US-China trade war begins; tariffs on $34bn goods take effect

Source: ICIS News

2018/07/06

SINGAPORE (ICIS)--US tariffs on $34bn on Chinese goods took effect on Friday, prompting China to respond with the same scale and intensity, effectively triggering a trade war between the world’s two biggest economies.

China’s Ministry of Commerce (MOC) said the US has launched the “largest trade war in economic history”, and violated World Trade Organisation (WTO) rules.

The US 25% tariffs on 818 Chinese products were implemented from 00:01 Washington time (04:01 GMT) on Friday, which was midday in Asia.

China’s retaliatory tariffs cover 545 US products, which will include agricultural products such as corn and soybeans.

The US move is expected to be the first of a series as it hopes to bring down its huge trade deficit with the Asian giant.

US President Donald Trump was quoted late on Thursday by news agency Reuters that the second set of tariffs, involving $16bn of Chinese goods, is expected to take effect in two weeks.

Products under consideration for the second set include polyethylene (PE), polyvinyl chloride (PVC), polycarbonate, and polyamide alongside propane, LPG and hydrocarbon gases, naphtha, crude benzene, toluene and xylenes, and crude oil.

Further tariffs could be imposed on up to $500bn more Chinese goods in subsequent rounds, he said.

China has vowed on a tit-for-tat strategy on the US plan to put up trade barriers against the country.

“China promised not to shoot the first shot, but in order to safeguard the core interests of the state and the interests of the masses, it had to be forced to make the necessary counter attack,” the MOC said in a statement released minutes after the first wave of US tariffs took effect.

“We will inform the WTO in a timely manner about the relevant circumstances and work together with other countries to safeguard free trade and multilateral institutions,” it said.

China’s export-oriented economy is expected to take a major hit if the trade row with the US escalates further.

In June, manufacturing activities in China showed signs of weakening, logging a Purchasing Managers’ Index (PMI) reading of 51.5 points from 51.9 in May, as export orders slipped into a contraction mode.

A PMI reading of 50 and above indicates expansion, while a number below 50 denotes contraction.

Concerns about the trade war had also sent the yuan tumbling by more than 3% in June. While good for exports, a weak currency dampens domestic consumption.

By Pearl Bantillo

Additional reporting by Nurluqman Suratman and Fanny Zhang

Picture: Shipping freighters at sunset. (Source: Design Pics Inc/REX/Shutterstock)

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