China tariff hikes on U.S. goods take effect

by Kim Boateng Posted on June 1st, 2019

New Chinese tariffs of up to 25% have been imposed on $60bn worth of US goods. The tariffs, which came into force at midnight in Beijing on 1 June, are in retaliation for the US doubling tariffs on $200bn of Chinese goods in May.

China had previously imposed tariffs of between 5-10% on 5,140 US products.

The tariffs come as challenges pile up for the world’s second-largest economy, with output slowing and signs of financial stress appearing. Both countries have signaled that they are digging in for a long-term rivalry, with one Chinese government-affiliated researcher seeing tensions lasting until 2035 and the government announcing that it will fight till the end if the U.S. keeps escalating.

On Friday, China announced plans to blacklist some foreign firms and individuals it deemed harmful to the country’s interests.

China’s Commerce Ministry said it had decided to create an “undesirable entities” list to combat “unilateralism and trade protectionism”.

“At present, the world economic development is uncertain and unstable factors are increasing,” Ministry of Commerce spokesman Gao Feng told reporters at a press conference in Beijing.

“Unilateralism and trade protectionism are on the rise. The multilateral trading system is facing severe challenges, and normal international economic and trade activities are negatively disrupted.”

He added that China would blacklist any entities, organisations or individuals who could cause “substantial damage” to Chinese enterprises, as well as any entities that pose a potential threat to China’s national security.

What could happen next?

Beijing’s tariffs on American goods aren’t going to have much of an impact on US economic growth.

After all, China is only able to tax around $120bn worth of America’s goods – that’s how much it imported from the US last year.

Economists say at most, the US might see about one tenth of its gross domestic product shaved off by Beijing’s tariffs.

But what could hurt the US is reduced Chinese investment.

The US China Business Council has warned that exports to China from the US were down about 7% last year because of the trade war.

Separately, a report by the US-China Investment Project found Chinese investment into the US plummeted by 60% in 2018, partly because of the souring political climate.

Beijing could go even further, and in recent days it has even warned about curbing its rare earth exports to the US.

China is by far the largest producer of these raw materials, used in a range of products from electronics to renewable energy – and vital for many American industries.

If it does curb rare earth exports to the US, it would be challenging for American companies to find alternative sources quickly.

China’s move mirrors a similar one by US President Donald Trump in mid-May, where he declared a national emergency to protect US computer networks from “foreign adversaries”.

The Trump administration then added Huawei to a list of companies that American firms cannot trade with unless they have a licence.

Huawei has been at the epicentre of the US-China power struggle for months.

Led by the US, the firm faces a growing backlash from Western countries over possible risks posed by using its products in next-generation 5G mobile networks.

The US argues the Chinese government could use Huawei products for surveillance.

Huawei denies such claims and says it is independent from the Chinese government.

So far, the US has imposed tariffs on $250bn of Chinese goods, having accused the country of unfair trade practices.

Beijing hit back with duties on $110bn of US goods, blaming the US for starting “the largest trade war in economic history”.

Tariffs will be raised on a total of 5,140 products. They include:

Meat: Fresh or cold boned sheep meat, smoked or salted beef, chopped meat
Alcohol: Sparkling wine, regular wine, other fermented beverages, gin, tequila
Oil seeds and fruits: Sunflower seeds, other oily seeds and fruits, plants mainly used as medicine
Frozen foods: peas, corn, legumes, spinach, fruits and nuts

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