China retaliates against U.S. tariffs threat
August 6, 2019 Category Foreign trade, Weekly
Negotiators at the Shanghai trade talks which led to President Trump imposing new tariffs
After U.S. President Donald Trump unexpectedly announced he planned to impose another 10% tariff on USD300 billion of Chinese imports – those that have not yet been hit by tariffs – on September 1, China warned that it would retaliate. China suspended purchases of U.S. agricultural products because the promise to buy was linked to the U.S. promise not to impose further tariffs. As China’s currency dropped to an 11-year low, the U.S. designated China as a currency manipulator (see story below), something which it had not done since 1994.
The developments came after Trump said the latest negotiating session in Shanghai did not result in sufficient progress. The U.S. already levies tariffs of 25% on USD250 billion of Chinese goods. Adding both together would mean roughly all Chinese imports to the U.S. face higher taxes. China sold USD539.7 billion of goods to the U.S. last year. Beijing has retaliated with tariffs of up to 25% on U.S. goods worth USD113 billion. China is constrained by how much further it can go, given that total imports from the U.S. were worth USD120.1 billion last year. Foreign Ministry Spokeswoman Hua Chunying said that China would not give an inch under pressure from Washington. “If America does pass these tariffs then China will have to take the necessary countermeasures to protect the country’s core and fundamental interests. We won’t accept any maximum pressure, intimidation or blackmail,” she said.
In a first move of retaliation, China suspended purchases of U.S. farm products because the U.S. seriously violated an agreement reached between Presidents Trump and Xi in Osaka on June 29. Although China had promised to buy substantial amounts of U.S. farm products, it attached two preconditions: the U.S. agricultural products should fulfill Chinese requirements and the U.S. should show sincerity in the trade negotiations. The threat to impose additional tariffs violated the second condition. China also let its currency slide further below 7 to the dollar, thereby making China’s export products cheaper and partly offsetting the impact of the imposition of U.S. tariffs.
It has been reported that there were some divisions in Trump’s inner circle, with U.S. Treasury Secretary Steven Mnuchin recommending that the White House notify China before announcing the new tariffs. According to Bloomberg, Trump refused and tweeted out his plan in the Oval Office, in front of Mnuchin, U.S. Trade Representative Robert Lighthizer and acting Chief of Staff Mick Mulvaney.
China now faces a choice, according to the South China Morning Post. “One option is for China to concede to Trump by buying farm products from the United States and by agreeing to part of a currently rejected version of a deal to ensure the talks that resumed in Shanghai continue and the threatened tariffs do not materialize. Another option is that Beijing can walk away from the negotiations because Trump’s threat, in eyes of Beijing, goes against the truce agreed with Xi Jinping at the G20 Summit in Japan and is a way of placing “maximum pressure” that destroys goodwill and trust. China could also respond by canceling orders placed for U.S. farm products, increasing tariffs on U.S. products and accelerating the launch of a unreliable entity list to sanction American firms.”
Chinese state media has expressed pessimism about whether trade talks with the United States should continue after Donald Trump threatened new tariffs within days of negotiations resuming. Taoran Notes – a social media account affiliated with the Economic Daily newspaper – described Trump’s latest tariff threats as “destructive”. “The U.S. has again stepped back from their promises for two reasons: to pressure China into fulfilling U.S. expectations in the deal, and to attain someone’s political aims by meddling in the Sino-U.S. trade talks,” the commentary said. “China has no interest in domestic U.S. politics at all but has been kidnapped to be used for this purpose for multiple times. As the U.S. continues to flag new tariffs, is there a necessity to continue the trade talks in the near future? It depends on the attitude of the U.S.” The commentary also questioned whether China should fulfill its commitment to buy more U.S. agricultural products – something it agreed to as a gesture of goodwill when trade talks resumed. China’s A-share market, together with other Asian peers, tumbled after the unexpected tariff threat from the United States rattled investors globally.
More than 3,000 shares, or 85% of the shares listed on Chinese bourses in total, registered losses on August 2, with brokerages, energy equipment manufacturers and the shipping sector leading the fall. The move immediately sent U.S. stocks plunging, with the Dow Jones Industrial Average closing the day down more than 280 points, or 1.05%. After the U.S. called China a currency manipulator, stocks fell further.
Senior Chinese officials also hit back at the U.S. President’s accusation that China had failed to stop the import of the synthetic drug fentanyl, which has been blamed for fueling the opioid crisis that has claimed thousands of lives in the U.S. “The claim of the United States is factually groundless, China is totally not going to accept this claim,” Liu Yuejin, Vice Commissioner of the National Narcotics Control Commission, told the CCTV.
Before Trump’s latest tariff threat, Chinese media had described the talks in Shanghai as positive. The latest round of China-U.S. trade talks ended with “candid, constructive and efficient” in-depth exchanges in Shanghai and the next round will take place in the U.S. in September. The deep exchange between the two sides on issues of concern to both sides in the economic and trade fields was frank, constructive and efficient, Xinhua News Agency reported. But Bai Ming, Deputy Director of the Ministry of Commerce’s International Market Research Institute, told the Global Times that the scant information publicly disclosed showed that the talks must have been “heated” and had reached a stalemate.
Rather than buying more American products, China just made its biggest-ever cancellation of an order for American pork, scrapping a purchase of 14,700 metric tons, even as African swine fever is decimating China’s pig herd in an unprecedented global supply disruption. Even though China is importing huge amounts of meat, American producers are losing out to rivals in Brazil and elsewhere because of the trade war. U.S. farmers had built up their hog herds in anticipation of more exports to meet that supply gap, but if trade tensions continue to run high, they could instead be facing a massive domestic glut. American pork producers are losing USD1 billion annually because of the trade war, David Herring, President of the National Pork Producers Council, told a House Agriculture subcommittee in July. The dispute with China is costing producers USD8 per animal a year, he said.
U.S. blacklisting Huawei failed to seriously damage the company. Huawei reported robust first-half revenues of USD58.3 billion, up 23.2% year-on-year, even as the U.S. ban remains on software and key part supplies.
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