Every business with a supply chain, a sourcing relationship, or a customer base that touches the global economy has skin in the US-China trade game. In 2026, that means navigating a landscape that is simultaneously more restrictive and more consequential than at any point in the past three decades. Bilateral goods trade between the United States and China exceeded $575 billion in 2024, even as both governments erected new barriers. The relationship is too large to exit cleanly and too fraught to navigate without a compliance framework.
This guide lays out the current state of tariffs, export controls, investment restrictions, and the strategic options available to businesses operating in this environment. It is not a prediction about where the relationship is headed — that is genuinely uncertain. It is a practical map of where things stand right now, and what well-run companies are doing about it.
The Tariff Landscape
The US tariff architecture on Chinese goods is a layered accumulation of actions going back to 2018. Understanding the layers matters because each carries different legal authorities, different exemption mechanisms, and different exposure profiles for your product category.
Section 301 Tariffs: The Foundation
The core of the US tariff regime on Chinese imports derives from Section 301 of the Trade Act of 1974. The Office of the US Trade Representative (USTR) launched a formal investigation in 2018 that resulted in four tranches of tariffs covering virtually all Chinese imports by 2019. As of June 2026, the structure looks like this:
- List 1 ($34B): Industrial machinery, aerospace components, auto parts — 25% tariff rate
- List 2 ($16B): Semiconductors, chemicals, plastics — 25% tariff rate
- List 3 ($200B): Consumer goods, furniture, food products — 25% tariff rate (raised from 10% in 2019)
- List 4A ($120B): Consumer electronics, apparel, footwear — 7.5% tariff rate (reduced from 15% under the Phase One agreement)
On top of these Section 301 tariffs, the Biden administration’s 2024 targeted increases added sector-specific surcharges. Electric vehicles from China now face a 100% tariff. Solar cells are subject to 50% tariffs. Steel and aluminum products from China carry a combined tariff burden exceeding 25% from multiple legal authorities. Lithium-ion batteries for EVs face 25% tariffs, rising to 50% by 2026 under the scheduled phase-in.
The Exemption Process
USTR has run multiple rounds of exclusion processes since 2018, allowing individual companies to petition for temporary relief from Section 301 tariffs for specific product subheadings. The process is notoriously slow and unpredictable, but it remains the primary legal mechanism for reducing tariff exposure short of relocating supply chains. Companies with significant Section 301 exposure should monitor the USTR’s Section 301 exclusion portal at ustr.gov and maintain relationships with trade counsel who can identify and file exclusion petitions for eligible product lines. Exclusions are typically granted for 12-24 months and must be renewed.
For businesses evaluating their overall regulatory footprint in China, our guide to navigating China’s regulatory approval process covers the Chinese-side compliance requirements that often intersect with US tariff exposure analysis.
Export Controls and Entity Lists
Tariffs affect what you pay to import. Export controls affect what you are legally permitted to sell or transfer to Chinese parties — and the penalties for violations are criminal, not just financial.
The BIS Framework
The Bureau of Industry and Security (BIS) within the US Department of Commerce administers the Export Administration Regulations (EAR), which govern the export of dual-use items — commercial goods and technologies with potential military applications. BIS has significantly expanded its China-specific controls since 2022, with three major regulatory actions reshaping the technology sector:
- October 2022 Semiconductor Rules: Imposed sweeping controls on advanced semiconductor chips (at or below 16nm/14nm logic; NAND flash above 128 layers; DRAM above 18nm), semiconductor manufacturing equipment, and transactions that would enable Chinese development of supercomputers and advanced military applications. Critically, the rules also imposed nationality-based restrictions on US persons — any US citizen, permanent resident, or company — from supporting covered Chinese semiconductor activities without a license.
- October 2023 Updates: Closed loopholes in the 2022 rules, expanded the definition of covered chips, and extended controls to additional countries used to transship controlled technology to China.
- Advanced Computing and AI Controls (2024): BIS published new rules restricting the export of frontier AI model weights and advanced computing clusters to China, extending controls to the software and model layer beyond just hardware.
For companies in semiconductors, advanced manufacturing, aerospace, defense, and AI, the first compliance step is classifying all products and technologies under the Export Control Classification Number (ECCN) system. Items classified under ECCN categories 3 (electronics), 4 (computers), 5 (telecommunications and information security), and 7 (navigation and avionics) carry the highest China-specific risk. The full BIS regulatory framework is available at bis.doc.gov.
