China Galaxy Securities: What do you think of the new US 301 tariffs?

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that the new 301 tariff is not a uniform tax rate, but is divided into 3 levels. According to the bank's estimates, after replacing the 10% clause 122 tariff with the 12.5% 301 tariff, the overall weighted tax rate of the US on mainland Chinese goods will rise from about 23.2% to about 24.4%, an increase of about 1.2 percentage points, and the tariff level will be slightly raised, but considering previous market concerns about the tougher plan, this result was actually slightly better than expected.

The main views of China Galaxy Securities are as follows:

Incident: The Office of the United States Trade Representative issued a notice on the 23rd announcing the imposition of 10% to 12.5% tariffs on dozens of countries and regions under section 301 of the 1974 Trade Act in the name of so-called “forced labor” to replace the expiring global import tariffs. The bank's interpretation of this is as follows:

1. The US 301 tariff is seamlessly connected to the 10% temporary tariff

In February of this year, the US Supreme Court ruled that large-scale “equal tariffs” levied by the Trump administration under the International Emergency Economic Powers Act (IEEPA) were unconstitutional. Trump immediately enacted section 122 of the 1974 Trade Act to uniformly levy a 10% temporary import surtax on all countries around the world, which is valid for 150 days. Clause 122 is essentially a transitional tool. The legal time limit is clear and cannot be extended indefinitely. Therefore, on March 12, the Office of the United States Trade Representative (USTR) began a 301 investigation against 60 major trading partners on the grounds that “a ban on the import of forced labor has not been established and effectively enforced.” The survey was announced on June 2 and found that all 60 economies were found to be “unqualified” and constituted a burden or restriction on US business. A public hearing was held from July 7 to 9, and the final announcement was made on July 23. The new tariffs came into effect at 0:01 EST on July 24, and are seamlessly connected with the Section 122 tariff which expires on the same day. It can be seen that the whole process is fast-paced and the chain is clear: the names of the laws are changing, but the intention of imposing additional tariffs has never actually left.

2. After the new 301 tariffs, the latest US tariffs on mainland China were slightly revised to 24.4%

The new 301 tariff is not a uniform tax rate, but is divided into 3 levels: the first tier is 10%, with 17 countries, including Argentina, Canada, Mexico, etc.; the second tier is 10% or 12.5% (excluding the most-favoured-nation tax rate), including the European Union, Taiwan, Japan, South Korea, and Switzerland; and the third tier is 12.5%, for countries or regions other than the above economies among the 60 major trading partners, including mainland China and Vietnam. According to the bank's estimates, after replacing the 10% clause 122 tariff with the 12.5% 301 tariff, the overall weighted tax rate of the US on mainland Chinese goods will rise from about 23.2% to about 24.4%, an increase of about 1.2 percentage points, and the tariff level will be slightly raised, but considering previous market concerns about the tougher plan, this result was actually slightly better than expected. However, there are still three things worth noting in this line's tips:

First, structural differentiation. Judging from the negotiation signals released so far, the 30 billion US dollar equal tax reduction framework mainly focuses on the “non-strategic consumer goods” sector — that is, categories that are highly dependent on manufacturing in mainland China and are not sensitive to national security (such as some light industrial consumer goods, household goods, etc.), which are expected to receive tariff cuts; while categories such as electronics, machinery and equipment are facing incremental tariffs of 12.5%. The final degree of differentiation of export commodities depends on the coverage and pace of implementation of the tax reduction list.

Second, transit routes are blocked. Southeast Asian countries that previously undertook the transfer of production capacity from China, such as Vietnam and Thailand, are also included in the 12.5% tax rate level, which means that the strategic space for enterprises to “use Southeast Asia” to avoid tariffs has been drastically reduced in the past few years.

Third, compounding risk. Subsequent US investigations on “structural overcapacity” of 16 trading countries have yet to be implemented. If the two tariffs are combined after implementation, the actual tax rate faced by mainland China may rise significantly.

3. What are the future US tariff threats?

In addition to the 301 “forced labor” tariff, which came into effect on July 24, the US still has at least three tariff fronts underway: First, the “structural overcapacity” 301 investigation. The relevant results of the investigation launched by USTR against 16 economies including mainland China are expected to be announced within a few weeks. If implemented, additional tariffs may be imposed in combination, which is regarded as the “second boot” hanging over mainland Chinese exporters; second, section 232 has been expanded. The Trump administration has extended 232 national security investigations to fields such as semiconductors and pharmaceuticals based on steel, aluminum, and automobiles. Trump announced on July 21 that a 100% tariff on generic drugs will be imposed after two years, then raised to 200% after the one-year term expires; third, section 338. The US side announced on July 20 that it will impose 50% tariffs on hundreds of specific goods imported from Canada in accordance with section 338 of the 1930 “Smoot-Hawley Tariff Act”. This provision, which has not been changed for nearly 100 years, has been activated, which means that the US has obtained a flexible tool that can quickly impose tariffs on a single country, and the scope and target of subsequent use is worth being wary of.

IV. Follow the progress of trade negotiations between China and Europe

Currently, trade frictions between China and Europe are escalating at an accelerated pace, and the risk that the negotiation mechanism will idle is rising. On June 29, the first ministerial meeting of the EU-China trade and investment consultation mechanism set up a framework for the four working sectors of trade and investment balance, export control, intellectual property rights, and WTO reform, and set another ministerial meeting in the fall of 2026, but the attitude of negotiations did not stop the pace of friction — negotiations on electric vehicle price commitments stalled, countervailing duties extended to mixed models, steel duty-free quotas were cut in half and 50% tariffs imposed. On the one hand, the root cause of the European side's “fight while talking” lies in structural contradictions: it is neither able to withstand a 360 billion euro deficit with China (2025), nor is it willing to compromise on high-tech export controls. During the negotiations, the European side repeatedly asked the Chinese side to respond to concerns such as the supply of rare earths, but there was little response to cases where China's imports from Europe were blocked. On the other hand, China has maintained relative restraint, reserving sufficient windows for negotiations. Potential countermeasures cover key raw materials such as rare earths and refined copper, as well as legal tools such as blocking measures. Overall, trade negotiations between China and Europe are a key gripper for China to promote an upward balance in trade. If China can spread risks by deepening economic and trade ties between China and Europe, and use incremental space for European cooperation to hedge against the existing pressure on trade with the US, then US tariff leverage will no longer be a tool for one-way pressure.

Following the progress of trade negotiations between China and Europe, EU Trade Commissioner Shevchovic focused on two aspects before visiting China in October: whether the price promise for electric vehicles can be broken, and whether the 70% localization threshold in the EU's “Industrial Accelerator Act” is implemented — this will determine whether trade between China and Europe will move towards regulatory differences or full-scale friction.

Risk warning: 1. Risk of tariff negotiations falling short of expectations; 2. Risk of inadequate understanding of relevant policies; 3. The risk of a global trade war intensifying.