In a strategic move aimed at positioning itself in a stronger position during negotiations, U.S. President Donald Trump has imposed a 10% tariff on Chinese exports to the U.S. for goods worth $200 billion. The tariff is applicable to the end of 2018, after which it is set to increase to 25%. The strategy behind this thinking is to provide some breathing space for U.S companies to adjust their supply chains. Further, if China were to counterattack with tariffs of its own, as it has threatened to do so, Trump has warned that “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”
In a move described by Chinese regulators as poisoning the mood for further trade negotiations, U.S. President Donald Trump has okayed the levying of 10% tariffs on Chinese exports to the United States on goods worth $200 billion.
On Monday, Trump had warned China that it Beijing were to retaliate against U.S industry or farmers, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”
Following the trade measure, China is reviewing its plan on sending a delegation to Washington to pursue negotiations, said the South China Morning Post on Tuesday citing a government source in Beijing
A long ensuing trade war will impact the growth of the Chinese economy as well as economies around the world.
A hardening of stance
According to a senior securities official in China, Beijing has sufficient fiscal and monetary policy tools to cope with the impact of U.S. trade actions.
“President Trump is a hard-hitting businessman, and he tries to put pressure on China so he can get concessions from our negotiations. I think that kind of tactic is not going to work with China,” said Fang Xinghai, vice chairman of China’s securities regulator, at a conference in Tianjin.
While the United States will begin collecting the tariffs from September 24, the current 10% rate is set to increase to 25% by the end of 2018, thus providing U.S. companies breathing space to suitably adjust their supply chains and tap resources from countries other than China.
On its part China has stated, it will not play defensive for too long. Chinese state media has argued for an aggressive “counterattack.” Given its trade surplus, it has to be seen how much damage it can do to the U.S. economy.
Last month, it unveiled a tariff list on $60 billion U.S. goods, with products ranging from certain types of aircraft to liquefied natural gas (LNG).
According to analysts from Citi, the impact of the 10% U.S. tariffs on China will show up on China’s fourth-quarter results; while the impact of the 25% tariffs will be felt next year and is expected to hammer China’s gross domestic product (GDP) rate by 0.83% points.
Further negotiations under fog of war
In a statement, Trump said, “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.”
According to a senior official from the Trump Administration, the U.S. is open to further talks with China.
“This is not an effort to constrain China, but this is an effort to work with China and say, ‘It’s time you address these unfair trade practices that we’ve identified that others have identified and that have harmed the entire trading system,’” said the official.
So far, China has imposed or has proposed to impose tariffs on the bulk of its U.S. imports, which incidentally pale in comparison to its exports to the U.S.
“Tensions in the global economic system have manifested themselves in the U.S.-China trade war, which is now seriously disrupting global supply chains,” said the European Union Chamber of Commerce in China said in a statement on Tuesday.