China vows to act as Trump eyes another $200b in tariffs

THERE ARE DANGERS FOR THE US ECONOMY TOO AS HIGHER PRICES MAY HURT SENTIMENT

Trade tensions between the world’s two biggest economies intensified yesterday, with China vowing to retaliate “forcefully” against President Donald Trump’s threatened tariffs on another $200 billion (Dh734.6 billion) in Chinese imports.

“If the US loses its senses and publishes such a list, China will have to take comprehensive quantitative and qualitative measures,” according to a statement from the Ministry of Commerce. It labelled the move “extreme pressure and blackmail,” and said it would retaliate with counter measures.

Trump ordered up identification of $200 billion in Chinese imports for additional tariffs of 10 per cent — with another $200 billion after that if Beijing retaliates. While the $50 billion in tariffs already announced on Friday were mainly on industrial goods, the broader move would push up prices for toys, tools, T-shirts and a lot more for US shoppers.

By targeting goods that are finished in China but whose components are often sourced from neighbouring South Korea, Japan and Taiwan and more, the US strategy could hurt the economies of America’s allies too.

Widespread damage

“The collateral damage from an escalating US-China trade war will be widespread, hitting many Asian countries that are part of China’s manufacturing supply chain in sectors such as electrical and electronic products,” said Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore.

There are dangers for the US economy too. If implemented, the tariffs would mean a sizeable amount of imported Chinese goods would be exposed to new tariffs. Higher prices on imported goods could dampen consumer sentiment and pressure inflation.

“In a global trade war, no matter how you spin tariffs, retailers and the American families that we serve are the losers,” said Hun Quach, vicepresident, international trade, for the Retail Industry Leaders Association.

Tom Orlik, chief economist at Bloomberg Economics, said that in the event that China’s exports to the US weaken in the face of tariffs, the government would likely seek to offset the growth impact with a combination of subsidies to support domestic demand and higher infrastructure investment.

The US imported $505 billion of goods from China last year and exported about $130 billion, leaving a 2017 trade deficit of $376 billion, according to US government figures. The fact that America imports more from China will make it harder for Beijing to match Trump’s attacks, according to Derek Scissors, a resident scholar at the conservative American Enterprise Institute in Washington who focuses on China.

“All they can do is impose higher tariffs on a smaller subset of products,” he said. That being said, “China is going to retaliate,” he added.