China Responds to Trump Tariffs with Import Duties on US Goods

China has responded strategically to the US’s 10 percent tariffs by imposing its own tariffs on American coal, natural gas, oil extraction, and agricultural equipment. Additionally, it has launched investigations into Google and placed certain companies on a trade blacklist. The Chinese government asserts that US tariffs violate WTO rules. While the immediate economic impact may be limited, analysts warn that escalating tariffs could significantly hinder China’s economic growth, leading to broader implications for trade relations.

China’s Strategic Response to US Tariffs

On Tuesday, while China was still celebrating the Chinese New Year, the nation’s government took decisive action in response to the recently announced 10 percent tariffs on Chinese imports by US President Donald Trump. The timing of this response underscores the seriousness of the trade tensions between the two countries.

Shortly after the US tariffs went into effect, China revealed its counter-measures. The Chinese government plans to implement a 15 percent tariff on American coal and liquefied natural gas. Additionally, a 10 percent tariff will be levied on oil extraction and agricultural equipment imported from the United States.

Investigations and Blacklists: China’s Broader Tactics

In a significant move, China’s antitrust authority initiated an investigation into Google, citing allegations of monopolistic practices. Furthermore, Beijing intends to place the parent company of Calvin Klein, PVH, and the gene sequencing firm Illumina on a trade blacklist, restricting their business activities in China.

Notably, Google has been blocked in China since 2011, yet it maintains several operational branches within the country. PVH’s targeting stems from its boycott of cotton sourced from Xinjiang, a region embroiled in accusations of forced labor practices in cotton production.

In addition, China is implementing export controls on tungsten products, crucial for the defense sector, where it controls around 80 percent of global production.

The Chinese Ministry of Finance released a statement asserting that the US’s unilateral tariff imposition violates WTO regulations, emphasizing that such measures do not effectively address US economic issues but rather strain trade relations.

Despite these provocative measures, experts suggest that China’s response is relatively measured, as Beijing seems to be avoiding an immediate escalation of the trade conflict while keeping diplomatic channels open. A spokesperson for the White House revealed that a conversation between Trump and Chinese President Xi Jinping is forthcoming.

While the tariffs imposed by China may appear concerning, their impact on the US economy may be minimal. Currently, only 6.5 percent of US coal exports are shipped to China, with Australia and Mongolia being the primary suppliers. Similarly, China imports a mere 6 percent of its liquefied natural gas from the US, although this figure is on the rise.

The strategic nature of the liquefied gas tariff indicates that while the immediate economic damage may be limited, it serves as a clear message to Washington regarding future trade relations.

China has significant motivation to seek a compromise in this ongoing trade dispute. Analysts believe that Trump’s tariffs on Chinese imports will be enduring, contrasting with the temporary nature of tariffs imposed on Canada and Mexico. Louise Loo from Oxford Economics predicts that these tariffs could dampen China’s economic growth, potentially reducing it by 40 basis points for every 10 percentage point increase in US tariffs.

Following the recent tariff escalations, the average weighted tariff rate on all US imports from China has surged to 24.5 percent. A particularly detrimental aspect of the latest tariffs is the removal of exemptions for small shipments valued up to $800, impacting Chinese manufacturers in the consumer goods and electronics sectors.

Last year, approximately one billion such shipments from China were sent to the US, valued at an estimated $54.5 billion. However, due to undervalued invoicing practices, the actual figure is likely much higher.

If Trump follows through on his proposal to impose a flat 60 percent tariff on Chinese imports, the ramifications could be severe. UBS economists project that this could lead to a reduction in China’s growth by 150 basis points, further straining an already challenged economy.

Zhang Ning, an economist with UBS, anticipates that the US will incrementally raise tariffs on Chinese goods, potentially reaching 60 percent by 2026, which would have negative ripple effects on consumption and investment throughout China.

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