US imposes new tariffs

US imposes new tariffs
The United States has announced fresh tariffs on $200 billion (€171 billion) of Chinese goods, spooking markets worried about an escalating tit-for-tat trade war between the world's largest economies. The United States and China are two of the largest economies in the world. Both countries consider..

The United States has announced fresh tariffs on $200 billion (€171 billion) of Chinese goods, spooking markets that are worried about an escalating tit-for-tat trade war between the world's largest economies.

Background

The United States and China are two of the largest economies in the world. Both countries consider the other as a partner in trade and an adversary in geopolitics. Diplomatic relations between the US and China were first established in 1844 with the Treaty of Wanghia. This agreement allowed the US to trade in Chinese ports. After the Qing Dynasty was overthrown, in 1911, the US recognized the legitimacy of the Republic of China (ROC) government.

US President Donald Trump has previously been a critic of China. He blamed the country for loss of jobs within the US and has often criticized the US trade deficit with China. China's trade surplus with the United States widened in 2017 while total foreign trade volume maintained rapid growth.

In March, Trump announced global import tariffs of 25% on steel and 10% on aluminium. The President cited “national security” in order to circumvent WTO commitments. Since then, tensions have escalated. The US has imposed tariffs worth over $150 billion; Beijing responded with $50 billion worth of tariffs.

A two - day trade talks between U.S. and Chinese officials ended with no major breakthrough as their trade war escalated with the activation of another round of duelling tariffs on $16 billion worth of each country’s goods. Economists reckon that every $100 billion of imports hit by tariffs would reduce global trade by around 0.5%.

Analysis

The latest US salvo against China threatens to escalate a trade war between the world's two largest economies. China has vowed to retaliate against the latest punitive duties on its goods. Alleging that China has been unwilling to change its unfair trade practices, Trump said the new additional tariff structure would be effective September 24 from when it would be at 10% until the year-end but would increase to the 25% level from January 1. The higher import taxes will apply to almost 6,000 items, marking the biggest round of US tariffs so far.

Handbags, rice and textiles will be included, but some items expected to be targeted such as smart watches and high chairs have been excluded. China has previously vowed to retaliate against any further US tariffs.

President Donald Trump said the latest round of tariffs was in response to China's "unfair trade practices, including subsidies and rules that require foreign companies in some sectors to bring on local partners. "We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. "But, so far, China has been unwilling to change its practices," he said.

In a statement announcing the new round of tariffs, President Donald Trump said that if China retaliates, the United States "will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports." If he does go ahead with a further $267bn worth of tariffs, it would mean virtually all of China's US exports would be subject to new duties.

In July, the White House increased charges on $34bn worth of Chinese products. Then last month, the escalating trade war moved up a gear when the US brought in a 25% tax on the second wave of goods worth $16bn. The list slated for tariffs originally included more than 6,000 items, but US officials later removed about 300 types of items, including smartwatches, bicycle helmets, playpens, high chairs and baby car seats.

The changes come after fierce opposition from companies, including global tech giants such as Apple, Dell and Hewlett Packard Enterprise. The firms are worried the tariffs will increase their costs since many of their products are manufactured in China. It is also the biggest set of tariffs to date, and unlike the earlier rounds, this latest list targets consumer goods, such as luggage and furniture.

US companies have already said they are worried about the effect of higher costs on their businesses and warned of the risk of job cuts. Mounting global trade tensions have been weighing on global markets. Emerging markets, stocks and currencies were hit by heavy sell-offs in recent days, pressured by the strengthening US dollar – seen as a safe currency to buy in times of trouble – and also boosted by the prospect of higher US interest rates. There are worries that other countries could follow Argentina and Turkey into a financial crisis, while South Africa has entered into a recession.

Counterpoint

Farmers, manufacturers, retailers and other industry groups have formed a coalition to oppose the tariffs, calling them taxes on American families. Tariffs have already resulted in layoffs, and this escalation will continue to squeeze American businesses with higher input costs and American farmers with decreasing commodity values.

Higher tariffs on Chinese imports will impede patient access. Tariffs could divert some dollars away from valuable medical innovation to pay a tax on component parts that a U.S. company manufactures in China and then ships to the U.S. for final assembly by American workers.

Assessment

Our assessment is that the US is convinced that China is engaged in numerous unfair policies and practices relating to United States technology and intellectual property, forcing US companies to part technology to Chinese counterparts. We feel that such tariffs will in the long-term boost local business and encourage consumers to buy American goods.

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