Entity List and Unverified List
BIS maintains an Entity List of foreign parties — companies, research institutions, and individuals — subject to additional licensing requirements due to national security concerns. As of mid-2026, more than 700 Chinese entities are on the Entity List, including major companies in semiconductors (SMIC, Huawei), surveillance technology (Hikvision, Dahua), military-civil fusion enterprises, and aerospace. Exporting to an Entity List party typically requires a BIS license that is presumptively denied for controlled items.
The Unverified List covers parties where BIS has been unable to complete end-use verification checks. Companies supplying Unverified List parties face a stricter licensing review and must obtain a statement of assurance from the party before proceeding. Both lists are updated regularly — any company with Chinese customers should run automated screening against current lists as part of standard compliance procedures.
The technology sector implications extend beyond hardware. China’s tech sector profile, including the sectors most affected by these controls, is covered in detail in our analysis of China’s tech sector: opportunities and risks for western partners.
Investment Restrictions
The investment lane of the US-China relationship has become as constrained as the trade lane, with restrictions operating in both directions.
CFIUS: Inbound Investment Scrutiny
The Committee on Foreign Investment in the United States (CFIUS) reviews foreign acquisitions of US businesses for national security implications. Chinese investment receives the highest scrutiny of any country, with mandatory filing requirements for Chinese acquisitions of TID US businesses — those in Technology, Infrastructure, and Data sectors. CFIUS authority expanded under the Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018 and now covers minority investments in sensitive sectors, real estate near military installations, and non-controlling investments with board or information access rights.
Practical impact: Chinese companies seeking to acquire or invest in US technology companies, agricultural land, critical infrastructure, or data-rich businesses should assume mandatory CFIUS filing and budget 6-12 months for review. CFIUS has blocked and unwound Chinese investments in semiconductor, AI, mobile applications, and defense-supply-chain businesses. Even investments that ultimately clear CFIUS may be conditioned on operational restrictions — network segmentation, data governance requirements, and limits on Chinese-national personnel in sensitive roles.
Outbound Investment Restrictions
In August 2023, the Biden administration issued Executive Order 14105 establishing an outbound investment notification and prohibition program covering US investment in Chinese entities operating in semiconductors, microelectronics, quantum information technology, and artificial intelligence. The Treasury Department’s final rules, effective January 2025, prohibit US persons from investing in Chinese companies developing specified advanced technologies and require notification for investments in adjacent sectors.
This is a genuine structural shift. For the first time, US law constrains where US capital can flow, not just what can be exported. Private equity, venture capital, and corporate development functions with China exposure need standing legal review of proposed transactions against the outbound investment rule before committing capital.
Understanding how Chinese companies are navigating the other side of this investment environment is useful context — see our coverage of China’s outbound investment trends for the destinations and sectors where Chinese capital is flowing.
Supply Chain Resilience Strategies
The tariff and control environment has accelerated supply chain diversification that was already underway for cost and concentration-risk reasons. The strategic question is not whether to diversify, but how to do so without creating new vulnerabilities while preserving the efficiency gains that made China attractive in the first place.
China+1
The dominant framework is “China+1” — maintaining a Chinese supply base while building parallel capacity in a second country. This provides tariff optionality, reduces single-country concentration, and satisfies customers and investors who require supply chain disclosure. The most common China+1 destinations in 2026 are:
- Vietnam: The primary beneficiary of manufacturing diversification from China. Strong in electronics assembly, apparel, furniture, and light manufacturing. Constraints include skilled labor shortages, underdeveloped logistics infrastructure outside Ho Chi Minh City and Hanoi, and power grid reliability challenges in industrial zones.
- Mexico: Advantaged by USMCA preferential tariff treatment, geographic proximity to US markets, and a large manufacturing workforce. Dominant in automotive components, medical devices, and consumer electronics for US import. Limitations include security concerns in certain industrial regions and higher labor costs than Southeast Asia.
- India: The longest-runway play. Significant government incentives under the Production Linked Incentive (PLI) scheme for semiconductors, pharmaceuticals, electronics, and textiles. Infrastructure gaps remain significant relative to China, and the regulatory environment adds friction. Apple, Samsung, and Foxconn have made substantial India commitments that validate the direction.
- Malaysia and Thailand: Strong in semiconductor packaging/testing and hard disk drives respectively, with established FDI infrastructure and English-language business environments.
