China retaliates as trade war starts

Roman Schwartz
July 6, 2018

"This act is typical trade bullying", the spokesperson said, before adding: "It seriously jeopardizes the global industrial chain ..."

A Global Times commentary suggested the USA was futilely trying to contain China's progress, stating, "If the U.S. is determined to escalate conflicts with China, then so be it".

Hours before Washington's deadline for the tariffs to take effect, U.S. President Donald Trump upped the ante, warning that the United States may ultimately target over $500 billion worth of Chinese goods, or roughly the total amount of U.S. imports from China a year ago. "Tariffs will negate gains made by the public from tax reforms and deregulation, push up USA production costs, damage the competitiveness of businesses and their workers, and force companies to look outside the U.S.to maintain production". The US added 213,000 jobs last month, compared with economist expectations of 195,000, but wage growth remained soft.

"Companies don't know how big this may get, or how it will end". Businesses would respond by drastically scaling back spending.

The Trump administration engaged in a similar tit-for-tat last month with the European Union, Mexico and Canada.

Trump has railed against Beijing for intellectual property theft and barriers to entry for USA businesses and a $375 billion US trade deficit with China.

Notably, after Europe announced it would tax quintessentially American exports like orange juice, peanut butter and Harley-Davidson motorcycles, Harley-Davidson said it would move production of its Europe-bound bikes overseas to avoid the tariffs.

With that now looking likely there are fears the world faces a wide scale trade war - with the USA also targeting Europe and Canada.

The steps the administration has taken so far directly touch only a small fraction of the USA economy.

That would bring the total of targeted Chinese goods to potentially US$550 billion - more than the US$506 billion in goods that China actually shipped to the United States previous year.

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"We are still many steps away from a full blown trade war", Meyer wrote. -Chinese tensions, Zarit said.

The problem is that uncertainty over trade policy could freeze investment decisions by major companies and cost others dearly. "To put it simply, the U.S.is opening fire on the entire world, including itself", he said.

U.S. soybean farmers - including from states that backed Trump in the 2016 election - are being particularly hard hit by the retaliatory duties.

Still, Chinese investors and companies were anxious. He said that "optimism" about the corporate tax cut "has nearly completely faded among my contacts".

The Fed's business contacts have "expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and overseas, on future investment activity", the minutes showed.

Shaun Rein, managing director at the China Market Research Group in Shanghai, said the Chinese government's next play could be to stoke anti-American sentiments among consumers - similar to the boycotts it ordered past year on South Korea's Lotte Group, which caused dozens of the company's convenience stores to shutter.

"A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession", she wrote.

Others agree - for now, at least.

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

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

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