer, for a narrower range of products.
The new round of subsidies are “pretty substantial” and will likely support retail sales, similar to how e-commerce companies saw a sales boost in certain products late last year, Jacob Cooke, co-founder and CEO of WPIC Marketing + Technologies, told CNBC on Monday.
While there’s skepticism that the impact of a one-time subsidy won’t last long, Cooke said more subsidy programs will likely follow. He added that China’s “aggressive” 5% GDP growth target and prioritization of consumption indicate that Beijing will do more to support growth — without relying as much on the old playbook of infrastructure spending.

Chinese Premier Li Qiang last week delivered an annual report on government work that named boosting consumption as the top task for the year ahead.
That’s the first time in a decade that Beijing has given consumption such high priority, said Laura Wang, chief China equity strategist at Morgan Stanley. She added that the government work report cited “consumption” 27 times — the most mentions in a decade.

While Beijing has not followed the U.S. or other countries in handing out cash to consumers, Chinese policymakers have increasingly acknowledged the need to counter deflationary pressure at home.
China must focus more on domestic demand given the possibility of “new shocks” to overseas demand, Shen Danyang, head of the drafting group of the Government Work Report and director of the State Council Research Office, told reporters Wednesday in Mandarin, translated by CNBC.
China’s retail sales grew by 3.5% last year, a sharp slowdown from 7.2% growth the prior year. In a sign of a persistent drop in demand, China’s consumer price inflation in February fell below zero for the first time in over a year, according to official data released Sunday.
If prices are too low, it becomes difficult to incentivize businesses to invest and increase consumers’ income, Chen Changsheng, member of the drafting group of the Government Work Report and deputy director of the State Council Research Office, said at the same press conference on Wednesday.
He noted that the work report called for four tasks to address the depressed prices: expanding fiscal support, working to lift consumption, using regulation to prevent price wars and making a greater effort to stabilize real estate prices.
Real estate accounts for the majority of household wealth in China. A crackdown on property market leverage in 2020 spurred a slump that only started to turn around late last year — after a high-level policy call in September to halt the real estate sector’s decline.
Stabilizing real estate can have a significant effect on boosting consumption, similar to wealth effects from a rise in the stock market, said Meng Lei, China equity strategy analyst at UBS Securities, noting expectations that the mainland China A share market has become more strategically important.
Stocks have rallied after China’s stimulus announcements in recent months.
The 300 billion yuan for the subsidies comes from an increase in ultra-long special government bonds for 2025. China said last week it is raising its deficit to 4% as it pursues “proactive fiscal policy.”

NEW YORK, NY – SEPTEMBER 19: The Chinese flag flies outside the New York Stock Exchange during the initial price offering (IPO) for Alibaba Group on September 19, 2014 in New York City. The New York Times reported yesterday that Alibaba had raised $21.8 Billion in their initial public offering so far. 
Andrew Burton | Getty Images News 

Also helping sentiment are signs that Beijing appears to be turning more business friendly. Chinese President Xi Jinping held a rare meeting with entrepreneurs last month.
Once businesses are more confident, they can hire more and increase wages. The Chinese premier at the high-level meeting last week vowed more efforts to promote residents’ income growth and ease financial burdens for low-to-middle income groups.
The officials pledged more support for the care of the elderly, children and the broader healthcare system, steps seen critical to bolster the country’s safety net, allowing residents to feel comfortable spending more.
To a certain extent, these measures can help to reduce living costs and release potential consumption, said Pan Xiang, a macro foreign exchange analyst at Nanhua Futures.

Incremental pivot

Economists have long called for a structural re-calibration of the income distribution system and policies seen necessary to stimulating domestic consumption in a meaningful way.
The recent pledges signal that “the door [is] cracking open” yet still “very gradual movement of the leadership toward being comfortable with doing more direct support for consumption,” said Michael Hirson, a fellow at Asia Society Policy Institute’s Center for China Analysis.
“We’re not really there yet in terms of a very forceful push,” he added.
Before more support comes, an underdeveloped social safety net, a gloomy job market and low wages have spurred households to save rather than spend, Hirson said.
Household spending accounts for less than 40% of China’s GDP, significantly lower than the international average of roughly 60%, according to the Organization for Economic Co-operation and Development.

EVs, films, tourism

A look at an implementation plan, released Wednesday, from the National Development and Reform Commission reveals how China is thinking about boosting consumption.
The portion describing tasks for 2025 starts with an entire section on boosting consumption and investment. The report calls for efforts to “increase spending power” and encourage the development of products and scenarios that would encourage consumers to spend.
But it’s not a call to support all kinds of shopping.
Top of mind for policymakers is retail sales of “big-ticket items,” according to the report. China also said it would reduce restrictions on real estate transactions and automobile purchases.
Part of the plan includes developing the experience economy — immersive scenarios that combine film, video games, tourism and traditional Chinese culture — similar to the surge in tourists to historical sites associated with last year’s hit video game “Black Myth: Wukong.”

