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Trade War Back on Stage With New U.S. Tariffs

Cargo is loaded and unloaded at Yangshan Deep-Water Port in Shanghai on April 9. Photo: VCG
Cargo is loaded and unloaded at Yangshan Deep-Water Port in Shanghai on April 9. Photo: VCG

A trade war flared up again between the world’s two largest economies as China and the U.S. imposed tit-for-tat new tariffs on each other.

China will levy an additional 25% tariff on about $50 billion of U.S. imports, according to a statement published on the website of the Ministry of Commerce. The move came hours after the U.S. announced a plan to slap an additional 25% duty on about $50 billion of Chinese imports that contain “industrially significant technologies” as early as July 6.

The Trump administration’s move reignited U.S.-China trade tensions following weeks of strained negotiations between Washington and Beijing. It comes as American relations with multiple major trading partners have grown increasingly bitter. The U.S. also faces retaliation over tariffs imposed on allies such as Canada, Mexico and the European Union.

On Thursday, the International Monetary Fund warned that Trump’s new tariffs threaten to undermine the global trading system, prompt retaliation by other countries and damage the U.S. economy.

“The Trump administration is now poised to open another front in its rapidly expanding global trade war,” said Eswar Prasad, a Cornell University economist and China expert. “It will be challenging for both sides to find a way to de-escalate these tensions while saving face and before trade and investment flows between the two countries take a sizable hit.”

China’s commerce ministry said tariffs on about $34 billion of imports from the U.S. will start July 6, covering 545 product lines of agricultural products, automobiles and seafood goods, the commerce ministry said. Implementation of tariffs on an additional $16 billion of U.S. product lines including chemicals, medical equipment and energy products will be announced at a later date.

Goods affected by the new U.S. tariffs include those related to China’s “Made in China 2025” strategic plan to dominate the emerging high-technology industries that will drive future economic growth for China. But that strategy will hurt economic growth for the U.S. and many other countries, U.S. President Donald Trump said in a statement.

Trump emphasized his “great friendship” with China’s President Xi Jinping in the statement but said that trade between the two nations “has been very unfair for a very long time.”

The back-and-forth may not be over. In its statement Friday, the White House warned that it will levy additional tariffs should China take retaliatory measures, such as imposing new duties on U.S. goods, services or agricultural products, raising nontariff barriers, or taking punitive actions against American exporters or companies operating in China.

In a statement shortly after the White House announcement, China’s commerce ministry said that “all the achievements reached in the previous consultations between the two countries are invalid.”

The list of products issued Friday by the Office of the U.S. Trade Representative (USTR) covers 1,102 separate U.S. tariff product lines, compared with an original list of about 1,300 products published in April.

It generally focuses on goods from industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy. Those include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles.

The list does not include items commonly purchased by American consumers such as cellular telephones or televisions, the USTR said.

The targeted products fall into two groups. The first includes 818 product lines worth $34 billion that will face an additional duty of 25% starting July 6. The second contains 284 proposed product lines worth $16 billion that will undergo further review in a public notice and comment process, including a public hearing. The USTR said it will issue a final determination on the products from this list after completion of this process.

A senior official in the Trump administration said Friday that the tariff moves reflected U.S. concerns that China’s industrial policies are “a dagger aimed at the future of the U.S. manufacturing sector.”

“The U.S. has very sweeping goals for structural change in the Chinese economy,” said Derek Scissors, resident scholar at the conservative U.S. think tank American Enterprise Institute. “President Xi should adopt many of these goals to benefit the Chinese people. However, he will not adopt them just because the U.S. wants them, so the U.S. is being unrealistic.”

The USTR on April 3 proposed a list of 1,333 Chinese products that might be subject to an additional duty, following a seven-month investigation into alleged intellectual property theft by Chinese companies under the rarely used Section 301 of the Trade Act of 1974.

That move quickly triggered an escalating exchange of tariff threats between the two countries and fears of a looming trade war. Senior trade officials from Beijing and Washington held at least three rounds of talks to ease tensions in the following months.

As tensions mounted again, some trade experts called for restraint.

“There is a significant risk of escalation in trade sanctions, but, given the potential economic damage it would cause to both countries, there is still hope that the U.S. and China will pull back from the brink of an open trade war,” Cornell’s Prasad said. “While the overall impact of an open trade war on the two economies is likely to be modest, there could be significant damage inflicted on specific export-oriented firms and industries caught up in the battle.”

The AEI’s Scissors said, “There are other ways China can retaliate to show that the U.S. cannot do whatever it wants. But if Chinese retaliation limits U.S. exports and causes the trade deficit to rise further, President Trump will escalate.”

Contact reporter Han Wei (weihan@caixin.com)

This story was updated with latest development from the China side and Scissors’s comments

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