US eyes China overcapacity tariffs of 7.5% before Xi-Trump talks

WASHINGTON – The US is set to impose a 7.5 per cent tariff on Chinese goods over allegations of excess manufacturing capacity before a planned summit between Chinese President Xi Jinping and US President Donald Trump in September, according to sources familiar with the matter. 

The move would restore Trump’s second-term duties on China to around 20 per cent, a level Beijing has previously said is consistent with its trade truce with Washington. Those come on top of other levies imposed during Trump’s first term and extended during the Biden administration.

It would mark the latest step by Trump to resurrect his protectionist trade agenda after the Supreme Court struck down his previous import taxes on products from China and dozens of other economies, while stopping short of escalating the trade conflict with Beijing beyond the agreed-upon threshold.

Exact rates have yet to be finalised, said the sources, who spoke on condition of anonymity.

Trump is also known to make last-minute demands or changes to trade announcements. One option under consideration is announcing a higher duty rate for China but suspending part of it to reduce the effective rate to 7.5 per cent, a source familiar with the deliberations said.

The details of what rates would be suspended and for how long are still under negotiation, the sources added. Beijing and Washington are also looking to extend their so-called trade pact, which established a one-year truce that is set to expire on Nov 10, they said.

In March, the Trump administration launched an investigation into more than a dozen major trading partners under Section 301 of the Trade Act of 1974 over excess capacity concerns. It was one of two probes that the President’s team used to replace his prior tariffs with more durable ones.

September summit

Administration officials hope to publish the results of the excess capacity inquiry before Trump and Xi are due to meet in Washington on Sept 24. The details of the overcapacity report have proven legally challenging, according to sources familiar with the matter.

US Trade Representative Jamieson Greer told Bloomberg Television in July that the excess capacity investigation would take longer than another on forced labour because of its complexity and that the delay had nothing to do with efforts to maintain the truce with Beijing.

Asked about the tariff plans, a White House official said any announcements will come directly from the administration and that any reporting or discussion of them should be considered baseless speculation. The Office of the US Trade Representative did not immediately respond to a request for comment. China’s Ministry of Commerce did not respond to a fax for comment.

The Trump administration’s approach to China, its foremost geopolitical rival, stands in stark contrast to its stance towards some of the US’ biggest traditional allies.

While the President has been keen not to upset his tariff truce with China, his administration applied a 50 per cent levy on billions of dollars of Canadian products and has mused about tearing up the North American trade agreement he renegotiated during his first term.

Trump is rebuilding a tariff wall that was struck down when the Supreme Court in February ruled that his global levies, issued under the International Emergency Economic Powers Act, violated the US Constitution. The President’s temporary 10 per cent global tariffs expired in July and were also deemed illegal by a trade court. 

The administration is justifying its new global duties under the findings of its investigations into forced labour and industrial overcapacity in the economies of dozens of trading partners.

As part of that campaign, the administration in July imposed a 12.5 per cent tariff on Chinese goods, citing inadequate efforts to address forced labour practices.

While Beijing criticised the move, it stopped short of announcing retaliatory measures, instead saying Washington had agreed to cap any additional duties on Chinese exports at 20 per cent. That clarified earlier comments that referenced tariff ceilings discussed during trade talks in 2025. 

Malaysia deal

“We hope that the US will honour its commitments, ensuring that regardless of the reasons given for imposing or replacing tariffs on China in the future, US tariffs on China will not exceed the levels outlined in the Kuala Lumpur trade consultations,” China’s Ministry of Commerce said in a May statement. 

Section 301 allows the US Trade Representative, under the direction of the President, to impose tariffs in response to other nations’ trade measures that it deems discriminatory to American businesses or in violation of US rights under international trade agreements. But efforts to implement the levies have already come up against legal challenges. 

A coalition of 25 states, including New York, California and Illinois, filed a lawsuit earlier in August at the US Court of International Trade, adding to similar proceedings by small businesses that claim the levies are illegal. The states allege Trump unlawfully invoked Section 301 to replace tariffs struck down by the Supreme Court, using the forced-labour rationale as a pretext. 

The administration has said the duties under Section 301 are legally sound and that the provision has been supported by previous court rulings. BLOOMBERG