Caixin
Jun 16, 2018 06:16 PM
ECONOMY

U.S. Takes Aim at China’s High-Tech Aspirations with New Tariff List

Washington’s plan to impose tariffs on $50 billion of Chinese imports to punish Beijing for unfair trade practices is targeting high-tech industries earmarked for strong Chinese government support in the years ahead while avoiding sanctions on drugs and ordinary consumer products that would have put an excessive burden on U.S. industries and consumers, experts said.

The administration of U.S. President Donald Trump announced Friday a refined list of $34 billion in Chinese imports that will face an additional 25% tariff as of July 6, ratcheting up trade tensions between the world’s two largest economies. In April, the administration proposed a list of more than 1,300 Chinese product types that could be subject to new import tariffs. But the latest list has whittled the number down to 818 following a review process.

A second batch of 284 product types covering another $16 billion worth of Chinese imports was also announced Friday and will undergo a similar review that considers the impact on domestic industries dependent on such imports. Tariffs would be implemented later this year on the products from this list not excluded during the review process.

The 818 items on the latest refined list cover mostly high-tech products from industries like aviation, advanced rail systems, new energy vehicles and other high-tech areas like communications and robotics, a high-level U.S. government official told reporters on a conference call after Friday’s announcement.

Industries that stand to benefit from Beijing’s “Made in China 2025” program were singled out as targets of the U.S. sanctions. The U.S. government sees that program as a threat to the U.S. economy because it aims to make China the global leader in a range of cutting-edge high-tech industries with the help of strong government support.

Industries that Beijing wants to promote often get generous government incentives, ranging from research grants to tax breaks, as well as low-interest loans, cheap land and other subsidies. Foreign governments often complain that such support amounts to unfair competition, putting their own companies at a big disadvantage to Chinese rivals.

While the final sanctions list was filled with high-tech products, a group of lower-tech goods, including televisions and their components as well as pharmaceuticals and more price-sensitive consumer products like cellphones, was excluded from the extra tariffs after being included in the original list.

Some products, such as televisions and their components, were struck after domestic companies reliant on such imports complained that it would be very difficult and costly to find alternate supplies due to the concentration of certain industries in China, the U.S. official explained. Others, such as pharmaceuticals, were taken off the list after U.S. companies complained about the expensive and lengthy process to get the U.S. Food and Drug Administration to certify products from new non-Chinese suppliers.

Hours after the latest U.S. announcement, China responded by saying it 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 ministry said tariffs on about $34 billion of imports from the U.S. will start July 6, covering 545 agricultural, automobile and seafood product lines. Tariffs on an additional $16 billion of U.S. product lines, including chemicals, medical equipment and energy products, will start if the U.S. imposes tariffs on the second portion of its list later this year.

China’s move could lead to an additional round of U.S. tariffs after U.S. President Trump threatened Friday to impose more sanctions if Beijing retaliated. Under orders from Trump, U.S. officials are already working on a new list of $100 billion worth of Chinese products that could be subject to additional tariffs.

The U.S. hopes the higher tariffs will get China to alter its policies, observers said. But that will be difficult, partly because of the very different ways the two sides see the “Made in China 2025” plan, said Alan Larson, former assistant secretary of state for economic and business affairs under former U.S. President Bill Clinton. Whereas the U.S. sees it as a set roadmap for what China is adamant will become reality, China sees it more as a wish-list blueprint for what it would like to achieve, he said.

The latest tit-for-tat moves show it could be a while still before there is a de-escalation in trade tensions, said Tu Xinquan, a professor at the China Institute for WTO Studies at the University of International Business and Economics. “It will be difficult to reconcile this time,” he said. “We can only sit back and watch the bullets fly for a while, especially if Trump looks for another $100 billion” in Chinese goods to target for more punitive tariffs.

This story has been updated to clarify an attribution in the second-to-last paragraph.

Contact reporter Yang Ge (geyang@caixin.com)

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