US, China Prepare to Impose New Round of Tariffs Next Week, Targeting Billions of Dollars in Goods

20 September 2018

US President Donald Trump announced this week that an additional list of Chinese products will face tariffs, starting 24 September, with the affected goods worth an estimated US$200 billion.The news has reignited trade tensions with Beijing, with the Asian economy’s government confirming that they will respond with their own tariffs on a host of US products.

Trump issued a statement announcing the tariffs on Monday 17 September, describing the move as being divided in two phases: the products affected will first face an additional duty of 10 percent as of next Monday, with that duty to then increase to 25 percent at the start of 2019.

“China has had many opportunities to fully address our concerns. Once again, I urge China’s leaders to take swift action to end their country’s unfair trade practices.  Hopefully, this trade situation will be resolved, in the end, by myself and President Xi [Jinping] of China, for whom I have great respect and affection,” said Trump.

The tariffs have been described as a component of the Trump Administration’s Section 301 actions targeting allegedly unfair Chinese trade practices, particularly regarding claims of forced technology transfers and discriminatory licensing practices. (See Bridges Weekly, 22 March 2018)

According to the Office of the US Trade Representative (USTR), which published the list of affected tariff lines, the vast bulk of the products that the administration had considered for tariffs will be affected, minus nearly 300 that were omitted after a consultations process with stakeholders.

The remaining goods cover 5745 tariff lines, including goods such as frozen meats and different types of live, fresh, smoked, dried, or chilled fish, various assorted vegetables and fruits, eggs and nuts, and tobacco products. Certain minerals, metals, fertilizers, cosmetics, car and bike tires, leather, paper products, wood products, fuels, textiles, and chemicals are also among the wide assortment of goods targeted.

Trump also warned that, should China respond with tariffs in kind, he would be ready to put in place “phase three” of his plan, describing that as “tariffs on approximately US$267 billion of additional imports.”

The US already has tariffs in place covering US$50 billion in Chinese goods. The additional tariffs announced this week mean that around half of Chinese imports by value are being targeted, and Trump’s threat of escalating to phase three could mean that nearly all Chinese imports by value could face duties.

News of the tariffs came within days of reports that US officials were seeking renewed negotiations with their Chinese counterparts on existing tariffs and other areas of mutual concern, and shortly after G20 trade ministers met in Mar del Plata, Argentina. G20 ministers issued a brief statement afterward where they “recognised the need to step up dialogue and actions to mitigate risks and enhance confidence in international trade,” but without referring directly to rising trade tensions between key economies. (For more on the G20, see related story, this edition)

US tariffs escalate economic concerns at home, abroad

Some of the top-ranking Republican lawmakers working on trade have issued statements renewing past calls for the Trump Administration to resume negotiations with China, while cautioning that the tariffs could backfire, costing the national economy dearly.

“Any time tariffs are imposed I worry that Americans will be forced to pay extra costs – in this case on nearly half of US imports from China. I continue to emphasise that the ultimate means to create an effective outcome is for President Trump and President Xi to engage constructively to develop a long-term and profound solution that levels the playing field for American manufacturers, farmers, and workers,” said Kevin Brady, the Texas Republican who chairs the House Ways and Means Committee.

Meanwhile, various associations representing US companies have also issued statements criticising the tariffs, suggesting that these are not an effective way to address potentially legitimate trade concerns with China and warning that they will instead prove damaging to the US economy, particularly given the expected cost increases for American consumers.

“Today’s decision makes clear that the administration did not heed the numerous warnings from American consumers and businesses about rising costs and lost jobs on Main Street, in factories, and on farms and ranches across the country,” said Thomas J. Donohue, President and CEO of the US Chamber of Commerce, an association that purports to represent three million American companies.

On Twitter, Trump argued that the US economy has been relatively unhurt by his administration’s approach of using tariff increases to target allegedly unfair trading practices, without clarifying how that assessment was made. He also suggested that using tariffs in this way was providing valuable negotiating leverage.

“Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country - and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be ‘Tariffed!’,” said Trump on Monday. 

However, trade experts and some former US government officials have suggested that the opposite is true. Moreover, they suggest that the continued escalation of tariffs will lead to companies shifting their production processes to lower cost options abroad, though worries of persistent, increasing uncertainty over the next trade moves by these major economies persist. 

“This ill-conceived trade policy has failed to achieve its objectives, as the trade deficit reached record levels this summer. And with US fiscal policies that will cause the fiscal deficit to skyrocket, our trade deficit will continue to grow,” said Jack Lew, who served as Treasury Secretary under the administration of former US President Barack Obama, at an event on Sino-US relations hosted by the Peterson Institute for International Economics (PIIE) and the Chinese Academy of Social Sciences (CASS) on Monday 17 September. 

In a separate pair of tweets issued on Tuesday, Trump renewed his threats of further retaliation should China move ahead on its own pledges to respond to the US tariffs with its own measures.

“What China does not understand is that these people are great patriots and fully understand that China has been taking advantage of the United States on Trade for many years. They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!” said Trump.

China: US tariffs “wrong approach,” Beijing to adopt own tariffs

On Tuesday 18 September, China confirmed plans to subject various additional US products to tariffs of up to ten percent. The goods involved are estimated to be worth around US$60 billion.

“In spite of China's resolute opposition and solemn representation, the US has insisted on adopting the wrong approach of violating the rules of the World Trade Organization, seriously infringing on the legitimate rights and interests of China in accordance with the rules of the World Trade Organization, and threatening China's economic interests and security,” said China’s Ministry of Commerce, according to an informal translation of its statement.

The Chinese tariffs will apply on the same day as the first tranche of American tariffs, covering 3571 tariff lines. However, they affect a much smaller amount by value, given that China exports more to the US than it imports. Meanwhile, various analysts, including the Financial Times columnist Gideon Rachman, have warned that Beijing could implement other measures to penalise the US, such as by taking measures on currency or issue regulations that could make it more challenging for US companies working in China.

Separately, Chinese Premier Li Keqiang announced this week that Beijing would be enacting a series of measures making it easier for foreign investors to gain a more secure foothold in the Chinese market and compete with their local counterparts, according to comments reported by the Financial Times.

ICTSD reporting; “China pledges equal treatment for foreign investors,” FINANCIAL TIMES, 19 September 2018; “The US, China and the logic of trade confrontation,” FINANCIAL TIMES, 18 September 2018; “US-China trade war could soon pose a serious economic threat,” ASSOCIATED PRESS, 18 September 2018. “U.S.-China Trade Tussle Is Creating Winners in Southeast Asia,” BLOOMBERG, 18 September 2018.

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