Trade Tariffs between the 2 largest economies lead to ongoing trade war, market disruptions

The ongoing trade dispute between the United States and China has led both countries to announce billions of dollars’ worth of tariffs on each other’s products. China is the largest single exporter to the U.S. – more than $500 billion worth of Chinese goods entered the U.S. last year – and American tariffs on Chinese products were on the high side even before the latest round of tit-for-tat increases.

Last week, President Trump ordered his chief trade negotiator to consider imposing tariffs on an additional $ 100 billion in Chinese exports to the US, after his punitive measures on the first $ 50 billion elicited a retaliatory smackdown from Beijing on US exports to China. The Chinese response, accompanied by a ‘we are ready for a showdown’ challenge, sent the US market, lawmakers, and the country’s farmers (who export massive amounts of farm produce to China) into a panic, but he US President was unfazed.

Targeted for tariffs by the US are some 1300 items ranging from Chinese steel and aluminum to huge amounts of consumer goods that Americans buy on the cheap at superstores such as WalMart. China in turn had threatened to impose punitive duties on everything from American automobiles and jet planes to grains, soy, nuts, and wines, all of which will pinch the American farmers and industry.

Trump meanwhile continued to focus on China. “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!” he tweeted last week as the rhetoric overheated.

Beijing retaliation against the US farm sector had the desired effect, with lawmakers representing parts of the country that voted heavily for Trump, panicking as their constituents worried about the future with a constricted Chinese market. Tweeting that the president is “threatening to light American agriculture on fire,” Nebraska’s senator Ben Sasse fumed, “Hopefully the President is just blowing off steam again but, if he’s even half-serious, this is nuts.”

US President Donald Trump has instructed officials to consider a further $100bn of tariffs against China, in an escalation of a tense trade stand-off. These would be in addition to the $50bn worth of US tariffs already proposed on hundreds of Chinese imports.

China’s Ministry of Commerce responded, saying China would “not hesitate to pay any price” to defend its interests. Tit-for-tat trade moves have unsettled global markets in recent weeks. The latest US proposal came after China threatened tariffs on 106 key US products.

In response to Mr Trump’s latest announcement, Foreign Minister Wang Yi said: “China and the US as two world powers should treat each other on a basis of equality and with respect. “By waving a big stick of trade sanctions against China, the US has picked a wrong target.” Ministry of Commerce Spokesman Gao Feng said: “We do not want to fight, but we are not afraid to fight a trade war.”

Earlier this year, the US announced it would impose import taxes of 25% on steel and 10% on aluminium. The tariffs were to be wide-ranging and would include China. China responded last month with retaliatory tariffs worth $3bn of its own against the US on a range of goods, including pork and wine. Beijing said the move was intended to safeguard its interests and balance losses caused by the new tariffs.

In a statement, Trump branded that retaliation by Beijing as “unfair”.  “Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers,” he said. “In light of China’s unfair retaliation, I have instructed the USTR (United States Trade Representative) to consider whether $100bn of additional tariffs would be appropriate… and, if so, to identify the products upon which to impose such tariffs.”

However, analysts say, the tariffs being considered by the US on China are by no means the highest import duties the U.S. charges. According to then, the imports from several developing South Asian nations whose exports to the U.S. are heavily weighted toward clothing and other products that the U.S. generally taxes highly.

Bangladesh, for example, exported about $5.7 billion worth of goods to the U.S. last year, 95% of which were apparel, footwear, headgear and related items, according to a Pew Research Center analysis of data from the U.S. International Trade Commission. Nearly all Bangladeshi imports were subject to U.S. duty, and the tariffs on them were equivalent to 15.2% of the total value of that country’s shipments to the U.S. – the highest such average rate among the 232 countries, territories and other jurisdictions in the ITC database.

Other countries with similar profiles are Cambodia (duties equal to 14.1% of the total value of imports from there), Sri Lanka (11.9%), Pakistan (8.9%) and Vietnam (7.2%). By contrast, the duties on Chinese imports totaled $13.5 billion last year, or 2.7% of their total value. For all imports worldwide, the U.S. imposed tariffs equal to about 1.4% of total value.

The average tariff rates the U.S. imposes on its other major trading partners are much lower than those on China. Mexico and Canada, the second- and third-highest sources of U.S. imports, had average duties last year of just 0.12% and 0.08% of the value of their imports, respectively. (The three countries are linked in the North American Free Trade Agreement.) The average rates for Japan and Germany were both less than 2%; South Korea, with which the U.S. also has a free trade agreement, had duties equal to just 0.25% on its $70.5 billion in total exports to the U.S.

Average tariff rates on U.S. imports from a given country, as defined above, depend on two things: the share of total imports that are subject to duty, and the average rate the U.S. places on that share.

In general, U.S. tariffs are lower today (relative to the total value of imports) than they were two decades ago, mainly because more imported goods are fully exempted from duties. In 1996, for example, three-quarters (75.5%) of Chinese imports were subject to duty, at an average rate of 7.2%. Last year, only about two-fifths (41.3%) of imports from China were dutiable, with the rest entering the country duty-free; the average rate on the dutiable portion of Chinese imports was 6.5%.

With the new tariff war, the United States is opening a two-front economic and geo-political war with China and Russia. After decades of relative peace with the two Asian giants, Washington, citing separate underhand economic and political subversion of America by Beijing and Moscow, has embarked on a warpath against the two nations, even as they confront the United States in hotspots across the world.  The US face-off with China and Russia comes at a time Beijing and Moscow say they are in the best phase of their own bilateral relationship.

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