BEIJING, CHINA – JANUARY 15: People queue up in outside a Miniso store to buy co-branded goods featuring characters from the game ‘Black Myth: WuKong’ on January 15, 2025 in Beijing, China. Miniso and ‘Black Myth: WuKong’ launch co-branded products on January 15. 
Yi Haifei | China News Service | Getty Images

Chinese authorities also said they would improve “mechanisms for regular pay increases” along with the system for paid vacation days. Employees in China typically get fewer than 10 paid days off and several public holidays include days that must be made up by working for part of a weekend.
The report also discussed the continued plan for subsidizing consumer good trade-ins and upgrading equipment.
But two parts of the sub-section focused more on investment — developing talent, infrastructure and ecological projects — as well as building up “security capacity” in basic research for tech innovation and domestic food supplies.
China will soon release a more detailed plan for boosting consumption, Zheng Shanjie, head of the National Development and Reform Commission, told reporters Thursday.
Preliminary data indicates a sales boost from China’s initial 81 billion yuan in consumption subsidies announced in January, ahead of the this month’s parliamentary meeting.
Retail sales of new energy vehicles, for which buyers enjoy trade-in subsidies of up to 15,000 yuan, surged almost 80% to 686,000 units in February from a year earlier, data from China’s auto industry body showed on Monday.
Smartphone sales for the week of Jan. 20 to Jan. 26 surged by nearly 65% from the year-ago period to more than 9.5 million units, “and maintained a high level in the following weeks,” Counterpoint Research said in a late February report.
The analysis said subsidies are likely encouraging Chinese consumers to replace their smartphones earlier than planned, especially when artificial intelligence features are gaining prominence. The firm estimates the first-quarter subsidy to generate at least two to three points of additional growth this year in China’s smartphone sales. More

THE SELL-OFF shows no sign of stopping. America’s S&P 500 index dropped by another 3% on March 10th, leaving the world’s most watched stockmarket down by almost 9% since its peak last month. The NASDAQ, dominated by tech firms, has fallen by 13%. It is not quite the bold new era of American growth that President Donald Trump had in mind. More

President Donald Trump has pursued an economic agenda of broad tariffs on U.S. trading partners, including Canada, China and Mexico.
Tariffs aim to protect targeted domestic industries.
They end up costing U.S. jobs on a net basis, after accounting for retaliation and higher production costs for many businesses, economists said.

President Donald Trump addresses a joint session of Congress at the U.S. Capitol on March 4, 2025.
Mandel Ngan-Pool/Getty Images

President Donald Trump has spoken of tariffs as a job-creating behemoth.
Tariffs will “create jobs like we have never seen before,” Trump said Tuesday during a joint session of Congress.

Economists disagree.
In fact, the tariff policies Trump has pursued since taking office would likely have the opposite effect, they said.
“It costs American jobs,” said Mark Zandi, chief economist of Moody’s.
He categorized tariffs imposed broadly as a “lose-lose.”
“There are no winners here in the trade war we’re seemingly being engulfed in,” Zandi said. 

A barrage of tariffs

The Trump administration has announced a barrage of tariffs since Inauguration Day.
Trump has imposed an additional duty of 20% on all imports from China. He put 25% tariffs on imports from Canada and Mexico, the U.S.’ two biggest trade partners. (Just days after those took effect, the president delayed levies on some products for a month.)
Tariffs of 25% on steel and aluminum are set to take effect Wednesday, while duties on copper and lumber and reciprocal tariffs on all U.S. trade partners could be coming in the not-too-distant future.
There’s a deceptively simple logic to the protective power of such economic policy.
Tariffs generally aim to help U.S. companies compete more effectively with foreign competitors, by making it more expensive for companies to source products from overseas. U.S. products look more favorable, thereby lending support to domestic industry and jobs.

Workers pour molten steel at a machinery manufacturing company which produces for export in Hangzhou, in China’s eastern Zhejiang province on March 5, 2025.
AFP via Getty Images

There’s some evidence of such benefits for targeted industries.
For example, steel tariffs during Trump’s first term reduced imports of steel from other nations by 24%, on average, over 2018 to 2021, according to a 2023 report by the U.S. International Trade Commission. They also raised U.S. steel prices and domestic production by about 2% each, the report said.
New steel tariffs set to take effect March 12 would also “likely boost” steel prices, Shannon O’Neil and Julia Huesa, researchers at the Council on Foreign Relations, wrote in February.
Higher prices would likely benefit U.S. producers and add jobs to the steel industry’s current headcount, around 140,000, they said.

