China targets US soybeans, cars, planes with new 25 per cent tariffs, but leaves room for negotiation

Beijing outlines list of goods in 106 categories, of which it imported US$50 billion worth in 2017, but final details of punitive plan yet to be released

PUBLISHED : Wednesday, 04 April, 2018, 3:46pm
UPDATED : Thursday, 05 April, 2018, 12:56pm

Beijing wasted little time in firing back at Washington’s latest trade action by unveiling plans to slap additional 25 per cent of tariffs on a range of goods it imports from the US, including soybeans, cars and planes, as the world’s two largest economies edge ever closer towards an all-out trade war.

The latest list covers 106 categories of products, US$50 billion worth of which were imported by China in 2017, although the authorities said on Wednesday that a finalised version of it, and the dates on which the tariffs will come into effect will be released later.

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Among the other products subject to the new duties are beef, corn, wheat, cigarettes and chemical products.

Following the announcement of its retaliatory measures, Beijing said it had also filed a request for consultation on the United States’ tariff plans with the World Trade Organisation.

China’s response came just hours after the United States Trade Representative Office released details of goods imported from China worth about US$50 billion that it planned to hit with 25 per cent tariffs, with the emphasis on industrial and hi-tech goods.

US President Donald Trump responded on Twitter to Beijing’s tariff plans, saying America was not in a trade war with China, but that it had a trade deficit of US$500 billion a year and “intellectual property theft of another US$300 billion”.

“We cannot let this continue!” he said.

US Commerce Secretary Wilbur Ross said in an interview with CNBC that China’s new tariffs amounted to only about 0.3 per cent of the United States’ gross domestic product.

Analysts warned that while the economic impact of the latest developments in the tit-for-tat dispute was likely to be moderate in the short term, concerns were growing about the long-term effect.

“A full-on trade war remains a risk for the global economy as there is still room for miscalculation from either China or the US,” Chua Han Teng, head of Asia country risk and financial markets at BMI Research, said.

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China’s economy would probably be able to absorb the negative impact of the latest US tariffs on its exports as they would account for only about 0.4 per cent of China’s 2017 GDP, he said.

The fact that Beijing did not specify when the new tariffs would be imposed leaves room for negotiations between the two nations.

Zhu Guangyao, China’s vice-minister for finance, told a press conference on Wednesday that China’s list had yet to take effect and called for talks to de-escalate the tension.

“Both sides have put questions on the table, now it is time to negotiate for cooperation. But it should have one precondition – mutual respect, not enforcing or improperly imposing conditions by one side to the other side,” he said.

Financial and commodities markets around the world fell in response to the latest moves by the two countries, with stock futures of US carmakers and aircraft companies – both of which are at the centre of China’s tariff plans – among the worst hit. Shares in General Motors and Ford both lost ground, while Boeing stocks fell sharply.

Shortly after the opening bell, the Dow Jones Industrial Average was down 1.9 per cent, while in Hong Kong, the benchmark Hang Seng Index fell 2.2 per cent on the day, ending below the 30,000 mark for the first time in a month.

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The gloomy sentiment also hit European markets, with Germany’s DAX, which was down 1 per cent at its midday close of trade, faring worst.

In the commodities markets, soybeans on the Chicago Board Trade fell more than 4 per cent after Beijing’s action, while corn and wheat futures also slid.

On Tuesday, Washington announced plans to impose 25 per cent tariffs on 1,300 Chinese products following an investigation into China’s trade practices and policies, including “Made in China 2025”, Beijing’s strategy to guide the country’s industrial modernisation.

The US list includes high-definition colour video monitors, electromagnets used in MRI machines, aerospace products, and machinery used to make processed textiles, printed products and food.

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In response to Trump’s request that China should cut its trade surplus with the US by US$100 billion a year, China’s vice-minister for commerce Wang Shouwen said it was “unacceptable”.

“First it is undoable,” he said. “The trade balance is decided by market forces, and US economic policy and structure. China alone cannot reduce the surplus”, he said.

Shen Dingli, a professor at the Centre for American Studies at Fudan University in Shanghai, said, however, that the trade conflict could prompt China to adjust its own position. It might consider having more respect for market rules on competition, reduce subsidies for state-owned enterprises and increase imports, which would ultimately benefit the country’s economic development and consumers, he said.

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Lu Xiang, a specialist in US affairs at the Chinese Academy of Social Sciences, said the United States Trade Representative Office’s investigation into the “Made in China 2025” policy was evidence that the US had a clear strategy for the medium to long term to counter the challenge from China.

“The US should not mistakenly treat China like it did Japan in the 1990s, when it initiated a trade war to curb Japan’s exports,” he said.

“There may still be room to de-escalate the tension, but China is able to weather the crisis.”

Tommy Wu, a senior economist at Oxford Economics, said the US tariff list might appear long, but its impact on GDP would be limited. Nonetheless, it had been carefully thought out.

“The US Trade Representative is targeting advanced sectors in which China wants to become a global leader, rather than imports that are used to make US branded products”, he said.

“Trump is sort of like upping the ante. He will throw some proposals out as he tries to reach a better deal.”

Additional reporting by Zhuang Pinghui and Laura He