Imposition of tariffs marks official start of China-U.S. trade wa
July 10, 2018 Category Foreign trade, Weekly
At 12:01 am on June 6 (Washington time) the U.S. imposed tariffs of 25% on 818 Chinese import products worth USD34 billion. China immediately retaliated by imposing its own tariffs on the same amount of U.S. products it imports. This marks the official start of the long-awaited trade war between China and the U.S. The U.S. is expected to impose a second round of tariffs targeting 284 Chinese products worth USD16 billion in the coming weeks and U.S. President Donald Trump has said that if China retaliates – which it did immediately – he is considering to impose tariffs of an extra 10% on another list of Chinese imports worth USD200 billion. The main sectors hit are machinery and electronics as well as information and communications technology, according to an analysis of the tariffs by insurance company Credendo.
“The United States has ignited the largest trade war in economic history,” China’s Ministry of Commerce (MOFCOM) said. “The Chinese side, having vowed not to fire the first shot, was forced to stage counter-attacks to protect the core national interests and interests of its people.” Wei Jianguo, former Vice Minister of Commerce, said the conflict would affect the global value chain and people should not expect a swift resolution. “The trade war will last for a long time,” he said. Now Vice Chairman of the government-backed China Center for International Economic Exchanges, Wei said that China was “prepared to fight to defeat the unilateralism of the U.S.”. Beijing also said that it will file a complaint against the U.S. with the World Trade Organization (WTO). The initial impact of the tariffs may not significantly hurt China’s economy – the People’s Bank of China (PBOC) expects a decline of about 0.2% from gross domestic product growth.The current U.S. tariffs affect less than 1% of China’s total exports.
Washington’s list is heavy on tech goods, aiming in part to shift supply chains away from China, while Beijing has put politically sensitive U.S. farm goods in the firing line. “For simple products it’s going to be faster to shift production, but for more complex products it’s going to be difficult,” said Denis Depoux at consultancy Roland Berger. The quickest manufacturers would need at least a year and “won’t make the changes until they know this is real and here to stay”, he said. The Chinese government has said it will protect the “legitimate interests” of foreign businesses in China, an indication that it would not retaliate against U.S. companies with investments in China. U.S. companies had USD256 billion in investment in China by the end of last year.
Ahead of the possible imposition of tariffs by the U.S., the Chinese government had announced that it would not “fire the first shot” but only retaliate after the U.S. made the first move. Premier Li Keqiang called on the European Union to work with China amid rising unilateralism and protectionism. Li made the comment in a phone call with EU Commission President Jean-Claude Juncker, a day ahead of his visit to Bulgaria and Germany. Premier Li attended the seventh Leaders’ Meeting of China and Central and Eastern European Countries in the Bulgarian capital of Sofia. He also co-chaired the fifth China-Germany intergovernmental consultation in Berlin.
China’s General Administration of Customs released first-half and June export data days ahead of schedule as it expected the U.S. to impose the tariffs. Growth in China’s U.S.-bound shipments slowed to 5.4% in the first six months from 19.3% a year earlier. June export growth was even slower at 3.8%, down 23.8 percentage points from the same period in 2017. China’s exports of electronics and mechanical products to the U.S. grew 8% year-on-year in the first half, accounting for 62.6% of total shipments. Shipments of labor-intensive products were flat in the same period, while garment sales dropped 1.8%. ANZ Bank Chief Greater China Economist Raymond Yeung said the early release was “a sign of goodwill” from Beijing, indicating that Chinese exports to the U.S. were losing steam.
Chinese companies are expected to cancel most of the remaining soybeans they have committed to buy from the United States in the year ending August 31 as the extra tariff on U.S. imports took effect. China is the world’s top soybean buyer and has yet to take delivery of more than 1.1 million tons booked for the current marketing year. “These shipments will be either cancelled or resold if extra tariffs are imposed,” said Gao Yanbin, Investment Manager with agriculture investment firm Shanghai Shenkai Investment Co. “The tariff rate is too high which will make crushers lose money,” but some cargoes will get through because shipments destined for state reserves are free from tariffs, Gao said.
In a small sign of goodwill from the U.S., ZTE Corp has been allowed to temporarily resume business activities from July 2 to August 1. U.S. companies will also be allowed to sell their products to ZTE. But the dispute has not been settled yet as ZTE’s new Board of Directors still needs to become fully operational and two bills before the U.S. Congress including penalties on ZTE still need to be reconciled and signed by President Trump.
U.S. chipmaker Micron Technology has been slapped by the Fuzhou Intermediate People’s Court with a preliminary injunction temporarily stopping it from selling parts of its products in China amid patent disputes with rival United Microelectronics Corp (UMC).
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