Opening salvoes in U.S.-China trade war reverberate
March 27, 2018 Category Foreign trade, Weekly
U.S. President Donald Trump has imposed tariffs on about USD60 billion in Chinese imports to retaliate against the alleged theft of American intellectual property. The new import duties will target industrial sectors where “China has sought to acquire an advantage through the unfair acquisition or forced technology transfer from U.S. companies,” senior White House Economic Adviser Everett Eissenstat announced. Trump will instruct U.S. Trade Representative Robert Lighthizer to publish a proposed list of products that could be subject to tariffs. The U.S. said it would release details of the products affected within 15 days. As well as the tariffs, Trump has also instructed Finance Secretary Mnuchin to propose new investment restrictions on Chinese companies within 60 days.
The U.S. action sent stocks diving on Wall Street, and triggered an immediate response from the Chinese government with retaliatory action. China’s Ministry of Commerce (MOFCOM) said China will “take all necessary measures” to defend its rights and interests. “China will absolutely not sit back watching its rights and interests be damaged,” said an official at the Ministry’s Treaty and Law Department. “Concerning the Section 301 investigation, China has made clear its position several times that it stands firmly against such unilateral and trade protectionist practices from the U.S. side,” the official said.
China retaliated by levying punitive tariffs on USD3 billion of goods imported from the U.S. Those goods include 128 U.S. agricultural and steel products. China plans to levy 15% tariffs on 120 types of U.S. products, including fruit, wine and steel pipes, worth USD977 million. It also plans to impose 25% tariffs on another eight categories of products worth USD2 billion, including pork and recycled aluminum.
This modest initial response could be supplemented by other measures. China’s Foreign Ministry Spokeswoman Hua Chunying said that “China’s market receives the largest number of U.S. planes and soybeans and the second largest number of U.S. cars and cotton”. The Chinese Embassy in Washington said in a statement: “If a trade war were initiated by the U.S., China would fight to the end to defend its own legitimate interests with all necessary measures.” Cui Tiankai, China’s Ambassador to the U.S., said that China is “looking at all options” in response to Trump’s trade action. “We don’t want any trade war with anyone,” Cui was quoted. “We are still trying to avoid one with the U.S. “If a trade war is forced on us, we have to fight back.” Arthur Kroeber, Research Director and Co-founder of Gavekal Dragonomics, said China surely has “an equally specific, but longer”, list of targets ready to go when Washington finally unveils its Section 301 tariff list.
According to China’s official People’s Daily newspaper, Apple, Boeing, Intel, Qualcomm and Texas Instruments would be among the biggest losers in a China-U.S. trade war. Vice Premier Liu He spoke to U.S. Treasury Secretary Steven Mnuchin over the phone during the weekend in what was the first high-level contact between the two governments since the White House revealed the trade measures. Liu told Mnuchin that the U.S. investigation into China’s alleged breaches of intellectual property rights went against international trade rules and would not benefit the U.S., China or the rest of the world. “We hope both sides will be rational and work hard to maintain the stability of the overall China-US trade relationship,” he said.
According to the South China Morning Post, China could retaliate further by imposing tariffs on imports of U.S. soybeans, motor vehicles, aircraft, and electronics components and semiconductors. China is the world’s biggest importer of soybeans, most of which are used for animal feed. In 2017, it was also the second-largest importer of U.S. agricultural products, buying USD19.6 billion of goods. Any punitive tariffs on soybeans would have a huge impact on American farmers. In 2017, the U.S. sold more than USD10 billion worth of vehicles to China, its second-largest export market after Canada. In 2010-17 General Motors sold more cars and trucks per year in China than it did in the United States. Last year alone, the totals were 3.9 million for China – or almost 39% of its global total – and just 3 million in the U.S. Boeing Corporation delivered 202 planes to China in 2017 – or 26% of its global total – making the country its largest market outside the U.S.
China might also consider curbing tourism to the U.S. In 2016, the number of Chinese visitors to America rose 15.4% from the year before to 3 million. In that year alone, spending by Chinese visitors in the U.S. – including on education – topped USD33 billion, making them the country’s biggest foreign spenders. Finally, the Chinese government could consider reducing its holdings of U.S. treasury bonds, which would push up U.S. interest rates. The country held almost USD1.2 trillion worth of the debt instruments at the end of December 2017.
Apple Chief Executive Tim Cook called for “calm heads” and more open trade. “I’m cognizant that in both the U.S. and China, there have been cases where everyone hasn’t benefited, where the benefit hasn’t been balanced,” Cook said at the annual China Development Forum in Beijing. Tim Cook has visited China several times in the past year. “My belief is that one plus one equals three. The pie gets larger, working together,” Cook said.
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