US, China fire first shots in ‘largest trade war in economic history’

07 July, 2018, 03:02 | Author: Natasha Holloway
  • US 'firing at itself' with trade measures: China

The Trump administration's 25% tariffs are targeting Chinese products such as industrial machinery, medical devices and auto parts.

After that, Trump has made it clear he is planning additional duties on Chinese products worth a staggering $500 billion.

The Chinese government said that it was "forced to counterattack" against USA punitive tariffs on its imports, which went into effect early on Friday.

China's counterplan calls for $34 billion in duties on such American products as beef, chicken, pork and soybeans - as well as electric and sport-utility vehicles.

Some veteran China observers predict Beijing's tactics may go beyond tariffs to include arbitrary quarantines and a costly uptick in customs inspections, among other regulatory headaches.

The Commerce Ministry said Trump "ignited the biggest trade war in economic history". Given that the U.S. buys almost four times as much from China as it sells to them, China may have to seek avenues other than trade to retaliate if the battle escalates.

Shares in Chinese markets took a beating in the run-up to the deadline, slipped further after passing, and pulled the Asian markets down.

The benchmark Shanghai Composite Index fell by as much as 1.52% in the morning before finishing the session up 0.45% on Friday.

The conflict between the world's two biggest economies reflects chronic tension in their relationship as customers, business partners, and increasingly competitors.

While China has signalled a willingness to buy more American goods to balance out the deficit, it has refused to trade away what it views as an essential part of its economic future.

China's ruling Communist Party has insisted on making changes at its own pace while sticking to state-directed technology development seen as the path to prosperity and global influence.

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"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?"

US companies had US$256 billion in investment in China by the end of past year, exceeding China's US$140 billion in the United States, according to a report by the National Committee of US-China Relations and Rhodium Group in April.

Chinese officials reject accusations they steal or force foreign companies to hand over technology.

And signs are growing that the escalating global trade dispute is already affecting the world's top economy, with punitive duties now in place for steel and aluminium and the White House threatening to levy duties on auto imports. The yuan, which has weakened sharply against a broadly strong USA dollar in recent weeks, was trading at 6.6480 per dollar as of 4:30 p.m.

Despite the looming trade war between China and the US, flags for US President Donald Trump's re-election campaign are under production in China as told by Li Jiang, a Chinese flag manufacturer.

"This is a potential concern for the outlook of corporate investment and consumption around world", said Hui.

The government-run English language China Daily newspaper said: "The Trump administration is behaving like a gang of hoodlums with its shakedown of other countries, particularly China".

Longer term though a trade war posed a risk to the recovery of the whole global economy, he said.

Despite this, Liang says he is not concerned about his business, noting if the USA don't want his flags, he can always work for someone else.

Forecasters say a full-blown conflict could knock up to 0.5 per cent off global economic growth through 2020 if Washington and Beijing impose tariff hikes on $250 billion of each other's goods.

The American Chamber of Commerce in China appealed to both sides to negotiate.

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