China Galaxy Securities: How to view the new 301 tariffs in the United States?

According to the Zhitong Finance APP, China Galaxy Securities released a research report stating that the new 301 tariffs are not a uniform tax rate but are divided into three tiers. Based on the bank's calculations, replacing the 10% Section 122 tariff with a 12.5% 301 tariff will raise the overall weighted tariff rate on goods from mainland China from approximately 23.2% to around 24.4%, an increase of about 1.2 percentage points. The tariff level has been slightly adjusted upwards, but considering the market's previous concerns about a more stringent plan, this result is actually slightly better than expected.

The main points from China Galaxy Securities are as follows:

Event: The Office of the United States Trade Representative announced on the 23rd that, based on Section 301 of the Trade Act of 1974, it will impose tariffs of 10% to 12.5% on dozens of countries and regions under the guise of "forced labor" to replace the soon-to-expire global import tariffs. The bank interprets this as follows:

1. The U.S. 301 tariffs seamlessly connect to the 10% temporary tariffs

In February of this year, the U.S. Supreme Court ruled that the large-scale "reciprocal tariffs" imposed by the Trump administration under the International Emergency Economic Powers Act (IEEPA) were unconstitutional. Trump then activated Section 122 of the Trade Act of 1974, imposing a uniform temporary import surcharge of 10% on all countries for a period of 150 days. Section 122 is essentially a transitional tool with a clear legal time limit that cannot be extended indefinitely. Therefore, the Office of the United States Trade Representative (USTR) began a Section 301 investigation on March 12, citing "the failure to establish and effectively enforce a ban on imports produced by forced labor" against 60 major trading partners. On June 2, the investigation concluded that all 60 economies were deemed "non-compliant" and constituted a burden or restriction on U.S. commerce. Public hearings were held from July 7 to 9, and the final announcement was made on July 23. The new tariffs took effect at 12:01 AM Eastern Time on July 24, seamlessly connecting with the Section 122 tariffs that expired on the same day. The entire process was tightly scheduled and clearly linked: while the legal title changed, the intention to impose tariffs never truly left.

2. After the new 301 tariffs, the latest tariffs on mainland China are slightly adjusted upwards to 24.4%

The new 301 tariffs are not a uniform rate but are divided into three tiers: the first tier is 10%, covering 17 countries, including Argentina, Canada, and Mexico; the second tier is either 10% or 12.5% (excluding the most-favored-nation rate), including the European Union, Taiwan, Japan, South Korea, and Switzerland; the third tier is 12.5%, covering countries or regions other than the aforementioned economies among the 60 major trading partners, including mainland China and Vietnam. According to the bank's calculations, replacing the 10% Section 122 tariff with a 12.5% 301 tariff will raise the overall weighted tariff rate on goods from mainland China from approximately 23.2% to around 24.4%, an increase of about 1.2 percentage points. The tariff level has been slightly adjusted upwards, but considering the market's previous concerns about a more stringent plan, this result is actually slightly better than expected. However, the bank notes that there are still three points worth paying attention to:

First, structural differentiation. From the current signals released during negotiations, the $30 billion reciprocal tariff reduction framework mainly focuses on the "non-strategic consumer goods" sector—namely, categories that the U.S. is highly dependent on China for manufacturing and do not involve national security sensitivities (such as certain light consumer goods, household items, etc.), which are expected to benefit from tariff reductions; Categories such as electronics and machinery face an incremental tariff of 12.5%. The final degree of differentiation of export products depends on the coverage and implementation pace of the tax reduction list.

Second, the transshipment routes are blocked. Southeast Asian countries like Vietnam and Thailand, which previously undertook the transfer of Chinese production capacity, are also included in the 12.5% tariff tier, meaning that the strategic space for companies to "bypass tariffs through Southeast Asia" has been significantly compressed in recent years.

Third, there are cumulative risks. The subsequent investigation results from the United States regarding "structural overcapacity" involving 16 trading countries have yet to be released. If implemented, the combination of these two tariffs could significantly increase the actual tax rate faced by mainland China.

III. What are the subsequent tariff threats from the United States?

In addition to the 301 "forced labor" tariffs that took effect on July 24, the United States has at least three other tariff fronts in progress: First, the "structural overcapacity" 301 investigation. The USTR has initiated this investigation against mainland China and 15 other economies, with relevant results expected to be announced in a few weeks. If implemented, it could lead to additional tariffs, seen as the "second shoe" hanging over mainland Chinese export enterprises; Second, the expansion of Section 232. The Trump administration has extended the Section 232 national security investigation from steel and aluminum to semiconductors, pharmaceuticals, and other fields. On July 21, Trump announced that a 100% tariff would be imposed on generic drugs after two years, increasing to 200% after one year; Third, Section 338. On July 20, the U.S. announced that it would impose a 50% tariff on hundreds of specific goods imported from Canada under Section 338 of the Smoot-Hawley Tariff Act of 1930. This nearly century-old provision has been activated, meaning the U.S. has gained a flexible tool to quickly impose tariffs on a single country, and the future scope and targets of its use warrant caution.

IV. Focus on the progress of China-Europe trade negotiations

Currently, China-Europe trade friction is accelerating, and the risk of the negotiation mechanism being ineffective is rising. The first ministerial meeting of the China-Europe trade and investment negotiation mechanism on June 29 established a framework for four working areas: trade and investment balance, export controls, intellectual property rights, and WTO reform, with a ministerial meeting set to be held again in the fall of 2026. However, the negotiating posture has not stopped the pace of friction—negotiations on electric vehicle price commitments have stalled, anti-subsidy taxes have been extended to plug-in hybrid models, and steel duty-free quotas have been halved with an additional 50% tariff imposed. On one hand, the European side's "talk while fighting" stems from structural contradictions: it cannot bear a €360 billion trade deficit with China (by 2025) and is unwilling to make concessions on high-tech export controls. The European side has repeatedly requested responses from China regarding concerns over rare earth supplies, yet there are few responses to cases of obstacles encountered by Chinese imports from Europe. On the other hand, China has maintained relative restraint, leaving ample room for negotiations, with potential countermeasures covering key raw materials such as rare earths and refined copper, as well as legal tools for blocking methods. Overall, the China-Europe trade negotiations are a key lever for China to promote an upward balance in trade. If China can mitigate risks by deepening economic and trade ties with Europe and create incremental space for cooperation with Europe to offset existing pressures from trade with the U.S., then the U.S. tariff leverage will no longer be a one-way pressure tool Focus on the progress of China-Europe trade negotiations. Before EU Trade Commissioner Valdis Dombrovskis visits China in October, attention is primarily on two aspects: whether the commitment to electric vehicle pricing can break the deadlock, and whether the 70% localization threshold in the EU's Industrial Accelerator Act will be implemented—this will determine whether China-Europe trade moves towards managing differences or slides into comprehensive friction.

Risk Warning: 1. The risk that tariff negotiations may fall short of expectations; 2. The risk of incomplete understanding of relevant policies; 3. The risk of escalating global trade wars