China's declaration last week suggested a weariness with the cycle of tariff hikes, with officials stating that any further increases by the U.S. would be considered a "joke" and would be "ignored." This announcement came after several rounds of tit-for-tat measures that saw the Trump administration significantly increase U.S. levies on select Chinese goods by up to 245%. Prior to this, China had imposed additional duties on imports from the U.S. of up to 125%.
However, instead of continuing down the path of escalating tariffs on goods, China has strategically shifted its focus towards other measures designed to exert pressure on the United States. This new approach includes targeting the American services sector, where the U.S. has historically enjoyed a trade surplus with China.
While the Trump administration has largely remained focused on implementing and threatening further tariffs, Beijing has been quietly rolling out a series of non-tariff restrictive measures. These include widening export controls on critical rare-earth minerals, which are essential for various high-tech industries, and initiating antitrust probes into prominent American companies operating in China, such as pharmaceutical giant DuPont and IT major Google.
Prior to this latest escalation, in February, Beijing had already taken steps to create a potential blacklist of U.S. businesses. Dozens of American firms were added to a so-called “unreliable entity” list, a designation that could lead to restrictions or outright bans on these firms trading with or investing in China. Notable American companies such as PVH, the parent company of fashion brand Tommy Hilfiger, and Illumina, a leading provider of gene-sequencing equipment, were among those included on this list, signaling a potential chilling effect on their operations within China.
Furthermore, China is tightening its grip on the export of critical mineral elements. This move will require Chinese companies to obtain special licenses for exporting these resources, effectively restricting U.S. access to key minerals vital for the production of semiconductors, missile-defense systems, and solar cells. This strategic control over essential resources gives Beijing significant leverage in the ongoing trade dispute.
In its most recent and perhaps most impactful move, announced on Tuesday, Beijing directly targeted Boeing, America’s largest exporter. According to reports from Bloomberg, Chinese authorities have instructed Chinese airlines to halt any further deliveries of Boeing aircraft and have requested carriers to cease all purchases of aircraft-related equipment and parts from U.S. companies. This decision comes at a particularly challenging time for the cash-strapped plane maker, which is already grappling with a persistent quality-control crisis. The loss of deliveries to the massive Chinese market will undoubtedly exacerbate Boeing's financial woes.
Adding another layer to the growing hostilities, Chinese police have issued notices for the apprehension of three individuals they allege were involved in cyberattacks against China on behalf of the U.S. National Security Agency. Chinese state media, which publicized the notice, has also urged domestic users and companies to avoid using American technology and to instead opt for domestically produced alternatives, further fueling concerns about technological decoupling.
Wendy Cutler, vice president at the Asia Society Policy Institute, commented on China's evolving strategy, stating, “Beijing is clearly signaling to Washington that two can play in this retaliation game and that it has many levers to pull, all creating different levels of pain for U.S. companies.” She further added, “With high tariffs and other restrictions in place, the decoupling of the two economies is at full steam.”
One of the key areas of focus for China appears to be targeting trade in services. This sector, which encompasses a wide range of activities including travel, legal, consulting, and financial services, has been a significant source of trade surplus for the United States in its economic relationship with China for many years.
Earlier this month, a social media account linked to China’s state news agency Xinhua suggested that Beijing might impose restrictions on U.S. legal consultancy firms operating in China. Additionally, it hinted at the possibility of launching an investigation into the China operations of U.S. companies, alleging that they have gained substantial “monopoly benefits” from intellectual-property rights.
Nomura estimates indicate the significant growth of U.S. services exports to China, surging more than tenfold to $55 billion in 2024 over the past two decades. This growth has driven the U.S. services trade surplus with China to a substantial $32 billion last year, making it a prime target for Beijing's retaliatory measures.
Last week, China also signaled its intent to put pressure on the U.S. entertainment, tourism, and education sectors. The country announced it would reduce imports of U.S. films and issued warnings to its citizens against traveling or studying in the United States, citing safety concerns and other issues.
Jing Qian, managing director at the Center for China Analysis, noted the strategic nature of these measures, stating, “These measures target high-visibility sectors — aviation, media, and education — that resonate politically in the U.S.” While acknowledging that the immediate dollar impact of these actions might be relatively low due to the smaller scale of these specific sectors compared to goods trade, Qian pointed out that the “reputational effects — such as fewer Chinese students or more cautious Chinese employees — could ripple through academia and the tech talent ecosystem.” Nomura estimates that a significant increase in restrictions on travel to the U.S. by Beijing could put as much as $24 billion at stake.
According to Nomura's analysis, travel constitutes the largest portion of U.S. services exports to China, primarily driven by the expenditure of millions of Chinese tourists visiting the U.S. Within the travel sector, education-related spending leads, accounting for an estimated 71%, mainly comprising tuition fees and living expenses for the more than 270,000 Chinese students currently studying in the United States. In contrast, entertainment exports, including films, music, and television programs, represent a smaller 6% of U.S. exports within this sector, leading Nomura to suggest that Beijing’s recent move on film imports carries more symbolic weight than substantial economic impact.
Qian further emphasized the broader implications of these developments, stating, “We could see deeper decoupling — not only in supply chains, but in people-to-people ties, knowledge exchange, and regulatory frameworks. This may signal a shift from transactional tension to systemic divergence.”
Looking ahead, analysts largely anticipate that Beijing will continue to deploy its arsenal of non-tariff policy tools as it seeks to increase its leverage in any potential future negotiations with the Trump administration. Gabriel Wildau, managing director at risk advisory firm Teneo, believes that “from the Chinese government’s perspective, the U.S. companies’ operations in China are the biggest remaining target for inflicting pain on the U.S. side.” He suggests that companies like Apple, Tesla, and those in the pharmaceutical and medical device industries could be targeted through measures such as sanctions, regulatory harassment, and export controls.
While a future trade deal could potentially lead to the unwinding of some of these retaliatory measures, hopes for near-term talks between the leaders of the two nations are reportedly fading. Chinese officials have consistently condemned the “unilateral tariffs” imposed by Trump, labeling them as “bullying” tactics and vowing to “fight to the end.” Nevertheless, Beijing has maintained that it remains open to negotiations, but only if they are conducted on “an equal footing.”
On Tuesday, White House press secretary Karoline Leavitt indicated that President Trump is willing to reach a deal with China, but emphasized that Beijing needs to take the initial step.
Jianwei Xu, an economist at Natixis, offered a concluding thought on the potential path forward, stating, “In the end, only when a country experiences sufficient self-inflicted harm might it consider softening its stance and truly returning to the negotiation table.” This suggests that the current period of escalating tensions and strategic maneuvering may need to continue until one or both sides perceive a significant negative impact on their own economies.
In conclusion, the trade relationship between the United States and China appears to be entering a new phase, with Beijing strategically shifting its focus from direct tariff retaliation to a broader range of non-tariff measures targeting key sectors like services and critical industries. This evolving approach signals a potentially more complex and protracted period of economic tension between the two global powers, with significant implications for businesses and consumers on both sides.