The U.S. Review of a 7.5% Tariff on China Ahead of the Presidential Summit and South Korea's Response Strategy

Executive Summary

The 7.5% tariff on Chinese goods facing overproduction, currently under review by the U.S. administration, is less an industrial protection measure and more a negotiating tool ahead of the late September summit between Presidents Trump and Xi Jinping. If implemented, the tariff would restore the overall rate on Chinese imports to around 20%, the level maintained under the existing trade truce, which Beijing is likely to accept as a tolerable threshold. However, this tariff is just one component of a multi-track trade pressure campaign that also includes a 50% tariff on Canada, forced labor tariffs on 60 countries, and the designation of nations at high risk for transshipment. This broader pressure is likely to become a permanent feature of U.S. policy, regardless of the summit's outcome. Notably, the White House report on transshipment risk specifically identified South Korea’s semiconductor belt, signaling that pressure from lower-level bureaucratic channels will persist even if the summit proceeds. Instead of lowering their response level in anticipation of the summit's results, the South Korean government and companies must establish a permanent readiness framework by strengthening country-of-origin verification infrastructure and building joint, industry-specific response channels.

I. Situational Analysis

Review of New Tariff Ahead of U.S.-China Summit: A Situational Analysis

1. Background and Developments

In Washington, the starting point for this measure is the tariff structure imposed on China during the first Trump administration. The United States has maintained a trade truce with Beijing for the past year, under which the tariff rate on Chinese goods has been managed at approximately 20% [1]. The 7.5% tariff now under review would not be an addition to the current rate; rather, it would effectively restore the tariff level to the first-term benchmark of around 20% [1]. A key variable in the negotiation calculus is that Beijing has, until now, regarded this 20% level as consistent with the terms of the trade truce [1].

The official justification for the tariff is China's manufacturing overcapacity. According to the Associated Press, the measure originates from the concern that China is flooding global markets with low-cost goods [4][7]. This perspective is not exclusive to the United States. A previous EAI analysis of Europe identified the same structural issue. China's current account surplus expanded from 0.7% of GDP in 2019 to 3.7% in 2025 [5][10]. This reflects the entrenchment of a dynamic where production capacity, unabsorbed by domestic demand amid a prolonged real estate slump, is being channeled overseas [5]. The U.S. action shares the same underlying concern as the EU's ongoing, phased expansion of anti-dumping tariffs and its Carbon Border Adjustment Mechanism (CBAM) on products such as steel, electric vehicles, and batteries [10].

2. Current Situation

The Associated Press, citing multiple internal sources, reported that President Trump is leaning toward imposing the 7.5% tariff [4]. This rate was not chosen arbitrarily. It is the result of administration officials judging it to be a level that "would not jeopardize the year-long trade truce or the planned late-September White House meeting between Trump and Xi Jinping" [11]. This reflects a calculation aimed at finding a balance: keeping tariffs on the table without scuttling the summit itself.

Singapore's Business Times situates this measure within a broader trend of President Trump's protectionist agenda being "resurrected" [1]. Indeed, the U.S. administration is currently pursuing tariff actions on multiple fronts simultaneously. It has announced a 50% tariff on Canadian automobiles and steel, to take effect in 2027 [9], and has implemented tariffs of 10-12.5% on 60 countries for what it deems an inadequate response to forced labor [16]. On August 13, the White House Office of Trade and Manufacturing Policy's "Great Transshipment Scam" report classified over 40 countries, including South Korea, as at-risk based on their level of integration with Chinese supply chains [8]. The review of tariffs on China is an extension of this comprehensive pressure campaign.

Beijing has not yet issued a direct official response to the proposed 7.5% tariff. However, regarding similar trade pressure from the United States, He Yadong, a spokesperson for China's Ministry of Commerce, has previously labeled the U.S. report on transshipment tariffs a "false narrative," stating that such measures threaten supply chains [17]. Chinese state media has a history of countering the "overproduction" framework by reframing it as a narrative of industrial upgrading [10]. It is highly likely that Beijing will employ similar arguments to rebut reports of the tariff review in the lead-up to the September summit.

3. Key Actors and Positions

The Trump Administrationis leveraging tariffs as both a means of pressuring China and a justification for protecting domestic manufacturing. However, on this issue, the approach of working-level officials within the administration leans more toward managed pressure than full-scale escalation. This is supported by the fact that the 7.5% rate was itself set at a level designed not to break the trade truce [11]. This indicates that tariff policy is being coordinated in subordination to the political calendar, specifically the upcoming summit.

The Chinese Governmenthas largely accepted a tariff level of around 20% as a given under the trade truce [1]. Consequently, Beijing may not view the restoration of this rate as a new escalation. However, the Chinese government, through its Ministry of Commerce, has consistently refuted the "overproduction" framework [17][10]. A public relations campaign surrounding this framework is likely to run parallel to the summit preparations.

