Trade dispute with China – Can it be a bit more?

December 19, 2018 Nicholas Fogg 0Comment

For China, this week should start the same way as last week had ended: with bad news from Washington. On late Monday evening (local time) threatened US President Trump the country with new punitive tariffs – and thereby pushed into completely new dimensions. Does the conflict escalate? What does Trump want to achieve? And how does China react? Questions and answers.

What did Trump announce?

The US president has set his trade representative Robert Lighthizer with new work: his authority is to create a list of Chinese goods worth $ 200 billion, could be charged on an import duty of ten percent. Trump threatens in the event that, as announced, China defends itself against the recent US tariffs. If Beijing counters the new threat, Trump will keep its toll on additional $ 200 billion worth of goods. The US president had just announced on Friday fines on Chinese goods worth $ 50 billion and received a prompt response. China announced countermeasures in the same amount. So far, the US has imposed punitive tariffs on steel and aluminum from China as well as on washing machines and solar panels. Beijing levies tariffs on US wine, meat and fruits. But here it is only about three billion dollars.

Why is Trump against China?

The US president accuses the People’s Republic of “unfair” practices, including the theft of intellectual property. The country’s $ 375 billion trade deficit with China is also a nuisance to the president. “That’s unacceptable,” he wrote Monday. However, many economists doubt that the new tariffs will help US companies. “For large parts of the US economy, it is a business model to buy cheaply in China,” says Gabriel Felbermayr, director of the Center for Foreign Trade at the Ifo Institute. Affected companies would try to fight against tariffs. Here, too, would cause a “real economic damage” because companies “put their energy into useless things”.

How is the new threat to be assessed?

The commercial dispute escalates. With ever new threats, both sides sway high; nobody wants to be a loser; nobody gives in. Economists fear that the dispute could weaken the global economy: “The risks of infection are considerable”, simply because global trade flows are so networked, says economist Felbermayr. For example, German companies that are based in the USA and import Chinese goods could be hit by customs duties.

When could the US tariff ever come into force? Friday’s tariffs, which are expected to endorse $ 50 billion worth of goods, reached the Trade Representative in early April and could take effect on July 6, about 90 days later. For the now threatened tariffs the procedure should be similar. First, a list must be worked out, then an objection period must be considered. It is also a condition that China actually levies countervailing duties. However, Beijing has already announced this and has published a corresponding list of American products that will be taxed in the future.

Which goods would be affected?

With the $ 50 billion, the products are stuck on both sides. The United States has received 1102 goods, 659 on the Chinese list. Most of them are cars and soybeans. Which goods fall under the 200-billion-announcement, however, is not fixed yet. However, there is one exception: Trump is said to have assured Apple CEO Tim Cook that the US government will not impose tariffs on China-made iPhones, the New York Times reports.

How is China responding to the new threat?

The government in Beijing speaks of “blackmail”. The Chinese leadership is ready to “strong countermeasures” to defend the interests of the Chinese people and companies against the “extreme pressure”, warned the Ministry of Commerce on Tuesday, without giving further details. Beijing’s Problem: If US tariffs are actually going to affect more than $ 250 billion worth of goods, it’s not going to be as easy to respond in the same amount. Because: Last year, the People’s Republic imported only about $ 130 billion worth of products from the United States.

What possibilities does the country still have?

What a Chinese reaction may look like, the Global Times party paper has sketched shortly after Donald Trump’s election victory in the fall of 2016: “A batch of Boeing orders would be replaced by Airbus, American cars and iPhones would have a hard time in China, imports of soybeans and Corn would be stopped, “the newspaper wrote. Soy and maize flour are already on the intended Chinese customs list. And before the possible sanctions in China itself, American companies have been afraid for months.