Trade War Heats Up

Trade War Heats Up

Just hours after the United States introduced 25 percent trade tariffs on $34 billion worth of Chinese goods, Beijing has retaliated with mirror measures against American imports.

“After the United States introduced the new tariffs, China’s reciprocal measures also immediately took effect,” said the spokesman for the Chinese Foreign Ministry Lu Kang. He did not specify the amount or types of the US goods that will be taxed by China.

China’s commerce ministry earlier said the country has no choice but to fight back after the US “launched the largest trade war in economic history.” Beijing also accused Washington of breaching trade rules of the World Trade Organisation (WTO).

“These tariffs violate the WTO rules and represent a typical “trade bully”, posing a grave threat to the security of global industry and value chains. Moreover, it will hamper global economic recovery and trigger global market turmoil while dealing a blow to many multinationals, enterprises and ordinary consumers,” said the ministry on Friday.

It added that instead of “serving the interests of US companies and people, the move will prove to be counter-productive and damaging.”

US tariffs of 25 percent apply to 818 Chinese imports worth $34 billion. They are the first stage in levies threatened by the Trump administration on a total of $450 billion worth of Chinese goods.

US President Donald Trump told reporters on Thursday that US tariffs on an additional $16 billion in Chinese goods are set to take effect in two weeks. He added the US is ready to target an additional $200 billion, and then $300 billion more should Beijing retaliate.

That would bring the total of targeted Chinese goods to potentially $550 billion which is more than the $506 billion in goods that China shipped to the US last year.

Beijing earlier released a target list of $34 billion worth of imported US goods, including automobiles and agricultural products that also faced 25 percent tariffs.

“China promised to not fire the first shot, but to defend national core interests and the interests of the people it has no choice but to strike back as necessary,” said the Ministry of Commerce.

Moscow has raised tariffs from 25 to 40 percent on some US imports in response to Washington’s move to impose tariffs on Russian steel and aluminum.

“Compensating measures apply as additional, higher rates of import duties from 25 to 40 percent of the price of imported goods. They will cover certain US goods, whose alternatives are produced in Russia,” Economic Development Minister Maksim Oreshkin said, as quoted by TASS news agency.

“In particular, measures apply to certain types of road construction machinery, oil and gas equipment, metalworking and rock drilling tools and optic fiber,” he added.

Russia has the right to impose tariffs on other goods, since the responding levies don’t cover the country’s $537.6 million losses from US steel and aluminium tariffs, according to the Russian minister.

“Currently our higher duties cover only part of the damage – $87.6 million. This is the compensation Russia has the right to under WTO rules,” Oreshkin said.

Russia is expecting a decision from the World Trade Organisation on whether US measures comply with the trade rules of the organization. It can fully retaliate in three years, Oreshkin said.

If the WTO rules the US tariffs were illegal, Russia would levy an additional $450 million worth of US imports. The $87.6 million in tariffs is the amount Russia can levy without the WTO decision, according to the organization’s rules.

The US imposed tariffs on steel and aluminum on major global suppliers, citing national security concerns. The trade penalties of 25 percent on imported steel and 10 percent on imported aluminum took effect from June 1. China, Russia, Japan, India, Turkey and the EU have accused the US of protectionism and threatened to retaliate with levies on US goods.

The European Union has turned down China’s proposal of co-operation against escalating US trade tariffs on European and Chinese goods.

China proposed launching joint action against the United States at the World Trade Organization (WTO), EU officials and diplomats told Reuters ahead of a Sino-European summit in Beijing on July 16-17.

Chinese Vice-Premier Liu He told the media that Beijing is ready to set out for the first time which sectors it can open to European investment at the annual summit.

According to EU officials, Chinese state media has promoted the message that the European Union is on China’s side, putting the bloc in a delicate position.

Chinese Xinhua news agency said on Wednesday that China and Europe “should resist trade protectionism hand in hand.”

“China and European countries are natural partners,” it said. “They firmly believe that free trade is a powerful engine for global economic growth.”

Rejecting the idea of partnership on the trade issue, one European diplomat said: “China wants the European Union to stand with Beijing against Washington, to take sides,” adding, “We won’t do it and we have told them that.”

Washington has hit Chinese and European goods with tariffs as part of President Trump’s attempt to narrow the US trade deficit with its trading partners. China has been the biggest target of Trump’s tariffs.

Last month, the White House announced that it would introduce the latest 25-percent duties on 818 items of Chinese imports worth $34 billion on July 6. Beijing said it has prepared reciprocal levies against American products, which will be introduced on the same day.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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