What “Friendshoring” Actually Costs
Diversification is not free. Companies that have completed China+1 moves report cost increases of 8-25% for equivalent production, depending on product complexity, labor intensity, and whether the new location is building from greenfield or using existing industrial parks. The cost delta is real — but companies in tariff-exposed categories are paying that delta in import duties anyway. The calculation has shifted: for products on List 3 facing 25% tariffs, even a 20% cost increase from Vietnam or Mexico is economically neutral or positive once tariff savings are factored in.
Doing Business Despite Tensions
The US-China trade relationship is characterized by selective decoupling, not wholesale separation. Both governments have strong economic interests in preserving large portions of bilateral trade even while restricting specific sectors. Understanding where the floor is helps businesses calibrate the risk of continued China exposure.
What Still Works
Several sectors maintain robust bilateral trade flows despite the broader tensions. Agricultural commodities remain significant — China is one of the largest buyers of US soybeans, corn, sorghum, and pork products, driven by structural demand that domestic production cannot fill. US$26 billion in US agricultural exports went to China in 2024. US services exports — education, financial services, tourism, professional services — face fewer formal restrictions than goods, though data localization requirements and regulatory friction affect delivery in some categories.
China’s market remains highly attractive for US consumer brands in sectors where Chinese consumers specifically seek foreign products: premium cosmetics, baby formula, health supplements, luxury goods, and name-brand sports equipment. The middle-class consumer demand that drives this preference is not going away. Businesses in these sectors face political risk but not systematic trade restriction at the level affecting industrial goods.
On the Chinese export side, the US remains highly dependent on Chinese-manufactured goods in categories where alternative supply chains are years from maturity: solar panels, lithium-ion batteries, critical minerals processing, rare earth permanent magnets, and a significant share of generic pharmaceuticals and active pharmaceutical ingredients. These dependencies create negotiating leverage for China and complicate US decoupling ambitions.
For companies navigating the legal and compliance dimensions of continued China business, including contract enforcement and dispute resolution, our analysis of how to negotiate contracts with Chinese companies covers the provisions that matter most under current geopolitical conditions.
The Chinese Perspective
No analysis of the US-China trade environment is complete without accounting for how China views the relationship and how that perception shapes its policy responses. Western business planning that treats China as a passive subject of US policy consistently underestimates the strategic coherence of the Chinese response.
Reciprocal Measures
China has not been a passive responder to US tariffs and controls. It has developed a sophisticated toolkit of countermeasures deployed selectively and strategically:
- Tariff retaliation: China maintained counter-tariffs on US goods throughout the Phase One period and continues to apply them selectively. Agricultural goods, aircraft, and automobiles have been primary targets, designed to inflict maximum political pain on US constituencies.
- Export controls on critical materials: China controls the mining and processing of over 60% of global critical mineral supply and has used export licensing requirements on gallium, germanium, antimony, graphite, and rare earth magnets to signal leverage over US and allied technology supply chains. In 2023-2024, China restricted exports of gallium and germanium — key inputs for semiconductors — without a US license exemption. In 2025, rare earth export controls were tightened further in response to additional US semiconductor restrictions.
- Unreliable Entity List: China’s Ministry of Commerce maintains its own Unreliable Entity List, modeled on the US version, targeting foreign companies that “damage the interests of Chinese enterprises.” Listings carry significant operational consequences for affected companies’ China business.
- Market access leverage: China has used regulatory and market access tools — food safety inspections, data security reviews, and certification delays — to slow or block foreign companies in sectors where it has competitive domestic alternatives.
RCEP and China’s Multilateral Strategy
While managing bilateral tensions with the US, China has advanced its multilateral trade architecture. The Regional Comprehensive Economic Partnership (RCEP), which entered into force in 2022, creates a preferential trade zone covering 15 Asia-Pacific economies including China, Japan, South Korea, ASEAN, Australia, and New Zealand — accounting for roughly 30% of global GDP. RCEP provides China with preferential access to major markets, reduces dependency on US demand, and creates a rules-based framework for the Indo-Pacific that does not include the United States.
For Chinese businesses, RCEP provides tariff advantages for goods exported to member markets and rules of origin flexibility that can reduce reliance on US-market access. For Western businesses with operations in RCEP member countries, understanding the agreement’s rules of origin and tariff schedules is increasingly important for supply chain optimization.
