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US-China Trade War Escalating

Observers have suggested that Beijing may be saving stronger retaliatory measures for a response to that White House plan
Some small US businesses, like LOOK Trailers in Indiana, are already feeling the heat from Trump’s new tariffs.Some small US businesses, like LOOK Trailers in Indiana, are already feeling the heat from Trump’s new tariffs.

Following the meeting between Chinese President Xi Jinping and North Korean Leader Kim Jong-un in Beijing last week, it seems China’s position vis-a-vis issues related to Pyongyang is getting closer to that of US President Donald Trump. However, the deep chasm related to import and export between the world’s two biggest economies is getting deeper as both powers impose new and higher tariffs on two-way trade that is causing serious concern.

China is implementing new tariffs on meat, fruit and other products from the US as retaliation for American duties, heightening fears of a potential trade war between the world's two largest economies.

Beijing's latest move, announced by its finance ministry in a statement dated April 1, is direct retaliation against taxes approved by President Donald Trump on imported steel and aluminum. Chinese officials had been warning over the last few weeks that their country would take action against the US, CNBC/AP reported.

The tariffs begin on Monday, the finance ministry statement said.

China's Customs Tariff Commission is increasing the tariff rate on pork products and aluminum scrap by 25%. It's also imposing a new 15% tariff on 120 other imported US commodities, from almonds to apples and berries.

All told, the extra tariffs will hit 128 various kinds of US products, multiple outlets reported. The list of new duties matches the proposed list released by the government on March 23, according to Reuters.

At that time, China said the affected US goods had an import value of $3 billion in 2017 and included fresh fruit, dried fruit and nuts, steel pipes, modified ethanol and ginseng.

The decision to target $3 billion in US imports is significant, but it's widely seen as a drop in the ocean given the size of the bilateral trading relationship. US goods exported to China in 2016 totaled $115.6 billion, according to official data.

China's retaliation is "a statement of intent ... but it's not an escalation in our opinion," Steve Brice, chief investment strategist at Standard Chartered Private Bank, told CNBC on Monday.

The White House didn't respond to a message from The Associated Press on Sunday seeking comment.

While China's response was tied to Trump's steel and aluminum tariffs, it could end up hurting American ranchers and farmers—many of whom are from regions that voted for Trump in 2016. US farmers shipped nearly $20 billion of goods to China in 2017. The American pork industry sent $1.1 billion in products, making China the No. 3 market for US pork.

US Punishing China?

Of note, China's trade retaliation is not against Trump's announcement in March that he is planning new tariffs on up to $60 billion in Chinese imports.

The White House's planned tariffs are partly aimed at punishing Beijing for allegedly stealing American technology and pressuring US companies to hand it over. Observers have suggested that Beijing may be saving stronger retaliatory measures for a response to that White House plan.

For Chinese tariffs to have a significant effect, "the US should not be the main producer of that specific product, so China can easily find substitutes when trying to import that product," economists at Natixis said in a note.

Beijing could also ramp up its response by adding more goods to the 128-strong list.

"If China can tolerate a large price shock, stemming from the lack of other sourcing countries, or if the domestic market can to some extent be a buffer, it may also extend its measures to a wider set of sectors, such as sub-products in paper, photographic films and cereal," the Natixis note said.

But "more relevant products in terms of value of US exports can hardly be included if China wants to achieve its Manufacturing 2025 targets," it continued, referring to a 30-year plan to boost China's industrial base.

Regardless, many fear escalating trade tensions between Beijing and Washington could damage the global economy.

For one, Nobel Prize-winning economist Robert Shiller said, following China's first threat of tariffs on 128 products, that uncertainty about tit-for-tat trade measures could result in an "economic crisis."

"It's just chaos: It will slow down development in the future if people think that this kind of thing is likely," he told CNBC.

Beijing has urged Washington to resolve the matter through dialogue and negotiation.

US Manufactures Feel the Heat

Trump pitched his steel tariffs as a way to save US steel jobs, saying it was a move designed to urge "all companies to buy American." However, some small businesses, like LOOK Trailers in Indiana, are feeling the heat from Trump's trade move.

LOOK's president, Matt Arnold, said the company has seen steel prices increase 25% and aluminum as high as 35%. He told CNBC that he's afraid his suppliers' prices have even further to run in the months ahead.

Although the company already uses 75% US steel and aluminum, now its competitors are also moving from foreign to domestic steel. That's driving up the demand for steel producers domestically and adding costs to businesses' bottom lines.

 

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