The US-China trade war has escalated, with Beijing announcing its first retaliation against metals levies hours after President Donald Trump outlined fresh tariffs on $50 billion of Chinese imports and pledged there’s more on the way.
On Friday, China unveiled tariffs on $3 billion of US imports in response to steel and aluminium duties ordered by Trump earlier this month. The White House then declared a temporary exemption for the European Union and other nations on those levies, making the focus on China clear. Though Beijing’s actions so far are seen by analysts as measured, there may be more to come.
Equity indexes from Tokyo to Frankfurt tumbled with European equities falling to the lowest in more than a year. US stock futures dropped, signalling a further retreat for the S&P 500 Index after it fell 2.5%, on risks a further escalation in trade tensions will undermine an unusual phase of synchronized global economic growth.
Suppliers to Apple Inc. were among the hardest hit in Hong Kong and mainland markets on Friday, as investors focused on potential losers from the trade spat.
“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."
In a ramping up of his “America First" ethos, Trump on Thursday 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 Friday.
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, the statement said, and 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.
Later on Friday, Chen Fuli, head of the treaty and law department at China’s commerce ministry, said that a comprehensive plan to counter the 301 action has been prepared. 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".
“This has been long in the making," Trump said signing the intellectual-property order, adding that the tariffs could affect as much as $60 billion in goods. He told reporters, “This is the first of many."
Despite securing an exemption for now, EU officials meeting in Brussels complained about the US approach. European Trade Commissioner Cecilia Malmstrom called the move on metal "highly unfortunate unilateral action, which goes against agreed international rules".
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," according to the fact sheet.
Long in Making
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."
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 Amazon.com 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, said senior White House economic adviser Everett Eissenstat.
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. Bloomberg
Shannon Pettypiece, Jennifer Epstein, Enda Curran, Daniel Ten, Kate Xiaoqing, Pi Yinan, Zhao, Kevin Hamlin and James Mayger contributed to this story.