China’s response to President Donald Trump’s tariffs went into effect on Monday, introducing new duties of ten to fifteen percent on various significant American products, including liquefied natural gas (LNG), coal, agricultural machinery, and automotive goods.
Coal and LNG faced the highest tariffs of 15 percent. In addition to the tariff hikes, the Chinese government also blacklisted an American clothing company and imposed restrictions on five essential rare earth minerals being exported to the United States, intensifying the pressure on industries like defense, solar power, and electric vehicles.
“Compared with the blanket US tariffs, China’s measures – which target US exports of liquefied natural gas, coal, crude oil and farm equipment as well as some automotive goods with levies of 10 per cent to 15 per cent – were seen as creating space for negotiations to avert a wide trade conflict,” the Financial Times reported on Monday.
The Chinese government outlined its retaliatory actions on February 4, shortly after Trump’s ten-percent tariffs on Chinese goods came into force. Trump had announced those tariffs just two days earlier.
On Sunday, President Trump introduced a 25 percent tariff on all steel and aluminum imports into the U.S., a move that will initially impact Canada and Brazil but ultimately targets China, the world’s leading producer of both metals.
Although direct imports of Chinese steel and aluminum to the United States are minimal and already subjected to tariffs from previous administrations, including President Joe Biden’s, China’s collapsing economy has led to an oversupply of steel, which it now exports at significantly reduced prices, undercutting global markets. This has pressured countries like Canada and Mexico to export more steel to the U.S.
“China’s overcapacity is swamping world markets and severely injuring U.S. producers and workers,” Michael Wessel, a trade adviser for the United Steelworkers of America, told the New York Times on Monday.
The next phase of the escalating trade conflict could unfold on April 1, when the U.S. Trade Representative (USTR) is expected to release a report on China’s adherence to the trade agreement that Trump signed with China at the end of his first term. Trump has instructed other federal agencies to submit their recommendations for adjusting foreign trade by April 30.
In January 2020, China entered a trade agreement with the Trump administration, pledging to significantly increase its purchases of American goods, with a target of about $100 billion per year over the next two years. Trump celebrated the deal as a “sea change in international trade,” and Chinese President Xi Jinping appeared to endorse it as well.
However, a damning report from the Peterson Institute for International Economics (PIIE) in July 2022 revealed that China had virtually failed to meet its commitments under the deal, purchasing effectively no additional U.S. exports. China partly attributed this failure to the COVID-19 pandemic and the resulting economic downturn.
It’s highly probable that the USTR’s report in April will confirm the PIIE’s findings, marking China poorly for not fulfilling its side of the trade deal. This would provide Trump with a solid rationale for imposing even stricter tariffs and trade restrictions on China.
While some critics argue that Trump acted too swiftly by imposing tariffs without offering Beijing sufficient time for negotiation, others view the period between Trump’s February 4 tariff implementation and the upcoming April reports as a critical phase for high-pressure negotiations. Trump may be using this window to demonstrate to China that he will not relent on his trade demands, even in the face of retaliatory measures.
“If there was only a 10% tariff on China and we left it at that, I think many investors would sleep more comfortably. The big worry, of course, is this is a prelude to potentially larger trade restrictions,” Frederic Neumann, HSBC’s chief Asia economist, told the Financial Times on Monday. President Trump does not seem to care whether anyone is comfortable until his trade goals are fully achieved.
{Matzav.com}