United States and China tariff trajectory through 2026: Section 301, the April reciprocal framework, and the Phase One legacy

The Section 301 stack: from 2018 lists to the 2024 statutory review #

The Section 301 architecture has been continuously in force since the USTR investigation report of March 22, 2018 and the four lists that followed. List 1 of 818 tariff lines covering 34 billion US dollars went into effect July 6, 2018 at 25 percent. List 2 of 279 lines covering 16 billion followed on August 23, 2018 at 25 percent. List 3 of 5,745 lines covering 200 billion entered force September 24, 2018 at 10 percent and stepped to 25 percent on May 10, 2019. List 4A covering 120 billion of consumer goods went live September 1, 2019 at 15 percent, was reduced to 7.5 percent under the Phase One agreement of January 15, 2020, and List 4B was suspended. Cumulative duty exposure on Chinese imports reached an effective rate near 19 percent on covered tonnage by 2023 per the USITC Investigation 332 to 591 report.

On May 14, 2024 USTR Ambassador Katherine Tai released the statutory four year review under Section 307 of the Trade Act of 1974 and announced rate increases on 14 product categories covering about 18 billion US dollars of trade. Electric vehicles moved from 25 to 100 percent. Lithium ion EV batteries moved from 7.5 to 25 percent, with non EV batteries phasing in to 2026. Semiconductors moved from 25 to 50 percent (phase in January 1, 2025). Solar cells moved from 25 to 50 percent. Steel and aluminum products moved up to 25 percent. Syringes and needles moved from 0 to 50 percent. Ship to shore cranes moved from 0 to 25 percent. Duties on natural graphite and permanent magnets take effect in 2026. The Federal Register notice of September 13, 2024 finalized these increases.

April 2, April 9, May 12: the reciprocal framework and the snapback #

Executive Order 14257 of April 2, 2025 declared a national emergency under the International Emergency Economic Powers Act and imposed a baseline 10 percent reciprocal tariff on substantially all imports plus country specific rates calibrated to bilateral trade deficits. The China specific rate started at 34 percent, layered on the existing Section 301 stack and the Section 232 steel and aluminum duties. After Beijing announced a matching 34 percent duty on April 4, the United States raised the China rate to 84 percent on April 9 and to 125 percent later that day, with separate fentanyl related IEEPA tariffs of 20 percent in force from earlier 2025 actions taking the headline stack on many lines above 145 percent. The same April 9 order paused country specific rates for 90 days for partners that did not retaliate, leaving the universal 10 percent baseline in place and concentrating escalation on China.

The Geneva framework of May 12, 2025 between USTR Ambassador Greer, Treasury Secretary Bessent, and Vice Premier He Lifeng cut the China reciprocal rate from 125 to 10 percent for an initial 90 day window and Beijing matched. The London framework of June 2025 normalized rare earth licensing and student visa items. The November 2025 announcement extended the truce by another year, holding the reciprocal rate at 10 percent through November 2026 conditional on Phase One purchase progress and rare earth license throughput. The fentanyl tariff was halved to 10 percent. Cumulative effective rate on Chinese imports stabilized near 38 to 42 percent on covered lines, the highest sustained level since the Smoot Hawley schedule. The Court of International Trade ruling of May 28, 2025 in V.O.S. Selections v. United States questioned the IEEPA basis for the reciprocal tariffs and was stayed pending Federal Circuit review.

Phase One audit: the 200 billion dollar purchase target and what actually happened #

The Economic and Trade Agreement Between the United States and the People's Republic of China signed January 15, 2020 committed China to expand purchases of United States goods and services by no less than 200 billion US dollars above the 2017 baseline across calendar 2020 and 2021, allocated across manufactured goods (77.7 billion incremental over two years), agricultural products (32 billion), energy (52.4 billion), and services (37.9 billion). The Peterson Institute Phase One tracker recorded actual Chinese purchases of US covered goods at roughly 58 percent of the implied two year target at peak run rate, with full year 2020 at 58 percent of pro rata and full year 2021 at 57 percent. Energy was the largest gap. Agricultural purchases ran closer to target as soybeans, sorghum, cotton, and pork rebounded.

The November 2025 truce reactivated a Phase One like commitment with annual purchase floors on US soybeans, corn, sorghum, liquefied natural gas, and Boeing aircraft. China General Administration of Customs data showed US share of soybean imports at 19 percent for 2024 against a 2017 baseline above 30 percent, with Brazil above 70 percent. USDA Foreign Agricultural Service data show US soybean exports to China at 22.8 million tonnes in marketing year 2023 to 2024 against the 2016 to 2017 peak of 36 million. Boeing 737 MAX deliveries to Chinese carriers resumed in 2025 after the 2019 grounding and 2024 quality holds, with a backlog of more than 100 frames exposed to the next escalation cycle.

China retaliation and the rare earth lever #

Beijing matched April 2025 escalation with reciprocal duties reaching 125 percent on US goods, Ministry of Commerce export controls on heavy rare earth elements (samarium, gadolinium, terbium, dysprosium, lutetium, scandium, yttrium) effective April 4, 2025, antitrust investigations against Nvidia and Google opened February 2025, and entity list additions of US firms including PVH Corporation, Illumina, and defense suppliers. China General Administration of Customs data show US share of Chinese imports at 6.3 percent for 2024 against an EU share above 11 percent and ASEAN above 14 percent, the lowest US share since the early 2000s. Retaliatory duties on US soybeans, pork, and beef (10 percent each) and sorghum held through 2025 and partially rolled back under the November truce.

