China Threatens New Tariffs on $60 Billion of U.S. Goods & other potential retaliations

Image_China Tariff

Summary

 

China threatened to put tariffs on $60 billion a year worth of imports from the United States in response to President Trump’s order of an increased rate of tariffs on Chinese goods, which indicates the further escalation of the trade dispute between the two countries. An order from President Trump was given to Office of the United States Trade Representative on Wednesday, considering increasing the rate of tariffs on $200 billion a year of Chinese goods from 10 percent to 25 percent. China, in turn, blames the US for escalating the tension, and will “take necessary counter-measures” by imposing up to 25 percent tariffs covering 5,207 tariff categories.

 

China has leveraged various methods to confront the raising tariffs; however, due to the discrepancy in the amount of importing goods, the extent of retaliation is limited. Since China’s exportation to the US is of higher value compared to its imports from the US, raising tariffs on goods from the US is not considered as a powerful weapon. However, China’s methods of retaliation are not confined to tariffs. For example, China may retaliate against the Chinese-owned operations of big American companies, which would hurt companies that manufacture and sell products in China. China may also guide a weaker currency (renminbi) to gain competitiveness in exporting markets.

 

 

China Threatens New Tariffs on $60 Billion of U.S. Goods

 

BEIJING — China threatened on Friday to put tariffs on $60 billion a year worth of imports from the United States if the Trump administration imposes its own new levies on Chinese goods.

 

The new threat comes just two days after President Trump ordered his administration to consider increasing the rate of tariffs it has already proposed on $200 billion a year of Chinese goods — everything from chemicals to handbags — to 25 percent from 10 percent.

 

The two countries have for months been engaged in an escalating trade dispute. They imposed matching tariffs last month on $34 billion apiece of each others’ products, and imposed levies on lengthy lists of products, from steel and aluminum to washing machines, and even dried fruit, during previous rounds of tariffs earlier this year.

 

The latest Chinese tariffs would, if implemented, be up to 25 percent, and cover 5,207 tariff categories, the country’s commerce ministry said in a statement on its website.

“Because the U.S. side has repeatedly escalated the tension, disregarding the interests of enterprises and consumers of both sides, China has to take necessary counter-measures to defend the country’s dignity and the interests of the Chinese people, defend free trade and the multilateral system, and defend the common interests of all countries in the world,” the ministry said.

 

Mr. Trump ordered the Office of the United States Trade Representative on Wednesday to consider the possibility of 25 percent tariffs on $200 billion a year worth of Chinese goods. That is in addition to considering 10 percent tariffs that are already under discussion. Those tariffs have not taken effect, and a final decision on their size and scope is not expected until next month.

 

Beijing is, in some respects, limited in the extent of its retaliation. Because China sells goods each year to the United States worth nearly four times as much as it buys, Beijing cannot threaten tariffs on the same value of goods as the United States can. China simply does not buy that much from the United States.

 

But Chinese officials have hinted in recent weeks that if the United States proceeds with tariffs on a very wide range of Chinese goods, then Beijing may also retaliate against the Chinese-owned operations of big American companies. From Apple to General Motors, a long list of large American enterprises have transferred extensive operations to China and could be vulnerable.

 

The iPhones, Chevrolets and other products manufactured and sold in China by American companies are designed to a considerable extent in the United States, by engineers earning higher salaries than the much more numerous Chinese factory workers who do the final assembly.

 

China’s latest threat on trade came at the end of a day during which Beijing also allowed its currency, the renminbi, to slide farther against the dollar in foreign exchange markets.

 

China’s central bank set the tone for the day on Friday morning when it announced that it was setting the allowable trading range for the currency to be 0.6 percent weaker than it had been on Thursday.

 

Traders in currency markets took that as a signal that Beijing would not object to further declines in the currency. They then drove it down further in offshore, less-regulated trading in Hong Kong, with the renminbi weakening below 6.9 to the dollar.

 

China’s central bank has now guided the currency down almost 9 percent since mid-April, when it took less than 6.3 renminbi to buy a dollar. A weaker renminbi makes Chinese exports more competitive in foreign markets, while making imported goods more expensive within China.

 

By adding the option of 25 percent tariffs, however, the Trump administration would have an extra weapon in case the renminbi falls further and gives Chinese exporters an added advantage.

 

The Chinese commerce ministry’s statement appeared to anticipate possible tariff levels that the Trump administration might impose, with the ministry saying that it was mulling tariffs at four possible levels on the $60 billion in goods, ranging from 5 percent to 25 percent.

 

China sold $505.6 billion worth of goods to the United States last year and purchased $130.4 billion. But the United States ran a small trade surplus in services, like banking and insurance, with China last year.

 

Source: New York Times, Keith Bradsher and Cao Li, August 3, 2018. Photo Credit to Brian Snyder.