Tariffs Eased. Trust Didn't. The Real Barriers to U.S.-China Trade
Lower duties revived some talks, but branding and data security remain bigger obstacles
Photo by Vandan Patel on Unsplash
Chinese exporters in Suzhou say reduced tariffs reopened U.S. retail conversations, but regulatory uncertainty and data compliance remain tougher hurdles…
The Tariff Landscape Shifted. The Relationship Didn't.
After a wild escalation in early 2025 that briefly pushed combined tariff rates above 145%, the U.S. and China reached a bilateral agreement in Geneva that brought duties down to more manageable levels. The general combined tariff rate on Chinese imports now sits around 30% above most favored nation rates for the majority of product categories, down from peak levels that had effectively priced many exporters out of the American market.
For executives in Suzhou and other export hubs along China's eastern coast, the reduction meant something tangible: phone calls getting returned, meetings getting scheduled, pilot orders getting discussed. But as CNBC's China Connection newsletter notes, lower tariffs helped revive talks with U.S. retailers without resolving the underlying trust deficit. Branding and data security remained bigger hurdles than tariffs.
This is the disconnect that matters for anyone trying to handicap the trade relationship over the next 12 months. The policy mechanism has loosened. The commercial relationship hasn't kept pace.
The Legal Uncertainty Overhang
The tariff regime itself remains contested territory. In February 2026, the Supreme Court struck down IEEPA tariffs, ruling that the President cannot use the International Emergency Economic Powers Act to impose duties. The administration quickly pivoted to Section 122 authority, imposing a 10% global tariff effective February 24, citing balance of payments deficits.
That workaround is now also under legal challenge. On May 7, a divided Court of International Trade panel held that the Section 122 tariffs were unlawful, concluding that the statute's narrow authority applies only to addressing genuine balance of payments crises rather than ordinary trade deficits. The court ordered refunds for the named plaintiffs but declined to issue nationwide relief, leaving the tariffs in place while the administration appeals.
For Chinese manufacturers weighing capital allocation and for U.S. retailers considering sourcing shifts, this legal ambiguity is itself a form of tariff. You can't price a contract confidently when you don't know whether the duty regime will survive the next court ruling. The Section 301 tariffs from the original 2018 investigation remain on firmer legal footing, with USTR initiating its second statutory four-year review in early May. But even those face potential modification.
Why Data Security Trumps Duties
The executives in Suzhou aren't wrong to focus on data security as the harder problem. Tariffs are quantifiable. You can model them, hedge them, build them into your landed cost calculation. Data compliance requirements are murkier, more jurisdictionally complex, and carry reputational risks that tariffs don't.
Consider the position of a mid-sized Chinese consumer electronics manufacturer trying to sell through a U.S. retail channel. The tariff burden is knowable. The question of whether your cloud architecture, your firmware update processes, or your logistics tracking systems create exposure under evolving U.S. data security regulations is not knowable in the same way. The cost of getting it wrong isn't a 30% duty. It's being frozen out of the market entirely.
This is where the trust deficit becomes a structural feature rather than a cyclical one. Tariffs can be negotiated down. Suspicion about data practices, about dual-use technology, about supply chain opacity requires a different kind of remediation. It requires transparency that many Chinese firms are either unable or unwilling to provide, and it requires U.S. regulatory clarity that doesn't yet exist.
Branding as a Competitive Moat
The branding challenge is related but distinct. Chinese manufacturers have historically competed on cost. When your cost advantage gets squeezed by 30% tariffs, you need to compete on something else. Brand equity is the obvious lever, but building it takes time, capital, and market access.
Some firms are attempting the transition. Others are routing through third countries in ways that may trigger future enforcement actions. The Department of Justice signaled that 2026 would be a year of tariff enforcement rather than tariff policy, suggesting that transshipment schemes and country-of-origin workarounds face increased scrutiny.
The broader pattern here echoes the supply chain reconfiguration that began during the first Trump administration and accelerated during the pandemic. Companies aren't just responding to tariff levels. They're responding to tariff volatility and to the perception that the U.S.-China trade relationship is structurally adversarial. That perception persists regardless of where the nominal duty rate lands in any given quarter.
What the Curve Is Telling Us
From a macro perspective, the trade relationship remains one input among many. Credit spreads haven't widened materially on trade concerns. The equity market seems to have largely priced in a permanent tariff premium on Chinese exposure. The more interesting signal may be in how companies are discussing supply chain diversification on earnings calls, which continues to trend toward "China plus one" or "China plus two" strategies.
The analogous period isn't the 2018-2019 trade war, when markets swung on every tweet. It's more like the post-2019 normalization, when companies stopped waiting for a grand bargain and started building redundancy into their supply chains. That's expensive and inefficient from a pure cost standpoint, but it's rational when you can't trust the policy environment to remain stable.
For sector allocation, this favors companies with either zero China exposure or such deep China exposure that they've already built the compliance infrastructure. The middle ground, firms with meaningful but not dominant China sourcing, faces the highest uncertainty premium.
What Changes the Setup
Watch for two things over the next month. First, how the administration responds to the CIT ruling on Section 122. An aggressive appeal would signal continued commitment to the tariff architecture. A pivot toward negotiated exemptions or sector deals would suggest a different posture.
Second, watch the USTR's Section 301 review process. Requests for continuation of the original 2018 tariffs are due in late June and early July. The distribution of those requests, which sectors push for continuation versus which seek relief, will reveal where the domestic political economy on China trade actually sits.
The headline narrative remains that tariffs eased. The market reality is that the regulatory and reputational barriers facing Chinese exporters haven't eased at all. Until that changes, or until Chinese manufacturers successfully transition to serving other markets, the trade relationship remains structurally impaired regardless of the nominal duty rate. The tariff is the visible cost. The trust deficit is the hidden one, and it may be larger.
For informational purposes only. Not investment advice. Published Tuesday, May 26, 2026.