Staggered US tariffs leave crack in door open to trade war talks with China – and avoid taking bite out of Apple

Gradual introduction of the duties will give businesses time to adjust and Beijing and Washington a chance to ease the conflict

PUBLISHED : Tuesday, 18 September, 2018, 8:18pm
UPDATED : Tuesday, 18 September, 2018, 10:44pm

Washington’s latest tariffs on Chinese goods give US companies time to change business tack and temporarily shield heavy-hitters like tech giant Apple, according to analysts.

The two-phase duties also gave both countries a chance to go back to the negotiation table before the full force of the tariffs was felt, they said.

In the strongest escalation of the US-China trade war yet, the administration of US President Donald Trump announced on Monday it would impose 10 per cent tariffs on US$200 billion in Chinese imports from September 24, raising the rate to 25 per cent on January 1.

The White House also threatened tariffs on the rest of China’s exports to the United States, valued at US$267 billion.

Observers said Washington’s decision to stagger the rate increases gave American companies time to adjust their operations and the public a chance to get used to the idea of consumer price rises before the peak Christmas spending season.

“[The] idea is to give US companies an opportunity to adjust supply chains where possible,” a US business representative close to previous trade talks said.

“I suspect there is also a political consideration to blunt the impact of these tariffs on American consumers through the holiday season, but most of our companies indicate that contracts have been signed and most products already delivered to the US, so impact this holiday season should already be low.”

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The fresh duties pour cold water on US Treasury Secretary Steven Mnuchin’s efforts to restart trade dialogue with his Chinese counterparts following previous failed rounds of talks.

Beijing responded to the tariffs on Tuesday by saying it would have “no choice but to keep step with its own countermeasures” – without specifying what those steps would be.

One of the biggest categories exempted from the US duties is wireless and blue tooth devices, of which China exported about US$22.8 billion to the United States last year.

The technology is used in Apple products such its smartwatch and AirPods, and the company had lobbied US Trade Representative (USTR) Robert Lighthizer earlier this month to be left off the list.

“It is difficult to see how tariffs that hurt US companies and US consumers will advance the government’s objectives with respect to China’s technology policies,” the company said, referring to a USTR investigation into Chinese intellectual property practices that triggered the punitive tariffs.

The exemption was granted despite Trump urging the company to move manufacturing back to the US, warning that prices of Apple products could rise from the “massive tariffs”.

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Katheryn Russ, associate professor of economics at the University of California at Davis, said the Trump administration’s approach was like boiling a frog – turning up the heat slowly so that price rises did not have as much an impact on consumers.

“People don’t really feel the heat immediately, and then when they raise it to 25 per cent, it would feel a little bit more of a gradual increase to consumers,” she said. “[Apple] is so highly visible. An extra 10 per cent on Apple phones would immediately be noticed by consumers, so exempting Apple just makes the tariffs a little bit less high profile here.”

Russ said the trade tensions had stoked nationalistic feelings among the middle classes in both China and the US so there was “not a lot of political impetus” beyond the business community to resolve the problems.

But analysts said the gradual roll-out of the US$200 billion duties would put pressure on China to re-enter trade talks, even though Beijing’s precondition for negotiation was that no new tariffs be imposed.

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Chin Leng Lim, a former Hong Kong government trade adviser and now a law professor at the Chinese University of Hong Kong, said that for Washington, tariffs and the threat of future tariffs were important leverage.

“The Trump administration has been able to call China’s bluff on this front, thereby shaping the way the talks should take place, rather than allowing China to do so,” Lim said.

He said the threat of tariffs on all Chinese imports also signalled Trump’s determination to continue ratcheting up pressure on Beijing, even after the critical US midterm elections in November.

Wei Zongyou, Sino-US relations researcher at Fudan University in Shanghai, said no resolution was in sight but Trump and Chinese President Xi Jinping still had the chance to talk trade at the G20 summit in Buenos Aires in late November.

“The trade war now has fire on all fronts,” he said. “Trump clearly hopes that China will meet the demands put forth by the US side, otherwise they will continue to raise the stakes. China is unlikely to surrender at gunpoint, so we cannot see an exit path yet.”

Additional reporting by Wendy Wu