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US-China trade war: Beijing hits back

China announced its first retaliation on March 23 against Donald Trump’s trade measures – levying a high tariff on steel and Aluminium (25 per cent and 10 percent respectively) and fresh tariffs on $50 billion of Chinese imports with indications of more protectionist measures in the future. The Chinese retaliation came just a few hours after President Donald Trump outlined fresh tariffs on $50 billion of Chinese imports and pledged there’s more on the way.  China unveiled tariffs on $3 billion of US imports in response to steel and aluminium duties announced by Trump administration earlier this month. China is aware about US focus on it for trade measures and it became more evident as the White House declared a temporary exemption from tariffs for the European Union and other nations.

New US- China trade measures against each other

In a ramping up of his “America First” ethos, Trump on March 22 said he had ordered tariffs on $50 billion of Chinese imports as recompense for alleged intellectual property abuses. Hours later, China announced planned tariffs on imports of US pork, recycled aluminium, steel pipes, fruit and wine, according to a commerce ministry statement on March 23. The US will impose 25% duties on targeted Chinese products to compensate for the harm caused to the American economy from China’s policies, according to a fact sheet released by USTR. The proposed product list will include items in aerospace, information and communication technology and machinery. The USTR will announce the proposed list in the next “several days”. Further, China will also pursue legal action against the US at the World Trade Organization (WTO) in response to the US’s planned tariffs on steel and aluminium imports. China called for dialogue to resolve the dispute. With Beijing’s response to the tariffs aimed at intellectual-property abuses—enacted under Section 301 of the US trade law—as yet unannounced, the relatively limited value of trade curbs may be just the first stage of its response. Also according to  Chen Fuli, head of the treaty and law department at China’s commerce ministry, China has prepared a comprehensive plan to counter the 301 action He added that the government has had no communication with the US on the issue as it is a unilateral action not covered under WTO rules. The White House gave the European Union, Argentina, Australia, Brazil, Canada, Mexico, and South Korea, until 1 May to negotiate levies on steel and aluminium. The administration said the suspensions can be renewed or revoked then, “pending discussions of satisfactory long-term alternative means to address the threatened impairment to US national security”.

Implementation of new measures

No tariffs have been collected yet, as measures in both China and the US are subject to further negotiation and public consultation. If China and the US can’t reach an agreement on steel and aluminium trade, after a public consultation period which ends 31 March, Beijing could begin collecting tariffs of 15% on imports worth $977 million, including fresh fruit, nuts, wines, denatured alcohol, ginseng, and seamless steel tubes. After evaluation, China could then implement tariffs of 25% on around $2 billion worth of product imports, including pork and aluminium. Economists said the impact of the China tariffs announced until now may be limited. If the US imposes a 25% duty on $50 billion of imported goods, the additional $12.5 billion tariff is equivalent to an additional 2.9% charge on all of China’s exports, according to JPMorgan economists led by Haibin Zhu in Hong Kong. From a macro perspective the additional tariff is only equivalent to 0.1% of China’s GDP and affected exports only account for 2.2% of China’s total exports,” they wrote in a note. “The direct macro impact tends to be limited.”

Brewing Trade war and adverse effects

Policy makers across the world are warning of a brewing trade war that could undermine the broadest global recovery in years. Meanwhile, business groups representing companies ranging from Walmart Inc. to Inc. are warning US tariffs could raise prices for consumers and sideswipe stock prices. Central bankers have also sounded warnings. Trump also directed Treasury Secretary Steven Mnuchin to propose new investment restrictions on Chinese companies within 60 days to safeguard technologies the US views as strategic.

USTR Investigations and changes of manipulation and violation on China

The Trump administration is framing the move as a major turning point in US-China relations. It followed a seven-month investigation by USTR into allegations China violates US intellectual property, under the seldom-used Section 301 of the 1974 Trade Act. The US concluded China engages in a range of violations, including policies that force American companies to transfer technology and the accessing of trade secrets through hacking, said Eissenstat.

China’s retaliatory measures are still modest

Analysts see China’s retaliation as modest in view of its significance for the US with regard to trade and investment. China’s response is surprisingly modest in light of the US actions, suggesting there could be a good deal more to come,” said Stephen Roach, a former non-executive chairman for Morgan Stanley in Asia and now a senior fellow at Yale University. “As America’s third largest and most rapidly growing export market and as the largest foreign owner of Treasuries, China has considerably more leverage over the U.S. than Washington politicians care to admit.”

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