The rare earth licensing system is the operative lever. China accounts for roughly 70 percent of global rare earth mining and 90 percent of separation and refining capacity per the US Geological Survey Mineral Commodity Summaries January 2025 and the International Energy Agency Critical Minerals Outlook 2024. The April 4, 2025 export control regime requires individual export licenses for the seven heavy rare earth elements and their alloys, magnets, and oxides. Licensing throughput in May and June 2025 ran below historical run rates, triggering supply alerts at Tesla, General Motors, Ford, Lockheed Martin, and Raytheon. The London framework of June 2025 normalized throughput to a faster but discretionary pace, and the November truce committed Beijing to cycle times consistent with 2024 averages. Every escalation step gives Beijing a calibrated chokehold the United States cannot replace before 2028 given MP Materials and Department of Defense Industrial Base Policy timelines.

Pass through, transshipment, and the USMCA review interaction #

Pass through of Section 301 duties to United States buyers has been the consistent finding of academic and Federal Reserve work. The Amiti, Redding, Weinstein NBER series and the Cavallo, Gopinath, Neiman, Tang customs microdata work both estimated near complete pass through of the 2018 to 2019 List 1 to List 3 increases into US import prices at the dock, with 60 to 80 percent feeding into producer price indices. The BLS import price indices showed the 2018 List 3 ten percent increment lifting the China import price index by 2.0 percentage points within two quarters and the 2019 List 4A 15 percent increment by another 1.4. The April 2025 escalation lifted the China import price index by 6.7 percent in the May 2025 release before partially unwinding by August. The Tax Foundation estimated the 2025 tariff package at about 1,200 US dollars per household per year, and the CBO February 2025 baseline projected tariff revenues of 200 billion US dollars per year by 2027 if the reciprocal stack persists.

Transshipment rebuilt the supply geography. Vietnam goods exports to the United States rose from 47 billion US dollars in 2017 to 142 billion in 2024 (US Census Bureau). Mexico goods exports to the United States rose from 314 billion to 506 billion over the same period, with electronics, auto parts, and apparel the fastest growing chapters. CBP reported a 47 percent increase in Enforce and Protect Act allegations on China origin transshipment during fiscal 2024. The USMCA joint review window opens July 1, 2026 under Article 34.7 and is expected to tighten rules of origin for autos, steel, and aluminum and add China specific provisions on investment screening. The de minimis exemption was eliminated for China origin shipments on May 2, 2025 and across all origins on August 29, 2025, removing the under 800 US dollar duty free entry that carried roughly 1.4 billion shipments per year by 2024 per CBP.

2026 scenario tree: deal, freeze, escalate #

Three scenarios anchor the 2026 corridor. The deal scenario, at roughly 35 percent probability, has the November 2025 truce extended for a multi year window, the reciprocal rate held at 10 percent, Phase One like purchase floors hit at 70 to 80 percent compliance, rare earth licensing throughput normalized, and a USMCA review that holds existing rules of origin with a China specific investment screening overlay. The covered effective rate stabilizes near 38 to 42 percent, US goods imports from China recover to 460 to 480 billion US dollars, and bilateral capital flows partially unfreeze. The freeze scenario, at 45 percent probability, holds the truce in nominal force but with steady friction: rare earth license cycle times slip, the Court of International Trade ruling forces an alternate Section 122 or Section 232 architecture for the reciprocal rates, and the November 2026 review renegotiates on terms unfavorable to Beijing, with the headline rate at 38 to 42 percent and case by case escalations on cranes, batteries, and biotech inputs.

The escalate scenario, at 20 percent probability, has the truce break in mid 2026 over a Taiwan, Phase One compliance, or rare earth trigger, the China reciprocal rate snap back to 84 or 125 percent, Beijing widening restrictions to include light rare earths, gallium, germanium, and antimony, antitrust escalation against Apple, Tesla, and Qualcomm, and a US response broadening the entity list and the BIS AI Diffusion framework into a tightened version of the October 7, 2022 and October 17, 2023 advanced node controls. Bilateral goods trade falls below 380 billion US dollars on a calendar 2026 run rate. Buyers should model the freeze case as base, the deal case as upside, and the escalate case as stress test. The most important operational signal through 2026 is rare earth license throughput: every step down in monthly Ministry of Commerce approvals raises the marginal probability of escalation.

Sources #

• USTR, Four Year Review of Actions Taken in the Section 301 Investigation, May 14, 2024
• USTR Federal Register notice on Section 301 modifications, September 13, 2024
• Executive Order 14257, Regulating Imports With a Reciprocal Tariff to Rectify Trade Practices, April 2, 2025
• US Department of the Treasury, Joint Statement on US China Economic and Trade Meeting in Geneva, May 12, 2025
• US Census Bureau, FT-900 US International Trade in Goods and Services, monthly release
• USITC DataWeb, Harmonized Tariff Schedule trade and tariff query system
• China General Administration of Customs, Statistical Bulletin 2024
• Peterson Institute for International Economics, US China Phase One Tracker
• Peterson Institute for International Economics, US China Trade War Tariffs chart pack
• Tax Foundation, Tariff Tracker for the Trump Administration
• Congressional Budget Office, Budget and Economic Outlook 2025 to 2035
• Bureau of Labor Statistics, US Import and Export Price Indexes
• Bureau of Industry and Security, Advanced Computing and Semiconductor Manufacturing Item Controls
• USDA Foreign Agricultural Service, Production, Supply and Distribution database
• US Geological Survey, Mineral Commodity Summaries 2025, Rare Earths chapter
• International Energy Agency, Global Critical Minerals Outlook 2024
• US Customs and Border Protection, Enforce and Protect Act enforcement reports
• United States Court of International Trade, V.O.S. Selections Inc. v. United States, May 28, 2025