In a swift response to the new US tariffs on Chinese goods, China has announced retaliatory measures, reigniting a trade war between the world's two largest economies.

On Tuesday, China's Ministry of Finance revealed that the country would impose tariffs on a range of US products, following the United States' decision to impose a 10% duty on all Chinese imports.

The US tariff, which went into effect at 12:01 a.m. ET on Tuesday (0501 GMT), is part of President Donald Trump's ongoing efforts to pressure China into curbing the flow of illicit drugs into the United States.

In retaliation, China unveiled plans to levy a 15% tariff on US coal and liquefied natural gas (LNG) imports, as well as a 10% tariff on crude oil, agricultural equipment, and some automobiles. These new tariffs are set to take effect on February 10, according to the Chinese Ministry of Finance.

Alongside the tariffs, China also launched an investigation into Google, citing concerns over anti-trust violations. The investigation is a direct challenge to one of the US' largest technology giants. Additionally, two major US companies, PVH Corp. (the parent company of brands like Calvin Klein) and biotechnology firm Illumina, were added to China's "unreliable entities list."

Furthermore, China's Ministry of Commerce and Customs Administration announced new export controls on critical rare earth materials, including tungsten, tellurium, and molybdenum, which are essential for the global clean energy transition. These materials are pivotal to numerous high-tech industries, and China controls a significant portion of the world's supply.

The renewed trade conflict comes after a period of tense negotiations between the two nations. In 2018, Trump initiated a brutal trade war with China over the country's massive trade surplus with the United States. Despite an agreement in 2020 for China to increase purchases of US goods, the deal was disrupted by the COVID-19 pandemic, and China's trade deficit widened to $361 billion in the most recent data.

The White House has stated that President Trump would not engage in talks with Chinese President Xi Jinping until later in the week, further deepening the impasse between the two superpowers. The tensions come as Trump intensifies his focus on stemming the flow of fentanyl, a potent opioid, from China to the United States.

"If China doesn't stop sending fentanyl, the tariffs are going to go substantially higher," Trump said during a press conference on Monday.

China has rejected the notion that it is responsible for the opioid crisis in the US, calling the drug issue an American problem. Beijing has vowed to challenge the tariffs at the World Trade Organization (WTO) and warned of additional countermeasures. Despite this, China has left the door open for further negotiations.

As the trade war escalates, analysts are forecasting a turbulent year for both economies. Oxford Economics has downgraded its growth forecast for China, warning that the trade conflict is likely to intensify, with further tariffs potentially on the horizon.

Meanwhile, in a separate development, Trump’s decision to delay the imposition of tariffs on Mexico and Canada has been welcomed by both countries, as well as global financial markets. Canada and Mexico agreed to bolster border enforcement efforts in exchange for a 30-day pause in the tariffs, averting a potential trade crisis in North America.

The US President has also hinted at imposing tariffs on the European Union (EU) in the future, although no timeline has been set. EU leaders have expressed their willingness to retaliate should such measures be taken.

As tensions mount between Washington and Beijing, the global economy braces for more volatility, with businesses and consumers facing an uncertain future as tariffs become a recurring tool in international diplomacy.

China’s countermeasures and global market reactions

The escalation of trade tensions has led to a decline in the offshore yuan, which dropped 0.3% to 7.3340 against the US dollar following the announcement of the new tariffs.

This was accompanied by a decline in other currencies, including the Australian and New Zealand dollars, which fell by at least 0.8% as the market adjusted to the new developments.

In Hong Kong, stock market gains were pared back as investors reacted to China's retaliatory measures. Gary Ng, senior economist at Natixis, pointed out that, unlike with Canada and Mexico, the US and China face fundamental disagreements on economic and political issues. "Even if the two countries can agree on some issues, tariffs could still be used as a recurrent tool, contributing to market volatility," Ng said.