The world’s two biggest economies have been brought to the brink of a trade war following US President Trump’s announcement of a 25% tariff on up to $50-billion in Chinese imports. The tariffs will take effect from July 6th this year.
Beijing quickly fired back that it would retaliate with penalties of its own, on the same scale, on American goods. China included details of tariffs on 545 US exports, including farm products, autos and seafood, according to the Xinhua state news agency.
The tariffs, according to Trump, deal firstly with what he contends are unfair trade practices in China and secondly, reduce China’s efforts to undermine US technology and intellectual property. The tariffs also fulfil a campaign promise Trump made.
"We have the great brain power in Silicon Valley, and China and others steal those secrets," Trump said on Fox & Friends. ''We're going to protect those secrets. Those are crown jewels for this country."
Financial markets on June 15th reflected the international community’s concerns about a possible US-China trade war . The Dow Jones industrial average was down more than 220 points in mid-afternoon trading before recovering to finish down 84 points. Other stock exhange averages also declined.
The US tariffs will cover 1,102 Chinese product lines worth about $50-billion a year. Included are 818 items, worth $34-billion a year, from a list of 1,333 the administration released in April.
A senior administrator, who briefed reporters under conditions of anonymity, said the US had removed some 515 product lines from the list, including televisions and some pharmaceuticals. The decision to remove these items was made in response to an official review of public reaction.
The administration is targeting an additional 284 Chinese products worth $16 billion a year, which it says benefit from Beijing's strong-armed industrial policies. However, it won't impose those tariffs until it gathers public reactions. Most importantly, US companies that rely on the targeted imports and can't find substitutes, can apply for exemptions from the tariffs.
The Trump administration has sought to protect consumers from the direct impact of the tariffs, which amount to a tax on imports. The tariffs target mainly Chinese industrial machinery, aerospace parts and communications technology, while sparing consumer goods like smartphones, televisions, toys and clothes. The tariffs will impose higher costs on US companies that make use of this equipment. Ultimately, these costs could be passed on to consumers over time. The impact should not be as visible as if consumers were taxed directly.
By contrast, the Trump administration imposed steep tariffs on imported washing machines earlier this year. By May, the cost of laundry equipment had jumped 17% from two months earlier, according to government data.
The administration characterised the tariffs it announced on Friday as entirely proper.
"It's thorough, it's moderate, it's appropriate," said US Trade Rep. Robert Lighthizer on Fox Business Network's Mornings With Maria. Lighthizer added, "Our hope is that it doesn't lead to a rash reaction from China."
But Beijing's Commerce Ministry retorted, "The Chinese side doesn't want to fight a trade war but facing the short-sightedness of the US side, China has to fight back strongly. We will immediately introduce the same scale and equal taxation measures and all economic and trade achievements agreed by the two sides will be invalidated." No details were provided in the ministry’s response as to which US goods would be targeted by Beijing’s retaliatory tariffs.
In April, China did announce some possible targets, including light aircraft, orange juice, whisky, beef and soybeans, which is an economically and politically important export from America's heartland. "The farmers can maybe look to their soybean associations for help to find other markets, but that doesn't happen immediately," said Dan Basse of AgResource, an agricultural research and advisory firm. "There's not much the farmer can do right now." The longer-term concern, Basse said, is that China will increasingly look to Argentina and Brazil and that the United States will lose market share.
According to Associated Press, Trump has already imposed tariffs on steel and aluminium imports from Canada, Mexico and European allies. The move sparked anger and retaliatory threats from some of America's closest long-time allies. But his proposed tariffs against China risk igniting a damaging trade war involving the world's two biggest economies.
Trump's decision follows his summit with North Korean leader Kim Jong-un. The president has coordinated closely with China on efforts to pressure Pyongyang to eliminate its nuclear arsenal. But he signalled that whatever the implications for that or other issues, "I have to do what I have to do" to address China's trade policies.
By June 30th, the administration is expected to finish writing the rules to restrict China's ability to invest in US technology.
Most of all, the US tariffs are a response to China's attempts to supplant US technological dominance. This includes the outright theft of some trade secrets and the country’s requirement that US companies share technology in exchange for access to the Chinese market.
The Trump administration said Beijing offers subsidies to favoured industries, encouraging them to overinvest and overproduce. The result is that China has flooded world markets with steel, aluminium, solar panels and other products. The result is that prices are undercut and foreign rivals are put out of business.
Wall Street has viewed the trade tensions with concern, fearful that they could strangle economic growth and undermine the benefits of the tax cuts Trump signed into law last year. "Imposing tariffs places the cost of China's unfair trade practices squarely on the shoulders of American consumers, manufacturers, farmers, and ranchers," said Thomas Donohue, president of the US Chamber of Commerce.
Political reactions to June 15th’s tariffs announcement cut across party lines. Senate Minority Leader Chuck Schumer, Democrat, New York, said Trump was "right on target." "China is our real trade enemy, and their theft of intellectual property and their refusal to let our companies compete fairly threatens millions of future American jobs," Schumer added. However, Congressman, Dave Reichert, Republican, Washington DC. said he disagreed with the action because "Americans will bear the brunt instead of China."