US-China Trade War Intensifies: Retaliatory Tariffs Hit Key Sectors | PIC: XINHUA
Starting with steel and aluminium, the Trump administration has imposed tariffs on Chinese exports to the US. China has responded with a variety of countermeasures.
China has imposed matching tariffs on US goods. The rates and list of goods targeted appear to be a mirror image of US actions. On March 4, the US increased tariffs on Chinese goods to 20 percent. As a retaliatory measure, China’s State Council Tariff Commission announced a round of retaliatory tariffs, effective March 10. As a result, as many as 740 tariff lines of US agricultural products are affected.
China announced that a 10-percent tariff will be applied to commodities such as sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products, while a 15-percent tariff will be imposed on items including chicken, wheat, corn and cotton.
To be sure, China is a very large importer and consumer of a variety of farm products, including soybeans, cotton and meat. For instance, as the world’s largest oilseeds importer, China imports well over 100 million tonnes of soybeans annually, mainly to feed its livestock sector.
While many believe China’s response so far has been quite measured, it seems China, in its response, will target key US sectors such as agriculture (soybean, corn, cotton, wheat, meat), energy (coal, liquefied natural gas, crude oil), and machinery (agro machinery, large-engine vehicles).
The idea, it seems, is to inflict economic pain on the US and potentially influence political decisions, observed a researcher. Even during the previous trade war between the US and China in 2018-2019, under president Trump’s first term, farmers in the US Midwest (the country’s breadbasket) were rather upset about the tariff war.
Not just tariffs, China has adopted non-tariff measures too. The Asian major has expanded its export controls. There are restrictions on the export of critical minerals (tungsten, molybdenum, bismuth, and indium to name a few). It is known that China is a key supplier of many critical minerals that are much sought after for high-tech applications.
As part of export restrictions, exporters in China have to obtain licences from the Chinese ministry of commerce. As many US companies rely on these Chinese materials, these controls can potentially disrupt the supply chains of US companies and add to cost pressure.
What’s more, citing national security concerns, China has added several US companies to its ‘Unreliable Entity List’. Under this list, restrictions on trade and investment may be imposed. In addition, it is reported that China has initiated anti-monopoly investigations into US companies operating in China.
Many believe that these developments may just be the beginning of a long line of actions by the US and China. Both are strong economies. While the US GDP is about $24 trillion, China, the world’s second-largest economy, clocks a GDP of about $18 trillion.
China’s retaliatory tariffs are sure to hurt US exports of key crops, such as soybeans and cotton. On its part, China is sure to turn to other origins, such as Brazil, to source soybeans and cotton. This is what played out in the 2018-2019 trade war between the two powerful nations.
The impact of the 25 percent tariff announced by the US on steel and aluminium imports is likely to be negligible on China, the mover and shaker of the global industrial metals market. At the same time, in the short run, steel prices within the US will rise because of an import tariff. This can, in turn, impact construction sector costs.
In the case of aluminium, it is not the US tariff but China that matters for the global market. China’s share is 60 percent of world aluminium consumption, while the US share is only 8 percent. Also, aluminium prices have international benchmarks.
In sum, while the imposition of tariffs and counter-tariffs goes on, the situation is still evolving. A lot more is likely to happen in the days, weeks, and months ahead. How fierce the trade war will turn out to be remains to be seen.
While China’s slowing growth is evident, there are talks that the US economy may also inexorably move towards a slowdown because of inflation exacerbated by import tariffs and the rather slow interest rate cuts. Developments in two of the world’s largest economies can potentially hurt the overall global economic growth, with negative consequences for many emerging economies, including India.
G. Chandrashekhar is an economist, senior editor and policy commentator specialising in agribusiness and commodity markets. He serves on corporate boards as Independent Director. Views are personal.
