China imposes countermeasures to new round of US tariffs

Fanny Zhang

18-Sep-2018

SINGAPORE (ICIS)–China will “synchronize its countermoves” to the US’ latest round of tariffs, further escalating the trade war between the world’s two biggest economies.

“We deeply regret this. In order to safeguard our legitimate rights and interests and the global free trade order, China will have to synchronize its countermoves,” the Chinese Ministry of Commerce said on Tuesday.

Beijing had previously announced a 5%-25% tariffs on $60bn worth of US goods as its countermeasure to a further tariff action by the US.

US President Donald Trump announced on 17 September that 10% tariffs on additional $200bn of imports from China would take effect on 24 September and the rates will increase to 25% from 2019.

This represents the third wave of tariffs imposed by the US on China since July this year, bringing the total affected Chinese goods to $250bn, escalating the trade war between the world’s two biggest economies.

The US is threatening to impose tariffs on a further $267bn worth of Chinese goods if China chose to retaliate again.

“The US’ insistence on additional tariffs brings new uncertainties to the negotiations between the two sides,” the MOC said.

“It is hoped that the US side will recognize the possible adverse consequences of such actions and take convincing measures to correct them in a timely manner,” it added.

In July, the US imposed 25% tariffs on $34bn worth of Chinese goods, followed by another round of tariffs on 23 August on $16bn worth of imports from China, including petrochemicals. China had responded in kind in the  two previous occasions.

China’s economic growth could be shaved by 0.21-0.55 percentage points as $250bn of its exports to the US are now slapped with tariffs, Chinese brokerage firm Guotai Jun’an said in a research report.

“China GDP is estimated to drop by 0.21-0.33 percentage points in short term and 0.55 percentage points in long term because of the $250bn tariff,” it said.

The hit on China’s overall exports would be in the range of 1.3-2.0%, as the tariffs could translate to a 6.7%-10.4% reduction in shipments to the US, the brokerage said.

Based on official 2018 forecast, the Chinese economy – the world’s second largest – is expected to post a 6.5% growth, representing a slowdown from the 6.9% pace recorded in 2017.

Guotai Jun’an said that based on its computation model – which factors in export substitution, currency effect and China’s policies, the tariffs on $50bn of Chinese products would reduce China’s exports to US by 2.4%-3% and its total exports by around 1%.

If the US proceeds on placing duties on all $430bn of Chinese imports, China’s GDP could get a 0.8 percentage-point hit.

To mitigate the impact of the US tariffs on its economy, China may resort to measures such as moderate easing of its fiscal and monetary policies to expand domestic consumption, Guotai Jun’an said.

It may also opt to open up further to foreign investments and introduce reforms to accelerate structural changes in its industries.

Since China’s exports exposure to the US is much bigger, China may not just play defense in the trade war with the US and could introduce other measures like restrictions on US investments, according to analysts.

In 2017, China’s total imports from the US stood at $130bn, while US’ imports of Chinese goods and services totaled around $500bn, based on US data.

Click here to view related stories and content on the US-China trade war landing page.

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