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China will implement new US tariffs on 23 August

China will implement new US tariffs on 23 August

China confirmed late on Wednesday that it will introduce its latest wave of tariffs on US goods worth $16bn on 23 August as the trade conflict between the world's two largest economies continues to increase in severity.

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09.08.2018 11:43 PM

China confirmed late on Wednesday that it will introduce its latest wave of tariffs on US goods worth $16bn on 23 August as the trade conflict between the world’s two largest economies continues to increase in severity. The Trump administration confirmed plans for its higher rate of tariffs for the same day earlier this week.

A statement published by China’s Ministry of Commerce said that the US decision to increase its levies from a previous base of 10% to 25% on Chinese imports valued at $16bn was “very unreasonable” and that it would have to react quickly to look after its own interests and the good of the multilateral trading system.

This means that the latest levies will come into force in two weeks, and there are no signs of either side backing down in the trade standoff. On the contrary, reports came in on Wednesday that the US is already reviewing 10% duties on even more Chinese goods and could raise the rate to 25% in early September. China is prepared to respond with duties on American imports worth $60bn.

"We're not yet past the point of no return, but we're edging closer to it," Wang Tao, UBS AG in Hong Kong Head of China Economic Research said. "The risk is that the US administration's gamble to strong-arm China into giving into all US demands without some compromise only leads to successive rounds of higher and higher tariffs."

US President Donald Trump has been eager to apply pressure consistently in recent weeks, and he has indicated that a tax on all Chinese imports, which amounted to $500bn in 2017, could soon be in the offing. The scale of these trade blows is likely to spell trouble for global markets, and Reserve Bank of Australia Governor Philip Lowe gave a pessimistic outlook on Wednesday, claiming that further escalation will be “very damaging for the world economy”.

Gary Hufbauer, Peterson Institute for International Economics Senior Fellow and Trade Expert, added: “My expectation is that US tariffs on $250bn of imports from China will be in effect about a month prior to the November US elections. That’s soon enough for Trump to use it as a rallying argument, but late enough so that adverse effects will not occur before January 2019. Of course, China will retaliate, probably dollar for dollar.”

China continues to show remarkable resilience for now. Its exports grew faster than many had predicted last month as demand both domestically and internationally remained strong. Imports also soared in July. This may suggest that China can battle it out for the long haul, even as rising trade and worsening tensions cloud the economic outlook.

China also updated its list of tariffs on Wednesday, adding in a raft of new items. There will soon be levies on items such as cars, buses, medical appliances and coal. The United States has done likewise, as it will collect duties on motorcycles, steam turbines and 277 other product lines starting 23 August.

The move to slap levies on semiconductors has been controversial, however, as John Neuffer, CEO and President of the Semiconductor Industry Association, believes that the tariffs will “hurt” chipmakers in the US while not having any impact on China and do nothing to change detrimental trade practices. 

A research note from Oxford Economics has estimated the damage of the US-China trade conflict. It claims that global output will decline by 0.7% by the end of the decade, while China and the US will take a 1.3% and 1% hit to their economies respectively. It did say that “damaging stagflation” is unlikely to occur but a bigger blow-up is possible depending on the scale of the war.

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