Almost simultaneously, China’s customs authority announced new chip origin identification rules, effectively blocking U.S. chip exports to China. Meanwhile, U.S. customs exempted smartphones, computers, semiconductors, and other tech equipment from reciprocal tariffs, ensuring smooth entry of Chinese-made tech products into the U.S.
In simple terms, China has closed its front door to the U.S., while America has left a back door open for China. This round of the tariff war took a dramatic turn. So, how should we interpret “Liberation Day”?
China has a well-known saying: “Overnight regression to pre-liberation days,” meaning all efforts are wasted. The Trump administration’s global tariff war suffered a crushing defeat within a week, simply because the policy was too aggressive and rushed, unexpectedly (or perhaps predictably) triggering the “Sell America.” U.S. stocks, bonds, and the dollar are widely seen as risky.
The breach in the dike originated from US Treasury bonds. Trump admitted that soaring Treasury yields and falling bond prices were the main reasons for suspending reciprocal tariffs for 90 days. Although China alone faced exclusion, with tariffs even raised to 145%, the White House still exempted Chinese-made tech products, significantly blunting America’s offensive against China.
This appears to be a victory for the U.S. tech industry, which relies on global supply chains and primarily manufactures American products, like iPhones, in China. American consumers eagerly “voted with their feet,” rushing to buy cheap Chinese-made goods after Liberation Day to avoid tariff-driven household cost increases.
In a way, “Sell America” ironically means “Buy China.”
The Trump administration’s problem now is, what are the consequences of opening a backdoor for Chinese products, especially favoring tech goods? Won’t other industries protest? Trump may not get a call from Xi Jinping, but calls from U.S. businesses won’t stop.
The U.S. tech industry faces a dilemma: Washington’s exemption of U.S. products made in China didn’t prompt Beijing to reciprocate. Instead, Beijing tightly blocked goods originating from the U.S. That’s the real challenge.
Beijing’s closure of the chip sector hits U.S. companies like Texas Instruments and Intel, which rely on U.S.-based chip production, in the short term. In the long term, it threatens TSMC’s prospects, as the Taiwanese company has invested over half its assets in U.S. factory plans.
The key point is that China, not the U.S., is the world’s largest chip consumer market.
Due to the complex chip supply chain, companies like Texas Instruments and Intel used to manufacture chips in the U.S., then complete final packaging in Southeast Asia or elsewhere to avoid Chinese tariffs and U.S. origin classification. Now, China has blocked this route, similar to how the U.S. used high tariffs to cut off Vietnam’s role in transshipping Chinese goods—both aimed at severing “middleman business.”
Beijing is doing this not only to retaliate against Washington’s tariff offensive but also to bolster domestic companies. For instance, Texas Instruments’ U.S.-made analog chips, heavily demanded in China, were targeted. To reduce reliance on U.S. products, China’s analog chip sector has grown rapidly. Beijing leveraged this tariff war to cut off Texas Instruments’ $2.25 billion China business, instantly boosting Chinese chip companies’ stock prices.
This suggests China’s analog chips are nearing U.S. levels. Beijing applied “shock therapy” to itself, spurring local firms to catch up with U.S. technology faster.
On a higher strategic level, Trump is shifting TSMC’s capacity and technology to the U.S., inevitably increasing the share of “Made in America” advanced logic chips. However, U.S. chip designers like Nvidia, Apple, and Qualcomm, forced to buy U.S.-made chips, will struggle to sell to the world’s largest market.
In other words, Beijing’s move limits the scale of TSMC’s U.S. factories, as the market for U.S.-made chips shrinks significantly. If the tariff war prompts the EU to retaliate against the U.S., American chips will face even more trade barriers.
The Biden administration’s “small yard, high fence” policy restricted advanced chip technology and products from entering China. Now, Beijing uses Trump’s tariff war to confine U.S. products within a limited market.
In the U.S.-China rivalry, chips are one of the few areas where the U.S. still holds an edge. Rebuilding manufacturing is essential to maintain that advantage, but the market is key. As the largest chip consumer, China actually holds the upper hand.
The Trump administration’s tariff exemptions on tech products cover precisely the supply chains missing in U.S. manufacturing—supply chains that cannot realistically be rebuilt within a four-year term. Thus, even if all critical chips—the core components of tech products—were manufactured in the U.S., they would still need to be shipped to production lines overseas, where America lacks cost competitiveness.
For example, chips made by TSMC in the U.S. and shipped to iPhone production lines in India cost far more than TSMC chips made in Taiwan and shipped to China. Current supply chains, driven by market forces and long-term evolution, may be disrupted by tariffs but won’t benefit the U.S.—they could even backfire.
Rebuilding U.S. manufacturing is a long process. Tariffs may help foreign supply chains relocate to the U.S., but at best, they’ll achieve self-sufficiency. High domestic costs lack export competitiveness, ultimately burdening U.S. consumers.
Given the circumstances, Trump can only keep opening backdoors in the short term or risk crippling U.S. multinationals and voters. However, this highlights the lack of continuity and stability in his policies, making it hard to reverse the long-term “Sell America” trend.
One of China’s weaknesses is that, in pursuit of quick profits, its firms often rely on foreign technology, lacking innovation drive. Beijing had previously struggled to overcome this phenomenon, but Washington’s decoupling pressures have inadvertently helped China boost domestic innovation and expand global demand for “Buy China.”
So, who’s really being ‘liberated’? —China or the U.S.?