The Bureaucratic Track within the U.S. Administrationis another key variable. According to an EAI analysis, individual regulatory agencies such as the Federal Communications Commission (FCC) have been building up their own set of measures against China, independent of the White House's high-level diplomatic track [2]. While the tariff review is a White House decision, technology regulation represents a separate flashpoint at the bureaucratic level, suggesting that "localized friction is likely to persist regardless of whether the summit takes place" [2].

The European Unionis not a direct party to this specific measure but serves as a key reference point due to its shared interests. The EU's trade deficit with China reached 360 billion euros in 2025, and an asymmetric structure has emerged: Germany's rank as an exporter to China has plummeted from second to ninth, yet its trade deficit with China has paradoxically widened [10][5]. If the U.S. measure is implemented, it will run in parallel with the EU's own phased tariff increases, potentially doubling the pressure on China by constricting markets for its excess production.

Neighboring Countries such as Canada and Mexicoare closely monitoring the indirect impact of U.S. actions against China on their own negotiations with Washington. Canada is engaged in separate negotiations centered on a steel quota system and a 25% tariff [13], while Mexico is considering strengthening its own regulations on Chinese goods in response to its designation by the U.S. as a country at high risk for transshipment [17].

4. Key Issues

The first key issue is the political calculus behind the tariff rate. The 7.5% figure is less a reflection of empirically measured industrial harm and more a value calculated backward from the political imperatives of maintaining the trade truce and ensuring the summit proceeds [11][1]. This leaves open the possibility of the rate being readjusted based on the summit's outcome.

The second issue is the factual dispute surrounding the "overproduction" framework. While the United States and the EU point to China's expanding current account surplus and real estate-driven domestic slump as evidence of structural overproduction [5][10], China refutes this, framing it as a natural outcome of industrial upgrading [10][17]. If the two sides fail to reach a common understanding on this framework at the summit, the debate over the legitimacy of the tariffs will likely persist.

The third issue is the lack of synchronization between the White House track and the bureaucratic track. Even if the White House calibrates the tariff level to facilitate the summit, actions proceeding on separate tracks—such as technology regulations from agencies like the FCC or the OTMP's designation of countries at high risk for transshipment—may continue unabated, regardless of the summit's outcome [2][8]. This could create a divergence between a superficial compromise at the summit and the real-world intensity of U.S. pressure on China.

The fourth issue concerns the spillover effects on third countries. The restoration of U.S. tariffs on China would create a stronger incentive for China to redirect its surplus production capacity toward the EU, Southeast Asia, and other emerging markets [10]. For countries on the U.S. list of nations at high risk for transshipment, including South Korea, this could translate into a heavier burden for country-of-origin verification [8].

II. In-Depth Analysis

Review of New Tariff Ahead of U.S.-China Summit: An In-Depth Analysis

1. Analysis of Root Causes

The ostensible justification for reviewing the 7.5% tariff is China's manufacturing overcapacity. However, this rationale conceals two distinct, overlapping policy logics. The first is the logic of industrial protection, driven by the concern that low-cost Chinese products in the steel, semiconductor, and electric vehicle sectors are eroding the U.S. market [4][7]. The second is the logic of negotiating leverage—a tactical move to place the tariff card on the table ahead of the September summit [11].

The simultaneous operation of these two logics defines the character of this issue. This is evident in the reasoning behind the administration's choice of a 7.5% rate. The Associated Press reported the figure was designed to be at a level that "would not jeopardize the year-long trade truce or the late-September Trump-Xi meeting" [11]. If industrial protection were the sole objective, there would be no reason to cap the rate. This indicates that the political timetable of the summit is placing a preemptive constraint on the tariff's severity.

The fundamental cause of the overcapacity problem lies in the structure of China's domestic economy. China's current account surplus grew from 0.7% of GDP in 2019 to 3.7% in 2025 [5][10]. This is the result of an entrenched dynamic where production capacity, unabsorbed by domestic demand amid a prolonged real estate slump, is being channeled overseas [5]. This assessment is not unique to the United States. The EU, operating under the same diagnosis, has been phasing in anti-dumping tariffs and its CBAM on steel, electric vehicles, and batteries [10]. However, the current U.S. action is more conspicuous for its role as a negotiating tactic ahead of the summit than as a purely industrial policy measure.

2. Structural Context

Political Structure

The trade policy decision-making structure of the second Trump administration does not operate on a single White House track. While the tariff review is being handled by the Office of the U.S. Trade Representative (USTR) and the Department of Commerce, independent regulatory agencies like the FCC have simultaneously been developing a separate track of pressure against China [2]. The report on countries at high risk for transshipment from the White House Office of Trade and Manufacturing Policy (OTMP) is another product of a distinct bureaucratic track [8]. This multi-track structure creates a gap between the high-level political agenda of the summit and the ongoing accumulation of regulations at the departmental level. Even if the White House moderates the tariff's intensity for the sake of the summit, pressure from lower-level agencies will likely persist independently [2].

