Trade war threats get real as US and China impose tariffs

https://static.ffx.io/images/$width_1024%2C$height_577/t_crop_auto/t_sharpen%2Cq_auto%2Cf_auto/82bd7cbf08c3ea4e938372cfb341f3c7db1e417e

Donald Trump has turned his threats of a trade war into reality. (Photo: AP)

 

US President Donald Trump fired the biggest shot yet in the global trade war by imposing tariffs on $US34 billion ($46 billion) of Chinese imports. China immediately said it would be forced to retaliate.

The duties on Chinese goods started at 12:01 am Friday in Washington (2:01 pm AEST), which was just after midday in China. Another $US16 billion of goods could follow in two weeks, Trump earlier told reporters, before suggesting the final total could eventually reach $US550 billion, a figure that exceeds all of US goods imports from China in 2017.

US customs officials will begin collecting an additional 25 per cent tariff on imports from China of goods ranging from farming plows to semiconductors and airplane parts. China’s officials have previously said they would respond by imposing higher levies on goods ranging from American soybeans to pork, which may in turn prompt Trump to raise trade barriers even higher.

“The United States has violated World Trade Organization rules and ignited the largest trade war in economic history,” China’s Commerce Ministry said in a statement. “Such tariffs are typical trade bullying, and this action threatens global supply chains and value chains, stalls the global economic recovery, triggers global market turmoil, and will hurt more innocent multinational companies, enterprises and consumers.”

The statement didn’t provide details on exactly how China would respond.

But some major Chinese ports have delayed clearing goods from the United States, four sources told Reuters, potentially disrupting US imports of key products such as pork and soybeans.
The port of Shanghai put on hold clearing some US imports through customs, said an official at a company in the coastal city, which handles customs clearance for importers. He had spoken to customs officials.
There did not appear to be any direct instructions to hold up cargoes, but some customs departments were waiting until they had received official guidance from the central government on imposing hefty import tariffs on hundreds of products, the sources said.

Riskiest gamble

It’s the first time the US has imposed tariffs directly aimed at Chinese goods following months in which Trump accused Beijing of stealing American intellectual property and unfairly swelling America’s trade deficit.

“Once these tariffs start going into effect, it’s pretty clear the conflict is real,” said Robert Holleyman, former deputy US trade representative under President Barack Obama. “If we don’t find an exit ramp, this will accelerate like a snowball going down a hill.”

Recent US tariffs on steel and aluminium antagonised fellow developed nations and drew return fire from countries including the European Union and Canada.

Chinese state media has run numerous commentary pieces on the dispute over the past few days criticizing the American position.

Iconic victims

Iconic American companies such as Harley-Davidson are among those set to suffer. The motorcycle maker said this month it may move production out of the US to avoid EU tariffs on its bikes. American businesses from Apple and Walmart to General Motors all operate in China and are keen to expand. That hands Chinese President Xi Jinping room to impose penalties such as customs delays, tax audits and increased regulatory scrutiny if Trump delivers on his threat of bigger duties on Chinese trade.

Stocks down

Chinese stocks have taken a beating in recent weeks, entering a bear market, as concerns about the trade war have mingled with worries about China’s ability to control its debt and maintain growth. US stocks are up slightly more than 2 per cent this year as investors have weighed the threat of trade frictions against the strong performance of the world’s largest economy.

Trump is doubling down on his promise to put “America First” in the nation’s foreign and economic policies. He blames China for a bilateral trade deficit of $US336 billion and for costing US manufacturing jobs.

Risk to growth

The extent of the economic damage will depend on how far both sides go. If the US and China cool off after a first round of tariffs, the impact on their economies will be modest, according to Bloomberg Economics. Under a full-blown trade war in which the US slaps 10 per cent tariffs on all other countries and they respond, the economists reckon US growth would slow by 0.8 percentage point by 2020.

The impact of the first round of tariffs on $US34 billion in Chinese goods will be “quite small,” said Ethan Harris, head of global economic research at Bank of America Merrill Lynch. But he doesn’t “see the war ending until there are casualties.”

Auto investigation

Vehicles could be the next battleground. The Trump administration is reviewing whether to introduce duties on imported cars and trucks in a bid it says to protect US national security. The threat deepened tensions with the EU, which warns that car tariffs would inflict pain across its 28 member states.

That could set the stage for a prolonged conflict with Beijing, which has shown little interest in making fundamental changes to its economic model. Xi has balked at US demands to stop subsidising Chinese firms under his plan to make the nation a leader in key technologies by 2025. Negotiations between the two countries petered out with the Chinese accusing the US of blackmail.

The US imports much more from China than the other way around, giving Trump an advantage in a tariff dispute. That means Beijing could focus on introducing bigger regulatory or tax burdens on American companies who operate in China or want to tap its growing market. It could even take the drastic steps of devaluing the yuan or reducing its $US1.2 trillion holdings of US Treasuries, measures that would hurt it as well as the US.

In the past, the US used its economic clout to win trade skirmishes with developing countries, said James Boughton, a senior fellow at the Centre for International Governance Innovation in Waterloo, Ontario. China, whose economy has grown tenfold since it joined the World Trade Organization in 2001, poses a much more formidable adversary.

“The dynamic is different from anything we’ve seen,” said Boughton. “China has an ability to ride out this kind of pressure, to weather the storm, that a lot of countries didn’t have in the past.”

Full article: Trade war threats get real as US and China impose tariffs (The Sydney Morning Herald)

One response to “Trade war threats get real as US and China impose tariffs

  1. I’m no economist; yet, this is a high stakes gamble in my opinion. Everything seems to be “made in China”. Hell, the simplist thing like toothpicks – check out the container for its origin. It will say Made in China!
    We have to take a hard look as consumers; long have manufacturers not made replacement parts, so, for example, if the sensor in a disc recorder which receives the signal from a remote control dies, though the rest of the unit is quite functional, it has to be junked.
    Our domestic manufacturers will have to take the lead; American steel, American chips, printed circuits, everything that has fallen by the wayside. Tooling up to again produce appliances, and other goods here at home. That will take much fortitude,
    otherwise this action can be stated in one word: Brinksmanship.

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