All-Out Trade War: China Strikes Back With 25% Tariffs On $50BN Of US Imports

All-Out Trade War: China Strikes Back With 25% Tariffs On $50BN Of US Imports:

Beijing wasted no time in striking back at Washington’s latest round of tariffs on Chinese imports by announcing a new list of US products that would be subject to punitive action, as the world’s two largest economies edge ever closer towards an all-out trade war.

China’s State Council said on Wednesday it planned to impose additional tariffs of 25% on 106 US products imported into the country, including soybeans, airplanes, cars, and chemicals, CCTV reported. The Ministry of Commerce said the import value of the goods on the list in 2017 was $50 billion. The effective date will depend on when the U.S. action takes effect.

Beijing’s retaliation came just hours after the United States Trade Representative Office released details of hundreds of Chinese imports worth about $50 billion that it planned to hit with 25% tariffs, with the emphasis on industrial and hi-tech goods.

“China’s response was tougher than what the market was expecting – investors didn’t foresee the country levying additional tariffs on sensitive and important products such as soybeans and airplanes,” said Gao Qi, Singapore-based strategist at Scotiabank. “Investors believe a trade war will hurt both countries and their economies eventually.”

As reported last night, the US list covers 1,300 items, including high-definition colour video monitors, electromagnets used in MRI machines, aerospace products, and machinery used to make processed textiles, printed products and food.  Beijing responded immediately to the US announcement saying it would “take corresponding measures of equal scale and strength against US products in accordance with Chinese law”.

USTR developed the tariff targets using a computer algorithm designed to choose products that would inflict maximum pain on Chinese exporters, but limit the damage to U.S. consumers. A USTR official said the list got an initial scrub by removing products identified as likely to cause disruptions to the U.S. economy and those that needed to be excluded for legal reasons.

“The remaining products were ranked according to the likely impact on U.S. consumers, based on available trade data involving alternative country sources for each product,” the official, who spoke on condition of anonymity, told Reuters.

USTR did include some key consumer products from China, including flat-panel television sets and motor vehicles, both electric and gasoline-powered with engines of 3 liters or less. A Reuters analysis that compared listed products with 2017 Census Bureau import data showed $3.9 billion in flat-panel television imports, and $1.4 billion in vehicle imports from China.

Among vehicles likely to be hit with tariffs is General Motors Co’s Buick Envision sport-utility vehicle, which is assembled in China and sold in the United States. Volvo, owned by China’s Geely Motors, also exports Chinese-built vehicles to the United States.

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As Reuters notes, unlike Washington’s list, which was filled with many obscure industrial items and “in process” goods – from light-emitting diodes to chemicals and machine parts – China’s list strikes at signature U.S. exports.

China’s foreign ministry spokesman Geng Shuang said China had shown sincerity in wanting to resolve the trade dispute through negotiations.

“But the best opportunities for resolving the issues through dialogue and negotiations have been repeatedly missed by the U.S. side,” he told a regular briefing on Wednesday.

We regret that soybeans are on the list. We have done everything to prevent this from happening, but we are still calling for a resolution,” said Zhang Xiaoping, China director of the U.S. Soybean Export Council told Reuters.

To be sure, the unexpected inclusion of soybeans on the list of Chinese tariffs – a sign that Beijing has no intention at diplomatically ratcheting up the heat – sent the price of soybeans tumbling as much as 5.3%, the biggest drop since July 2016. Wheat, corn, cotton were also down.

The reason for the plunge in soy prices is that China buys about a third of the entire U.S. crop, using it largely to feed 400 million or so pigs. Argentina and Brazil are the other suppliers, but analysts warn that’s not enough to meet the entire Chinese demand.

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