China Hits Back at US with $60bn of New Tariffs

Guardian Web |

Image via UN Geneva/Flickr CC

China is to slap tariffs on an additional $60bn (£56bn) of imports from the US in retaliation against $200bn of new US import tariffs announced by Donald Trump.

The latest moves represent a new step towards a full-scale trade war between the world’s two biggest economies. Further escalation is deemed likely because Trump is facing low approval ratings ahead of the US midterm elections while China will not want to be seen to back down.

Trump announced his latest escalation of the bitter trade standoff between the two countries late on Monday, promising to introduce the additional border taxes of 10% on Chinese goods from next week. The tariffs – designed to make US domestic products more competitive against foreign imports – apply to almost 6,000 items, including consumer goods such as luggage and electronics, housewares and foods.

The US president threatened further tariffs on an additional $276bn of goods if Beijing unveils retaliatory measures – a step that would mean tariffs on all Chinese imports to the US and equate to 4% of world trade.

Early Tuesday he tweeted to accuse China of “actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me”.

The US president added: “What China does not understand is that these people are great patriots and fully understand that China has been taking advantage of the United States on trade for many years.

“They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!”

China has openly stated that they are actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me. What China does not understand is that these people are great patriots and fully understand that.....— Donald J. Trump (@realDonaldTrump)

.....China has been taking advantage of the United States on Trade for many years. They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!— Donald J. Trump (@realDonaldTrump)

However, China then unveiled its new $60bn of tariffs, on imports including aircraft and coffee.

Analysts said the Chinese government has a comprehensive toolbox of measures it could also deploy to disrupt US businesses operating in China – and might even devalue its currency to offset the impact of the tariffs.

Ahead of China’s latest move Jack Ma, the founder of Chinese e-commerce giant Alibaba and one of the wealthiest men in China, warned the conflict could drag on for 20 years and would be a “mess” for all parties.

China faces difficulty in responding on a scale equal to Trump’s new tariffs because its annual imports from America total only about $130bn, while its exports to the US total more than $500bn.

Erik Britton of research firm Fathom Consulting said he believed China was eventually likely to capitulate and would enter fresh trade talks to end the threat of tariffs as a result of that imbalance.

“Our likeliest outcome is that China yields. They’ve been in a game of chicken – only the US is driving a 40-tonne truck and China is driving a Fiat Cinquecento.”

Britton added that Trump was probably using the threat of tariffs to force Beijing to change its economic policies covering US companies.

“The point is they[ the US] want something to change,” he said. “When I threaten my kids with stopping their pocket money it’s not that I want to raise money. It’s that I want them to tidy their room.”

Trump has argued Beijing uses “unfair” trade practices such as forcing the transfer of US firms’ intellectual property when they operate in China. Some analysts, however, said the threat of tariffs could exacerbate these actions, rather than end them.

While China has less scope to match the scale of the US tariffs given its lower value of imports, it could apply non-tariff barriers to make life harder for American firms.

David Chmiel, the managing director of risk consultancy Global Torchlight, said: “There could be a weaponising of regulation by Beijing. You can see a situation where they target specific US companies.”

Economists said this could have a significant impact as many US companies – including Nike, General Electric and Apple – have operations in China. Disruption could range frominvasive health and safety checks to tougher labour controls or rules on fire standards. Mergers and acquisitions could be made more difficult, and state contracts could be withheld from US firms.

Keith Wade, the chief economist at Schroders, said: “Very zealous enforcement of regulations could make life quite difficult for companies. America is also probably more dependent on China than the official trade figures suggest.”

US Census Bureau figures show that China sells about $375bn more to America than goes the other way. However, Deutsche Bank reckons direct in-country sales by US firms in China would give only a $20bn surplus in favour of the US.

China could also influence its currency to depreciate on foreign exchanges, offsetting the impact of the tariffs and making its goods more competitive to international buyers around the world. It could also shift the economy away from exports towards higher levels of domestic consumption, helped by the emergence of middle-class Chinese workers and its transition towards a services-led economy.

Geoffrey Yu, head of the UK investment office at UBS Wealth Management, said there could be short-term pain for the Chinese economy from this approach. But he added: “What currently seems a damning situation could actually spark a re-orientation of China’s economic model.”

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