A trade war is far better than a weak non-enforceable agreement given China’s history of reneging on its commitments. In order to be more effective, Trump will have to make manufacturing in China more expensive. That should perk up the Chinese negotiators!
On Friday, in a move that signals Washington’s intent and underscores its determination to push through with vital structural reforms to Chinese trade policies, U.S. President Donald Trump stuck to his word and imposed a hike in tariffs to 25% for $200 billion worth of Chinese goods.
According to U.S. officials, the increase in tariffs comes in the wake of China reneging on commitments it made during negotiations.
China, which has more to lose given its trade surplus with the United States, stated it “deeply regrets” the U.S. decision and that it would take countermeasures.
China’s Commerce Ministry said, negotiations were continuing, and that it “hopes the United States can meet China halfway, make joint efforts, and resolve the issue through cooperation and consultation”.
With the U.S. showing no intention of reversing its stand, the U.S. Customs and Border Protection imposed the new 25% duty on more than 5,700 categories of products leaving China after 12:01 a.m. EDT (0401 GMT) on Friday.
According to the Office of the U.S. Trade Representative, seaborne cargoes shipped from China before midnight will not be subject to the hike in tariffs as long as they arrive in the United States before June 1.
Incidentally, Trump gave U.S. importers less than five days notice regarding his decision to hike up tariffs on the $200 billion category of goods to 25%, which now matches the rate on a prior $50 billion category of Chinese machinery and technology goods.
According to James Green, a senior adviser at McLarty Associates who until August was the top USTR official at the embassy in Beijing, the question is how will China retaliate.
“I think the Chinese in the end will want to keep negotiations going. The question is: where do they go for retaliation?” said Green.
He expects China to increase non-tariff barriers on U.S. companies, such as delaying regulatory approvals, since Beijing will not be in a position to hit the same amount of imported U.S. goods with higher tariffs.
“The biggest Chinese import sector affected by the latest tariff hike is a $20 billion-plus category of internet modems, routers and other data transmission devices, followed by about $12 billion worth of printed circuit boards used in a vast array of U.S.-made products.”
“Furniture, lighting products, auto parts, vacuum cleaners and building materials are also high on the list of products subject to the higher duties.”
According to industry consultants and economists, it will take around three to four months for American consumers to feel the pinch of rising prices. Retailers will have little choice but to raise prices on a wide range of goods to cover the rising import costs.
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