Tariffs have ‘collateral damage’

While tariffs’ protection may “relieve” struggling U.S. industries, it comes with a cost, Lydia Cox, an assistant economics professor at the University of Wisconsin-Madison and international trade expert, wrote in a 2022 paper.
Tariffs create higher input costs for other industries, making them “vulnerable” to foreign competition, Cox wrote.
These spillover effects hurt other sectors of the economy, ultimately costing jobs, economists said.  
Take steel, for example.
Steel tariffs raise production costs for the manufacturing sector and other steel-intensive U.S. industries, like automobiles, farming machinery, household appliances, construction and oil drilling, O’Neil and Huesa wrote.

Cox studied the effects of steel tariffs imposed by former president George W. Bush in 2002-03, and found they were responsible for 168,000 fewer jobs per year in steel-using industries, on average — more jobs than there are in the entire steel sector.
Tariffs are a “pretty blunt instrument,” said Cox during a recent webinar for the Harvard Kennedy School.
They create “a lot of collateral damage,” she added.

Why tariffs are a ‘tax on exports’

Trucks head to the Ambassador Bridge between Windsor, Canada and Detroit, Michigan on March 4, 2025.
Bill Pugliano | Getty Images

Such damage includes retaliatory tariffs imposed by other nations, which make it pricier for U.S.-based exporters to sell their goods abroad, economists said.
Tariffs imposed during Trump’s first-term — on products like washing machines, steel and aluminum — hit $290 billion of U.S. imports with an average 24% tariff by August 2019, according to a 2020 paper published by the U.S. Federal Reserve. Those levies ultimately translated to a 2% tariff on all U.S. exports after accounting for foreign retaliation, it found.
“A tax on imports is effectively a tax on exports,” Erica York, senior economist at the Tax Foundation, wrote last year for the Cato Institute, a libertarian think tank.
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Damage to the U.S. economy from those first-term Trump tariffs “clearly” amounted to “many times” more than the wages of newly created jobs, economists Larry Summers, former Treasury secretary during the Clinton administration, and Phil Gramm, a former U.S. senator (R-Texas), wrote in a recent Wall Street Journal op-ed.
(President Joe Biden kept most of Trump’s tariffs in place.)
U.S. trade partners have already begun fighting back against Trump’s recent tranche of tariffs.
China put tariffs of up to 15% on many U.S. agricultural goods — which are the largest U.S. exports to China — starting Monday. Canada also put $21 billion of retaliatory tariffs on U.S. goods like orange juice, peanut butter, coffee, appliances, footwear, cosmetics, motorcycles and paper products.
President Trump alluded to the potential economic pain of his tariff policies during his address to Congress.
“There will be a little disturbance, but we are okay with that,” he said. “It won’t be much.”

While many economists don’t yet forecast a U.S. recession, Trump in a Fox News interview on Sunday didn’t rule out the possibility of a downturn as tariffs take effect — though he said the economy would benefit in the long term. If a recession were to happen, it would weigh on protected sectors, too, economists said.
Voters elected President Trump with a mandate to institute an economic agenda that includes tariffs, Kush Desai, a spokesperson for the White House, said in an e-mailed statement.
“Tariffs played a key role in the industrial ascent of the United States stretching back to the 1800s through William McKinley’s presidency,” Desai said.

‘Disappointing results’ of Trump-era tariff policies

There is a historical precedent for the trade war that’s breaking out: The Smoot-Hawley Tariff of 1930, which triggered a reduction in exports and failed to boost agricultural prices for the farmers it sought to protect, Michael Strain, director of economic policy studies at the American Enterprise Institute, a conservative think tank, wrote in a 2024 paper.
Economists also believe the Smoot-Hawley tariff exacerbated the Great Depression.
While a nearly century-old economic policy doesn’t necessarily point to what will happen in the modern era, protectionist policies from the post-2017 years have — like Smoot-Hawley — “had disappointing results,” Strain wrote.
Evidence from recent years suggests protectionism may actually hurt the workers it seeks to help, Strain said.

For example, Trump’s first-term tariffs reduced total manufacturing employment by a net 2.7%, Aaron Flaaen and Justin Pierce, economists at the Federal Reserve Board, wrote in 2024. That’s after accounting for a 0.4% boost to employment in manufacturing jobs protected by tariffs, they found.
The 2018-19 trade war “failed to revive domestic manufacturing” and actually reduced jobs in the broad manufacturing sector, Strain wrote.
The share of U.S. employment coming from manufacturing jobs has been falling since the end of World War II, largely because technological advances have increased workers’ productivity, Strain said. It would be more helpful to direct economic policy toward connecting workers to jobs of the future, he said.
“Trade — like technological advances — is disruptive, but attempts to entomb the U.S. economy in amber are not a helpful response,” he wrote. More