Challenges and Opportunities for China's Free Trade Zones/Port under the US "Reciprocal Ta

The term "reciprocal tariffs" refers to a mechanism where a country or region imposes tariff rates on foreign products originating from other countries or regions, in response to the tariffs those counterparts levy on its own products. Based on the so-called "reciprocity" principle, this mechanism embodies the idea that "whatever tariff a country imposes on US goods, the US imposes the same rate, neither more nor less". The concept of "reciprocal tariffs"dates back to the McKinley Tariff Act of the late 19th century, which first introduced the reciprocity concept and included a "reciprocity clause". This clause empowered the president to negotiate tariffs with other countries based on the "reciprocity" principle. However, its essence was to pressure trading partners into lowering tariffs through punitive measures. At the 2018 Davos Forum, US President Trump emphasized "reciprocal tariffs," demanding absolute parity in tariff levels and trade policies between nations and their trading partners.

On February 13, 2025, US President Trump signed a memorandum, officially introducing the "reciprocal tariffs" and expanding its targets to major trading partners such as Brazil, India, and the EU. The "reciprocal tariffs" on China further escalated China-US trade friction: On February 1, citing "illegal immigration and fentanyl issues", Trump imposed an additional 10% tariff on all Chinese imports and abolish the duty-free policy for packages under US$800 (T86 customs clearance policy). On March 3, an additional 10% tariff was added due to fentanyl, raising the cumulative fentanyl levy rate on Chinese products to 20%. On April 2, the "reciprocal tariffs" was launched. A 10% benchmark tariff was set, plus a 34% additional tariff on Chinese goods, reaching a total of 54%. On April 8, the tariff increased to 84% (104% cumulatively). On April 9, it rose to 125%, with some products (e.g., syringes and lithium batteries) facing combined tax rates of up to 245%.

The US implements the "reciprocal tariff" policy for multiple purposes. First, it seeks to reduce foreign restrictions, bring manufacturing back to the US, enhance domestic industries, and create jobs. Secondly, tariffs act as a negotiating tool and revenue stream, boosting US fiscal income to support economic policies. Thirdly, it aims to uphold its dominant position in global trade by pressuring others to accept its trade policies and rules. Fourthly, tariffs serve as a geopolitical tool, compelling major trade deficit countries to yield on financial issues such as debt restructuring, or being used as bargaining chips in trade negotiations.

In response to the US tariff hikes, China has imposed additional tariffs on US coal, agricultural products, semiconductors, and enforced export controls on rare earths.

China's Free Trade Zones/Port: Achievements and Current Status

China's free trade zones (FTZs) and port (FTP) are landmark projects for deepening reform and opening up in the new era. Since launching Shanghai Free Trade Zone in 2013, China has established a network of 21 FTZs plus Hainan Free Trade Port, forming a comprehensive, multi-tiered open economy. Focused on institutional innovation, FTZs have introduced 302 nationally replicated reforms. Hainan FTP, featuring "zero tariffs, low tax rates, and a simplified tax system," will enter closed operation in 2025 as China's highest-form open economy.

In terms of institutional innovation, FTZs pioneered the foreign investment negative list, while the Hainan FTP adopted a cross-border services negative list, enabling foreign individuals to open securities accounts and lawyers to handle commercial cases, achieving "access unless prohibited" in service sectors. In business environment optimization, FTZs have drastically reduced administrative approval procedures, simplified registration processes, attracted more enterprises, and energized market entities.

At the same time, FTZs and FTP deliver fruitful results: By June 2024, 22 free trade pilot zones/port, which cover less than 0.04% of China's land area, contributed 20.8% of the nation's foreign investment and 19.5% of its import and export volume, with total imports and exports hitting 7.67 trillion yuan in 2023. They have spawned industrial clusters such as Shanghai's integrated circuit industry, Tianjin's aircraft leasing, and Zhejiang's full oil-gas chain. Through institutional opening, these zones boost regional coordination and industrial chain modernization.

For reform and opening-up, FTZs and FTP serve as pilot platforms. They have pioneered in key areas such as investment liberalization, trade facilitation, and financial opening, generating replicable and promotable experiences to support nationwide economic system reforms. Acting as active participants in China's global economic governance initiatives and open-world economy promotion, they demonstrate China's commitment to expanding opening-up, promote the mutually reinforcing dual circulation of domestic and international markets, elevate China's overall opening-up level, and inject a sustained momentum into reform and opening-up.

Challenges and Opportunities from the "Reciprocal Tariff" Policy for China's FTZs and FTP

The US "reciprocal tariff" policy will significantly reshape global trade dynamics, posing multiple impacts on China's FTZs and FTP, though opportunities also exist amid them.

Challenges

Trade Pattern Restructuring: The policy has disrupted global trade flows, introducing uncertainties to China's exports to the US. US-dependent industries and enterprises confront order declines, pressuring FTZs/FTP to adjust global industrial layouts and supply chain.

Weakened Competitiveness of Enterprises: High tariffs on Chinese goods have increased export costs, reduced market competitiveness, squeezed profit margins, and triggered potential relocations of labor-intensive enterprises from FTZs/FTP to low tariff economies.

Institutional Innovation Pressure: The policy challenges existing trade norms, forcing FTZs/FTP to accelerate reforms in institutional openness—particularly in aligning with high-standard rules on IP protection, environmental and labor standards, and regulatory coordination.

Financial Risk Rising: Escalating trade friction has amplified financial market volatility. Exchange rate fluctuations and trade financing hurdles now pose greater risks to FTZs/port and the enterprises within them.

Opportunities

Market Diversification: US tariffs have prompted Chinese enterprises to expand into overseas markets, including Southeast Asia, Africa, and Latin America, reducing reliance on the US market and expanding market coverage of Ch