Connect with us

World

China Hits Retaliation Button, Launching Tariffs as Trade War with U.S. Starts

Published

on

After three rounds of failed talks, a trade war between the world’s two largest economies is on.

On Friday, China’s Foreign Ministry spokesman said China had imposed countermeasures after America’s tariffs came into force.

Lu Kang, a spokesman for the ministry, said China’s tit-for-tat measures “had taken effect immediately after the implementation of the US tariffs.”

Lu was speaking after Washington’s 25 percent duties on U.S. $34 billion worth of Chinese goods came into force earlier in the day.

China’s Ministry of Commerce had said earlier that China would fight back against the U.S. and report to the World Trade Organization.

“China will not fire the first shot, but is inevitably forced to strike back to defend the core interest of the nation and its people,” a statement from the ministry said. “We will report to the World Trade Organization on a timely basis.”

U.S. President Donald Trump has threatened to target another U.S. $400 billion in Chinese products with tariffs if Beijing continues to hit back.

On top of that, each country has prepared a second tariff list of goods worth about U.S. $16 billion. The effective dates are pending as the office of the U.S. trade representative is in the midst of a public comment period on its list.

The trade war became official after Trump repeatedly said he wanted to reverse the United States’ massive trade deficit with China, which rose to about US$375 billion last year. That number is U.S. $100 billion higher than China’s own calculation.

Economists Stephen Gallagher and Yao Wei from Société Générale said a trade war between the U.S. and China would hurt everyone.

“One channel of spillovers is via weakened demand from the two largest economies in the world; and the other equally important and likely quicker transmission would be along global value chains,” they said in a statement.

Asia would be worst affected because their economies were deeply embedded in China’s supply chains, the economists said. Taiwan has the highest exposure — 2 percent of its GDP — to U.S. demand through its value-added contributions to China’s exports, followed by Malaysia, South Korea and Singapore.

Targeted goods

The American tariffs on a total of U.S. $50 billion worth of Chinese imports were based on a US investigation into China’s forced technology transfers and intellectual property theft from U.S. businesses operating in China. In retaliation, the U.S. government proposed a list of 1,333 targeted products in early April.

In an updated list published on June 15, Washington dropped many China-made consumer goods, such as TVs and flat panel screens, and added more intermediary products like semiconductors and plastics, after opposition during a public hearing in May.

The second tariff list, which is still under review, focuses particularly on “Made in China 2025,” a Chinese industrial policy aimed at getting ahead in high-tech industries. It includes electronic integrated circuits and the machines that produce them.

China struck back in April with a list of U.S. $50 billion worth of U.S. imports, many of which were agricultural products. Beijing later removed U.S. $16.3 billion worth of U.S. aircraft from the list and added more food such as fish and nuts.

The primary U.S. goods affected are soybeans and vehicles, while it is mostly Chinese industrial goods hit by U.S. tariffs.

Economic costs

Who bears the brunt of these rounds of tariffs? Eventually consumers.

Analysts said imposing tariffs on Chinese goods such as semiconductors would eventually increase prices for American consumers because they were key components of electronic products. And it’s not an easy business decision for U.S. manufacturers to shift sourcing after tariffs are in place.

“Alternative sources do exist for most of the Chinese products on the targeted list, but less expensive products purchased by less affluent consumers are likely to see larger price hikes as manufacturers substitute more expensive parts for Chinese inputs facing tariffs,” Mary Lovely, a senior fellow at the Washington-based Peterson Institute for International Economics, wrote.

“These consumers may not see much difference in performance due to one higher-quality part, but they are likely to see a difference at the cash register.”

Chinese consumers, on the other hand, could pay higher prices for imported seafood and fruit.

Future moves

Beyond the U.S. $50 billion worth of imports, the U.S. also began studying U.S. $200 billion more in Chinese goods for an additional 10 percent tariff after China retaliated. Trump has also threatened another U.S. $200 billion if China’s countermoves continue.

In theory, China cannot keep matching the scale of the American tariffs. Last year, China imported about U.S. $130 billion worth of goods from the U.S. but exported U.S. $500 billion worth.

So if the trade war keeps escalating, China may have to resort to non-tariff measures, such as limiting U.S. investment in China, although Beijing has so far hesitated to officially go down that route.

One potential target could be the total sales of U.S.-invested companies in China, which reached U.S. $481 billion in 2015, according to data from the U.S. Department of Commerce’s Bureau of Economic Analysis.

“China may well see curbs on US businesses in China as a justifiable response to restrictions on Chinese investment in the US,” Xie Yanmei, an analyst with the investment research firm Gavekal, wrote in a recent note. “There is a large arsenal of regulatory tools it could deploy.”

Source

Twitter

FACEBOOK

Trending