The domestic political calendar, with the 2026 midterm elections approaching, is another structural variable. The Trump administration's protectionist stance is not confined to tariffs on China. It has announced a 50% tariff on Canadian automobiles and steel to begin in 2027 [9] and has implemented tariffs of 10-12.5% on 60 countries for what it considers an insufficient response to forced labor [16]. The review of tariffs on China must be seen as one part of this comprehensive protectionist agenda. The 7.5% rate is positioned to simultaneously deliver a domestic political message of protecting manufacturing while also securing foreign policy leverage for negotiations with China in the run-up to the midterms.

Economic Structure

The structural vulnerabilities of the industries targeted for tariffs also warrant examination. Steel, semiconductors, and electric vehicles are sectors already subject to similar anti-dumping measures by the EU [10]. This indicates that China's oversupply is not a market-specific issue but a structural phenomenon on a multilateral scale. If the U.S. implements the 7.5% tariff, the total rate on Chinese goods will be restored to around 20% [1]. While this will reduce the price competitiveness of Chinese goods in the U.S. market, it will not resolve the underlying issue of overcapacity in China. As demonstrated in Europe, China's export offensive tends to reroute to other markets when faced with tariff barriers [10]. It is in this context that stronger U.S. tariffs are seen as likely to increase incentives for transshipment through third countries in regions like Southeast Asia and Latin America [8].

Security Structure

This tariff review cannot be treated as a purely commercial issue. The White House report on countries at high risk for transshipment frames supply chain integration as a security concern [8], confirming a trend in which tariff policy and supply chain security policy are effectively merging. In the semiconductor and AI sectors, a separate technology security track is also advancing, including the FCC's review of regulations on optical transceivers [2]. The current structure involves the simultaneous coordination of three distinct tracks—tariffs, transshipment enforcement, and technology regulation—all aligned with the single political timeline of the presidential summit.

3. Historical Precedents and Comparative Cases

The closest precedent is the Section 301 tariff imposed on China during the first Trump administration. The current tariff level of around 20% is a legacy of that first-term action, and the proposed 7.5% tariff is meant to restore that level [1]. During the first term, tariffs were also managed in parallel with summit-level diplomacy. The pattern of adjusting tariff rates in the context of negotiations is repeating itself.

The case of Canada provides a contrasting point of reference. Canada engaged in working-level negotiations with Washington over automotive and steel tariffs, discussing a proposal to lower the steel tariff to 25% combined with a quota system and to adjust the automotive tariff to 15% [13][14][15]. This serves as a precedent that tariff intensity can be moderated as negotiations near an agreement. In the case of China, the high-level political event of the summit plays a similar buffering role, creating a structural parallel. The key difference, however, is that as a U.S. ally, Canada has permanent working-level channels for negotiation, whereas for China, the summit itself serves as the main conduit for talks.

The EU's approach toward China also offers a point of comparison. The EU has built up its anti-dumping tariffs and CBAM measures by sequentially expanding the scope of products, starting with steel and moving to electric vehicles, batteries, and robots [10]. The U.S. approach differs: rather than a sequential expansion like the EU's, it links tariff adjustments to a single event, the presidential summit. Whereas the EU's method represents a long-term strategy based on industry-specific risk assessments, the current U.S. measure is more focused on managing the dynamics of a negotiation.

4. Key Variables Shaping Future Developments

The first variable is the intensity of Beijing's reaction. China's Ministry of Commerce previously dismissed the U.S. report on transshipment-related tariffs as a "false narrative" [17]. Whether its response to the 7.5% tariff review is confined to similar rhetorical counters or extends to substantive retaliation will set the tone for the summit. Since Beijing has thus far considered a 20% tariff level to be consistent with the trade truce [1], the crucial factor is whether this new measure stays within that psychological threshold.

The second variable is the coherence between the bureaucratic and high-level diplomatic tracks within the U.S. government. Pressure from lower-level agencies that accumulates independently of the summit—such as the FCC's autonomous regulations targeting China or the OTMP's designation of countries at high risk for transshipment [2][8]—could sour the atmosphere for the talks. Even if the White House controls the tariff rate, actions on these other tracks could test Beijing's patience and jeopardize the summit itself.

The third variable is the timing of the tariff's implementation. If it takes effect before the summit, it will serve as a negotiating lever. If it is postponed until after the summit, the rate itself may be subject to readjustment based on the meeting's outcome. Given that the rate was designed, as the AP reported, at a level that "would not jeopardize" the summit [11], both the implementation date and the potential for rate adjustments will likely be determined by working-level contacts between Washington and Beijing over the next few weeks.