The U.S. and China imposed additional tariffs on each other’s imports, further escalating the tariff war. President Trump moreover “ordered” U.S. companies to seek alternatives for trade with and investment in China. There is also a total stalemate in trade talks between the two countries.

On September 1, the U.S. is set to implement a 10% tariff on Chinese imports worth around USD130 billion. Tariffs on a second batch of about USD155 billion worth of goods were postponed to December 15. But in retaliation for the first batch, China announced imposition of 10% tariffs on USD75 billion worth of U.S. imports. China’s Customs Tariff Commission said the duties will apply to goods includin soybeans, beef, pork and crude oil, and a 25% tariff on American vehicles and car parts would take effect from December 15, up from the 5% now in place. The U.S. announced it will increase tariffs on USD250 billion of Chinese goods from 25% to 30% starting 1 October and raise the tariffs on another batch from 10% to 15% starting on September 1.

The Chinese action led U.S. President Donald Trump to again raise tariffs on Chinese imports. He also for the first time called his “good friend” Xi Jinping an “enemy”, although he rhetorically asked whether Federal Reserve Chairman Jay Powell might be even worse. The comment “is a milestone moment that can’t be walked back”, said Robert Daly, Director of the Wilson Center’s Kissinger Institute on China and the United States. “Even if all Trump meant by ‘enemy’ was to say that ‘someone who annoys me at the moment’, Beijing will reasonably view this rhetorical shift as a deliberate threat,” Daly added. “Trade negotiators seek accommodations; enemies wish each other harm.”

The U.S. President also ordered U.S. companies to leave China and look for alternatives. “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA,” Trump tweeted. But the President has no legal authority to compel U.S. companies to leave China, and it is as yet unclear how he will impose his “order”. But according to Trump himself, he does have the authority to force all U.S. businesses to leave China, citing a law of 1977 which was passed precisely to restrain presidential power. He might, however, declare a national emergency to impose exceptional measures.

“This is a trade war that should have taken place years ago … somebody had to do it. I am the Chosen One,” President Trump commented. But at the G7 Summit in Biarritz, France, UK Prime Minister Boris Johnson and French President Emmanuel Macron urged Trump to ease tensions with China and stop the tariff war. “I want to see a dialing down of tensions, and I want to see tariffs come off,” Johnson said.

Trump also ordered Amazon, Federal Express, UPS and other logistics companies to search for the opioid fentanyl in shipments from China, claiming that the drug kills 100,000 Americans a year. Trump boasted that he was “the chosen one” to take on China in the trade war and that he was going to win. Tension between China and the U.S. also escalated last week over Trump’s approval of the sale of 66 F-16V, or “Viper”, jets to Taiwan in a USD8 billion deal, with Beijing threatening to impose sanctions on companies involved in the sale.

The slide of the Chinese currency may be partly offsetting the effect of the tariffs, as the value of the Chinese yuan fell to a fresh 11-year low against the U.S. dollar. The drop in the yuan followed a reduction in interest rates by the People’s Bank of China (PBOC) last week. “Perhaps the PBOC is sending a message to the U.S. trade hawks that it will let the yuan gradually weaken as a policy weapon to neutralize the effect of increased tariffs,” said Stephen Innes, Co-founder of Valor Markets. The Economist Intelligence Unit (EIU) warned that businesses should prepare for a prolonged conflict and be aware that the trade war could escalate in other ways. The weaker yuan and prospects that other Asian currencies would follow, could exacerbate the sharp increase in capital outflows from Asia already underway, analysts warned.

U.S. Vice President Mike Pence repeated President Donald Trump’s warning that it will be harder for the United States to reach a trade deal with Beijing if protests in Hong Kong turned violent. Trump hinted that the White House would like to see Beijing resolve the Hong Kong protests before any agreement on trade is reached. But the People’s Daily warned the U.S. not to link the trade negotiations with the situation in Hong Kong. “They would be naive in thinking China would make concessions if they played the Hong Kong card,” according to a commentary in the newspaper. It came after President Trump said that trade talks with China could be hampered if Beijing used violent means to crack down on the ongoing protests in Hong Kong.

After Huawei received another 90-day reprieve till November 19 from the restrictions of having been put on the U.S. Entity List, the company is drawing up new plans to be better prepared when the restrictions effectively come into force. The Entity List restricts Huawei’s ability to buy hardware, software and services from American hi-tech companies. The aim of the temporary license was to minimize disruption to the company’s existing networks and mobile services, which include many U.S. rural networks. “We believe that Huawei will not be able to return to normal operations until a comprehensive trade agreement is reached between the U.S. and China,” said Jean Baptiste Su, Analyst with Atherton Research in San Jose, California. He added that Huawei “will have to contemplate launching future smartphones and network equipment with its own operating system and permanently find a replacement for its U.S. suppliers, including Microsoft, Intel, Nvidia, and Broadcom” if the trade war and its blacklisting are not resolved.

Huawei decried the move to add more of its affiliates to the list. “This decision, made at this particular time, is politically motivated and has nothing to do with national security,” the company said in a statement. “These actions violate the basic principles of free market competition. They are in no one’s interests, including U.S. companies. The company’s financial results have so far not been affected by the trade ban, as it posted a 23.2% increase in first-half revenue on the back of higher smartphone shipments and robust demand for its 5G mobile network equipment. Huawei Founder Ren Zhengfei said he doesn’t want relief from U.S. sanctions if it means China must make concessions in the trade war. He also said he was confident Huawei will do well without relying on American companies because it is developing its own technology.

As soybean imports from the U.S. have plummeted, China is boosting domestic output and looking for alternative long-term suppliers such as Russia. The trade war with the U.S. was the main theme at the the fourth China Soybean Industry International Summit Forum in Harbin, Heilongjiang province, attended by 800 delegates. “In the thousands of years of Chinese history, soybeans have never been so closely watched by the whole world and by state leaders in various countries as they have today,” China Soybean Association President Yang Baolong, told the Forum. Shi Yong’ge, President of the Jiusan Group that produces half of China’s soybeans from its base in Heilongjiang, said that China’s 25% tariff on U.S. soybeans have made them uncompetitive in the Chinese market. Between October 2018 and March 2019, China bought just 2.7 million metric tons of U.S. soybeans, around a tenth of the 24.4 million metric tons bought during the same period a year earlier.

China is preparing to launch a widely anticipated “unreliable entity list,” to severely punish companies that have undermined China’s national interests. The “unreliable entity list” mechanism is currently going through internal deliberations and “will be announced in the near future,” MOFCOM Spokesman Gao Feng told a press conference. The scope of the “unreliable entity list” will not be limited to the Huawei case as other foreign companies have also been accused of undermining China’s national security regarding “secessionist actions” in Hong Kong and arms sales to Taiwan, Bai Ming, Research Fellow at MOFCOM’s Chinese Academy of International Trade and Economic Cooperation, told the Global Times. Punitive measures could include hefty penalties, cancellation of business licenses that are compulsory to do business in China, and a temporary or permanent ban from the Chinese market, Gao said. He added that China will likely launch the mechanism first instead of listing the companies.