The U.S. has notched up the pressure on Beijing by escalating the tariff war by sanctioning tariffs on US$200 billion worth of additional Chinese products. Enraged by the U.S. decision, China has retaliated by imposing tariffs on American imports worth US$60 billion.
The tariff war
The new tariffs imposed by the U.S. will raise the cost of select Chinese goods by about 10 percent, dampening U.S. consumer interest in the products and hurting sales. It will go into effect starting September 24. President Trump has also advised his administration to increase the tariffs to 25 percent in January 2019 in case Beijing continues to not agree to U.S. demands, which will further escalate the tariff war.
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“The President has been clear that he and his administration will continue to take action to address China’s unfair trade practices… We encourage China to address the long-standing concerns raised by the United States,” Fox News quotes a statement released by the White House.
The U.S. had already imposed 25 percent tariffs on Chinese goods worth US$50 billion. The latest measure would bring US$250 billion worth of Chinese imports under special U.S. sanctions. And even though the tariffs will raise prices of certain Chinese goods, the U.S. administration has been very keen to ensure that it won’t end up punishing its own customers with such measures.
“We were trying to do things that were least intrusive on the consumer… We really went item-by-item trying to figure out what would accomplish the punitive purpose on China and yet with the least disruption in the U.S,” Bloomberg quotes U.S. Commerce Secretary Wilbur Rose.
American’s trade advantage
Meanwhile, Beijing has declared that it will impose tariffs on US$60 billion worth of American goods. And given that China has already imposed tariffs on US$50 billion worth of American goods, the latest measure would take the total value of U.S. products affected by tariffs to US$110 billion.
However, experts believe that China will be most affected by the ongoing tariff war between the two nations because of a simple reason — China is more reliant on exports to stimulate its economy.
“China is the worse off of the two because it is more dependent on exports for growth. These relatively modest costs are a key factor behind their view as to why the Trump administration will keep pressuring the Chinese. His team feels they have China beat in terms of numbers,” says a Forbes article.
U.S. trade actions may be starting to bite as the new export order sub-index of China’s Purchasing Manager’s Index (PMI) fell by 0.4 points in August to 49.4. The sub-index measures the health of the country’s export sector, and the latest figures do not paint a rosy picture.
“If the U.S. goes ahead with the $200 billion plan, the impact on Chinese exports will be material,” says Money Control, quoting an anonymous Chinese ministry official prior to the latest sanctions.
Several analysts suggest that factory output in China may slow over the next several months in response to the escalated tariff war. This will negatively impact company profits and worker wages. Unemployment is a real risk in certain regions that are known to be export hubs.
President Trump has also threatened Beijing with tariffs on US$267 billion worth of additional Chinese imports if they hit back at the U.S. and hurt U.S. industries in a very serious manner.