Round 2 of US-China Trade War Takes Effect

The US and China hit each other on Thursday with $16 billion of tariffs on imports, as talks between officials from the world’s two biggest economies were unable to resolve the dispute.

The second list from US President Donald Trump’s administration targets alleged Chinese violations of intellectual property rights, and includes tariffs of 25% on goods including semiconductors, electronic parts and plastics. Beijing hit back immediately, Nikkei reported.

China’s Ministry of Commerce said in a statement that the country firmly opposes the latest implementation and will continue to fight back, and file a complaint about the US action with the World Trade Organization. The nation’s foreign ministry said later that it hopes for a good result from trade talks, and that the US can meet China halfway.

The tariffs are set to hurt both Chinese and US companies. For example, about 60% of semiconductor-related products imported from China were originally designed or licensed by US companies to be manufactured in Asia’s largest economy.

Since China joined the World Trade Organization in 2001, companies around the world have set up factories in the country, building intricate supply chain networks. Companies in places such as Japan, South Korea, Taiwan and Europe manufacture products in China and export to the US.

  Affect on Global Growth

An escalation of the trade war will hurt the global economy. People’s Bank of China adviser Ma Jun said the US’s two rounds of tariffs on a total of $50 billion of imports will reduce China’s gross domestic product by 0.2 percentage point.

Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo, said further tariffs would affect Southeast Asian supply chains that rely on China.

There will be a greater impact if tariffs are imposed on products such as electric appliances and smartphones, although “that would also negatively impact the US side more,” Nishihama said.

Financial markets across Asia had a muted reaction to Thursday’s development, which had been widely expected. China’s Shanghai Composite Index, the equity benchmark, was up 0.5% in afternoon trading, although Hong Kong’s Hang Seng Index was trading lower. The yuan weakened against the dollar. Elsewhere, Japan’s benchmark Nikkei 225 stock index ended 0.2% higher.

The International Monetary Fund has criticized protectionist policies. “Not only do they lead to more expensive products and more limited choices, but they also prevent trade from playing its essential role in boosting productivity and spreading new technologies,” the IMF said.

Richard Koo, chief economist at Nomura Research Institute in Tokyo, wrote in a report this week that the longer the tariff-centric trade war lasts, the more the global economy will suffer.

“When faced with extreme uncertainty, after all, most private-sector companies will not only discontinue any forward-looking behavior but will also do whatever is necessary to protect themselves in the present,” Koo said.

The economist added that the Chinese government’s struggle with various domestic issues, as well as a slumping economy and stock market, will make it harder for Beijing to maintain a hard-line stance.

“A compromise plan that allows China to save face could be approved by President Xi Jinping now that his own circumstances have changed,” Koo said. “That suggests there may be a way to prevent the US-China trade war from escalating further.”

  Chinese Startups Flock to US for IPOs

US stock listings by Chinese companies are recovering quickly despite bilateral trade frictions, as tech startups flee the foundering mainland and Hong Kong markets for better fundraising options.

Mainland Chinese companies raised $5.9 billion through initial public offerings this year through Aug. 17, more than the $3.8 billion raised in all of 2017, data from Dealogic shows. This will be the biggest year for Chinese IPOs in the US since 2014, when Alibaba Group Holding made its New York debut.

Offerings are growing in both size and number, with technology companies at the forefront. Pinduoduo, China’s No. 3 e-commerce company, raised $1.6 billion in its IPO last month—the fourth-largest US-only listing by a Chinese business, according to Dealogic. Its market capitalization exceeded $20 billion just three years after launching.

And Bob McCooey, Nasdaq’s Asia-Pacific chairman, sees the number of listings by Chinese companies more than doubling this year to 36 or so. The escalating trade war between the two countries has had no apparent effect on IPOs, he said.