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Trade war unleashed, officially: Trump takes aim at $500 bn Chinese goods

US Customs and Border Protection said in a notice it would begin collecting the 25 per cent duties on 818 product lines identified in June by the US Trade Representative's Office

Agencies  |  Washington/Beijing 

US President Donald Trump walks departs after speaking at a Make America Great Again rally in Great Falls, Montana, US, July 5, 2018. Photo: Reuters
US President Donald Trump walks departs after speaking at a Make America Great Again rally in Great Falls, Montana, US, July 5, 2018. Photo: Reuters

President has said the may ultimately impose tariffs on more than a half-trillion dollars’ worth of Chinese goods as the world’s two largest economies hurtled toward the start of a trade war.

Trump, who announced the US starting to collect tariffs on $34 billion worth Chinese goods after midnight Thursday, warned that subsequent rounds could see tariffs on more than $500 billion of goods, or roughly the total amount that the US imported from China last year. “You have another 16 (billion dollars) in two weeks, and then, as you know, we have $200 billion in abeyance and then after the $200 billion, we have $300 billion in abeyance. Ok? So we have 50 plus 200 plus almost 300,” Trump told reporters aboard Air Force One.

Trump’s comments appeared to increase the stakes for potential retaliation by China. Previously, Trump had threatened up to impose additional tariffs on goods worth $400 billion should China follow through on its plans to retaliate against the initial US tariffs on Chinese goods including autos, computer disk drives, pump and valve parts and light—emitting diodes.


said in a notice it would begin collecting the 25 per cent duties on 818 product lines identified in June by the US Trade Representative’s Office.

The first ever US tariffs aimed just at China will likely rally Trump’s voters who agree with his “America First” argument that Beijing hasn’t played fair for years, stealing America’s intellectual property and undercutting its manufacturers. But the risk is that a spiraling conflict undermines economic growth by gumming up supply chains and inflicting higher prices on companies and consumers. The Federal Reserve has already noted some firms are slowing investment, while Harley-Davidson Inc. and General Motors Co. are warning they may cut jobs.

Given the moves were well flagged, investors took them in their stride. European stocks trimmed gains and U.S. equity-index futures fluctuated. The dollar and Treasuries edged lower as traders looked ahead to the release of US jobs data.

“Clearly the first salvos have been exchanged and in that sense, the trade war has started,” said Louis Kuijs, chief Asia economist at Oxford Economics. “There is no obvious end to this.” The extent of the economic damage will depend on how far both sides go. If the US and China cool off after a first round of tariffs, the fallout will be modest.

Under a full-blown trade war in which the US slaps 10 per cent tariffs on all other countries and they respond, the economists reckon US growth would slow by 0.8 percentage point by 2020. “Our view is that trade war is never a solution,” Chinese Premier Li Keqiang told reporters during a trip to Bulgaria. “No one will emerge as a winner from trade war, it benefits no one.”

Chinese ports delay US cargoes
Some major Chinese ports delayed clearing goods from the US on Friday, four sources said, potentially disrupting imports worth billions of dollars as the world’s top two economies head towards an outright trade war.

News of the hold—ups came as Washington imposed tariffs on $34 billion of Chinese imports from Friday. Beijing had said it would retaliate with punitive measures on US products worth a similar amount, including soybeans, pork and cotton, but it had not officially confirmed on Friday that they had taken effect.

The port of Shanghai had put on hold clearing some US imports through customs, said an official at a company in the coastal city, which handles customs clearance for importers. He had spoken to customs officials.

Trump poll flags ‘Made in China’

Amidst a trade war between the US and China, a Chinese company is manufacturing flags for President Donald Trump's 2020 re-election campaign, a media report said.

The factory, situated in eastern Zhejiang province, had also made flags for the election campaigns of Hillary Clinton and Trump in 2016, the Washington-based National Public Radio reported. “We also make flags for Trump for 2020. It seems like he has another campaign going on in 2020,” the company owner Li Jiang said.

Terming the manufacturing of flags for Trump’s 2020 bid as “completely normal”, he said, “That is trade. We buy stuff from America, and America is buying stuff from China.”He further said all the flags being made have ’Made in China’ tags on them.

How will it hurt?

Here is a look at the potential economic damage in Asia due to the trade war:

Direct impact is limited

Ballpark estimates from economists show that every $100 billion of imports affected by tariffs chip away around 0.5 per cent of global trade, wiping off 0.1 percentage points of GDP growth. The direct impact on China’s economic growth in 2018 is estimated at 0.1-0.3 percentage points while the drag on its export growth is expected to be 1 percentage point. The effect on the US will be less.

Global inflation should rise by 0.1-0.3 percentage points, not accounting for currency volatilities.

Indirect impact is far reaching

Morgan Stanley estimates that world trade could be seriously disrupted as two-thirds of goods traded are linked to global value chains. The Peterson Institute for Economics shows that almost two-thirds of US imports from China come from companies with foreign capital, another avenue through which US tariffs targeted at China have an impact beyond its borders. Based on foreign investment flows, the capital is likely to have come mostly from the US, Japan and South Korea. Some analysts such as Singapore-based DBS say the US could suffer more than China’s, as US levies could affect American firms with investments in the country and Washington is also involved in other trade conflicts.

A model by Pictet Asset Management reckons a 10 per cent tariff on US trade fully passed on to consumers could tip the global into stagflation and knock 2.5 per cent off corporate earnings globally.

Who's the most exposed

A DBS analysis shows that South Korea, Malaysia, Taiwan and Singapore are the economies most at risk in Asia based on trade openness and exposure to supply chains. South Korea could see a drag of 0.4 per cent on growth in 2018, Malaysia and Taiwan lose 0.6 per cent, and Singapore 0.8 percent. And the impact would be roughly double in 2019.

First Published: Sat, July 07 2018. 01:26 IST
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