The role of state-owned enterprises in executing China’s strategic trade priorities — including critical minerals and advanced manufacturing — is analyzed in detail in our overview of the role of state-owned enterprises in China’s economy.
Outlook for 2026 and 2027
Predicting US-China trade policy is genuinely difficult — both governments face domestic political constraints that limit their flexibility, and both have demonstrated a willingness to escalate and de-escalate with relatively short notice. That said, several variables are reasonably foreseeable.
What to Watch
- USTR Section 301 Review: USTR is required by statute to review Section 301 tariff levels. Any renegotiation — even a limited phase-down on specific categories — would have significant supply chain implications for businesses that have already relocated production.
- BIS export control expansion: The trend toward tighter semiconductor and AI controls shows no sign of reversal. Expect additional restrictions on advanced AI model exports, quantum computing components, and biotechnology tools with dual-use potential in 2026-2027.
- Critical minerals negotiations: China’s export controls on rare earths and critical minerals are the most significant leverage point Beijing has in bilateral negotiations. Watch for a potential framework deal that trades some relaxation of Chinese mineral controls for limited easing of US semiconductor restrictions — this is the shape of a potential trade negotiation if it happens.
- Taiwan scenario risk: The most significant tail risk to any China business strategy is a deterioration of the Taiwan Strait situation. While a military conflict remains a low-probability event, the economic consequences would be severe and preparation requires scenario planning, not just tariff optimization.
- Congressional action on de minimis: US legislation to close the de minimis exemption for Chinese e-commerce platforms (affecting Shein, Temu, and similar operators) has bipartisan support. If enacted, it would significantly affect Chinese consumer goods platforms and US retail competitors.
The WTO dispute settlement system remains functionally impaired — the Appellate Body has been non-functional since 2019 due to US blockage of new appointments — which means bilateral trade disputes are being resolved through negotiation and retaliation rather than adjudication. The WTO dispute settlement tracker provides a running record of active and suspended cases that illustrate how far outside the rules-based trading system the US-China relationship has moved.
Practical Checklist for Businesses
The complexity of the US-China trade environment can be navigated systematically. Here is a working checklist for businesses with China supply chain or market exposure:
Tariff Exposure
- Classify all imported products by HTS code and identify applicable Section 301 tariff list and rate
- Calculate actual tariff cost as a percentage of landed cost for each significant product line
- Review open USTR exclusion opportunities for any product subheadings with available petitions
- Model the cost-benefit of supply chain diversification for tariff-exposed categories exceeding $1M annual import value
Export Control Compliance
- Classify all products and technologies under ECCN; identify any items subject to Export Control Classification Number controls under EAR Category 3, 4, 5, or 7
- Implement automated BIS Entity List and Unverified List screening for all Chinese customers, distributors, and end-users
- Review all Chinese joint venture agreements and technology licensing deals for deemed export implications
- Assess US-person employee exposure to the nationality-based restrictions in the October 2022 semiconductor rules
- Establish written export compliance procedures and conduct annual training
Investment and M&A
- For any Chinese acquisition of a US business or minority investment in a TID US business: consult CFIUS counsel before signing term sheets
- For US investment in Chinese entities in semiconductor, quantum, or AI sectors: review against Treasury outbound investment rules
Supply Chain
- Map Tier 1 and Tier 2 suppliers by country; identify single-source Chinese dependencies in critical components
- Evaluate China+1 options for the top 5 tariff-exposed or risk-concentrated supply relationships
- Review supplier contracts for country-of-origin disclosure requirements and US government procurement obligations
- Assess Uyghur Forced Labor Prevention Act (UFLPA) exposure for any goods sourced from Xinjiang or suppliers with Xinjiang input chains
Ongoing Monitoring
- Subscribe to BIS regulatory update alerts and USTR Federal Register notices
- Retain trade counsel with regular China policy monitoring capability
- Review this landscape at minimum annually; quarterly is appropriate for high-exposure businesses
The US-China trade relationship in 2026 is not a crisis to survive — it is a structural condition to manage. Companies that treat it as permanent will build durable competitive advantages in compliance infrastructure, supply chain flexibility, and market positioning. Companies that treat each new restriction as a temporary disruption will find themselves perpetually behind. For businesses seeking to build genuine long-term relationships across this complex bilateral landscape, the resources at trade.gov’s US-China trade and investment portal provide the most current US government guidance on bilateral market access, export promotion, and compliance resources for American exporters navigating the Chinese market.