A new round of punitive tariffs imposed by the United States and China took effect on September 1 in the latest escalation of their 14-month trade war. The measures came into effect at 12.01pm Beijing time, 12.01am in Washington. The U.S. levied a new 15% tariff on about USD110 billion worth of Chinese products, including clothing, food, household goods, Bluetooth ear buds and televisions. It is the first tranche of a two-part duty on USD300 billion worth of imports – or virtually all of the Chinese goods that have yet to be hit – with the second round postponed to December 15 to prevent American shoppers being hit with price rises during the Christmas season.

In response to the U.S. tariffs, Beijing raised existing tariffs on USD75 billion worth of U.S. goods – including soybeans – by between 5% and 10%, also in two steps, on September 1 and on December 15. The Chinese measures also included the introduction of a new 5% tariff on crude oil imports from the U.S. and the reinstatement of a 25% duty on U.S.-made cars. A 5% tariff on American car parts will take effect on December 15. Meanwhile, Washington is seeking public feedback on Trump’s proposal to raise the tariff rate on USD250 billion of Chinese imports already subject to the penalties to 30% from 25% from October 1.

U.S. President Donald Trump told reporters on August 31 that “as of now” the face-to-face talks scheduled to take place in Washington later this month were still on. China, however, has yet to confirm the negotiations will resume, with the Chinese Ministry of Commerce (MOFCOM) saying that the U.S. would need to create the proper conditions for the talks to resume and “make substantive concessions on some issues that are unacceptable to China”.

American businesses have strongly opposed the increased tariffs on USD300 billion of Chinese imports, which mainly targets consumer goods including smartphones. Some 150 business groups under the “America for Free Trade” organization sent an open letter to U.S. President Donald Trump urging him to delay the increase. The moves clearly indicate that the Trump administration does not plan to step back from escalating its trade war with China. The proposed increase will target some 6,830 types of imports from China, including goods related to technology transfer, intellectual property and innovative industries.

Industry leaders say the uncertainty and unpredictability in the trade war has made it difficult for U.S. businesses to operate in China, especially for companies with their supply chains sourced from within the country. “The President is right to fight against China’s forced technology transfers and intellectual property theft,” said Gary Shapiro, President and CEO of the Consumer Technology Association. “But tariffs are taxes on Americans, putting us on the wrong economic path and compromising our global leadership.” Based in Virginia, the Consumer Technology Association consists of trade representatives from 2,200 technology firms in the U.S. “Instead of making America great again, the President is using tariffs to make a great economic mistake – again,” Shapiro added. “We are writing with an urgent request that you postpone all tariff rate increases on Chinese goods that are scheduled to take effect this year,” Americans for Free Trade said. “These tariff rate increases come at the worst possible time, right in the middle of the busy holiday shipping period,” it added. Americans for Free Trade was formed nearly a year ago in response to the bilateral trade war that Trump started in July 2018.

The U.S. first imposed a 25% tariff on USD50 billion of Chinese imports in July and August last year, followed by a 10% tariff on USD200 billion in September. The tariff rate on the USD200 billion of goods was raised to 25% in May. Trump announced the plan for the two tariff increases on August 23 in retaliation for China imposing additional duties of 5% to 10% on USD75 billion of U.S. imports earlier that day. The Chinese move itself was in retaliation to Trump’s announcement at the start of August that he planned to impose an original 10% tariff on USD300 billion of Chinese goods not yet subject to punitive import tariffs, the South China Morning Post reports.

“We are willing to resolve the trade dispute with the U.S. through calm negotiations,” Vice Premier Liu He said in a speech at the Smart China Expo in Chongqing. “We resolutely oppose the escalation of the trade war, which is not beneficial for the U.S. or China. It is also not beneficial to the world.” He reaffirmed China’s commitment to welcoming companies from around the world, including the U.S., to invest and conduct business in its domestic market. China will also continue to improve its investment environment and strengthen its protection of intellectual property, Liu said. “We strongly oppose technology blockades and protectionism. We will work hard to keep our industrial chains intact,” he added.

Analysts said that China would have to ease economic policy further to cushion the worsening impact from the escalating trade war and weakening domestic demand. Macquarie analysts suggested that China may increase infrastructure spending to shore up growth, although regulators may have to loosen the current controls on shadow banking.

Chinese state media has called U.S. President Donald Trump’s decision to escalate the tariff war a “strategic mistake” and vowed not to give in to America’s “unreasonable demands”. Media also called Beijing’s retaliation a “restrained response, different in nature from the American provocation”. An editorial in the People’s Daily warned that the latest move would make it impossible for Washington to “win” the trade war.

Beijing has cast doubt on whether trade talks will resume this month. China denied that it had called the U.S. negotiators to ask to resume the talks. The People’s Daily warned in a commentary: “China will do what it has said. Any attempts to force China to make concessions through extreme pressure will be in vain.” According to the Chinese Ministry of Commerce (MOFCOM), the last high-level phone calls between Chinese and U.S. trade negotiators took place on August 13 between Liu He, Lighthizer and Mnuchin. U.S. Treasury Secretary Steven Mnuchin also refused to confirm whether the scheduled trade talks would take place next month.

U.S.-China trade friction is dampening the outlook for American companies operating in China, hurting their ability to compete, according to the annual U.S.-China Business Council member survey. About 26% of respondents said they expected revenue from China to decline in the current year, a record high in the 19-year history of the survey. More than 80% of the surveyed companies – 8% more than a year ago – said trade tensions had affected their China business operations this year. On the other hand, half the 220 companies who took part in the annual survey said they expected China revenue to increase and their margins of profit in the country to be better than the global average. While China continues to be a priority market for most of the American companies surveyed, optimism is moderating with 22% – a record low – saying they were optimistic about the five-year outlook for business in China.

The survey results come as American business groups increasingly voice their opposition to the Trump administration’s trade policies. In an opinion piece in The Washington Post, U.S. Chamber of Commerce Chief Executive Thomas Donohue wrote: “The biggest mistake our leaders could make right now – putting our economy at greater risk of a downturn – is to stoke further uncertainty. Lift the tariffs, and restart trade talks with China now”.