China slaps retaliatory tariffs on 128 US imports worth US$3b; analysts say tariffs 'a measured response'

China has increased tariffs by up to 25 per cent on 128 US products, from frozen pork and wine to certain fruits and nuts, escalating a spat between the world’s biggest economies in response to US duties on imports of aluminium and steel.
A man stands at the pork counter in a supermarket in Beijing, China, on March 23, 2018.
A man stands at the pork counter in a supermarket in Beijing, China, on March 23, 2018. PHOTO: EPA-EFE

BEIJING  - China’s retaliatory tariffs in response to US duties on Chinese goods are measured because Beijing wants to avoid a trade war even as it signals that it would protect its interests, analysts have said.

On Sunday (April 1), China announced extra tariffs of up to 25 per cent on 128 US products including pork, fruit, wine, nuts and scrap aluminium.

These tariffs will hit trade amounting to US$3 billion (S$3.9 billion), the equivalent of Chinese exports affected by new US tariffs on Chinese steel and aluminium last month.

US President Donald Trump announced last month that more tariffs on Chinese imports totalling over US$50 billion were being planned.

These tariffs will be based on investigation under Section 301 into China’s trade practices, particularly in connection with intellectual property rights, and are likely to target Chinese high-tech products. They may be announced later this week.

Washington is using punitive tariffs to pressure Beijing to reduce the huge US trade deficit, which hit US$375 billion last year. It is also accusing Beijing of misappropriating American intellectual property.

The tit-for-tat tariffs have led to fears of a trade war between the world’s two largest economies that could impact global growth.

Mr Jiang Yuechun, director of the Department for World Economy and Development at government think-tank China Institute of International Studies, noted that China’s retaliatory tariffs were small.

This, he said, showed “China does not want a trade war but we are not afraid of one because (US trade tariffs) affect China’s interests and China needs to fully protect its interests”.

 

Noting too that the Chinese tariffs were measured, OCBC Bank economist Tommy Xie said China may be waiting for details from the Section 301 probe before taking further action.

“As China is running a huge trade surplus with the US, a full-scale trade war is not good for China. As such, all retaliation has to be measured,” he said.

Small as this round of tariffs is, the “signalling is unambiguously negative”, said DBS Bank chief economist Taimur Baig. 

“Chinese consumers may well have to pay a higher price for some products, while some Chinese firms may see their cost of production go up or margins affected,” he added.

Trade tariffs, he said, are lose-lose developments “given the distortions and consumer welfare loss created by protectionism”.

In the United States, the National Pork Producers Council warned last month that possible Chinese tariffs on US pork could have a significantly negative impact on American farmers. US soya bean farmers are worried about the possibility of higher Chinese tariffs on the beans, said US media reports. The US exports 60 per cent of its soya beans to China.

Mr Xie is quite sure soya beans will be targeted by the Chinese in response to further US tariff hikes. This could hurt Mr Trump’s voter base in the US rust belt, he added.

However, he said China would also take the soft approach of committing to further open up its markets and lower some tariffs.

He noted that Premier Li Keqiang has announced plans to reduce tariffs on some imports like medicine, open up China’s service sector to foreign firms and address US concern over intellectual property rights, among other things.

Analysts do not think China and the US are in a trade war yet.

However, Mr Baig noted that protectionism has been rising worldwide since 2009 and that the latest trade friction between the US and China is part of a longstanding trend of tightening market access.

The best-case scenario, he added, would be for both sides to “sit down at the negotiating table” to address mutual trade-related grievances.

The worry is that by the time negotiations reach a meaningful phase, impatience would have taken over and “trade salvos will escalate”.

Mr Jiang, who is of a more pessimistic view, thinks trade friction between the two countries is inevitable and will continue for a long time. As historical precedence, he pointed to the US and Japan, which had sparred over trade for decades.

Additional reporting by Nirmal Ghosh in Washington