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US china trade war escalates. Should we worry

US china trade war escalates. Should we worry

14th May’19 witnessed fuel to the fire with the Chinese imposing $60 billion tariffs on 5,140 US goods. The tariff rate ranged from a minimum of 5% to a maximum of 25%. This was done in retaliation to the $200 billion worth of Chinese goods being tariffed with a 25% increase. Mr Trump further ordered to impose new duties on another $300 billion worth of Chinese items. The tariffs being imposed were not an impromptu decision but the result of failed negotiations.

The beginning

In 2016, Mr Donald Trump while campaigning for the White House promised to rectify the trade deficit with China. He outlined strategies in order to counter unfair trade practices from China by applying tariffs.

After becoming president, in March, he signed two executive orders. Out of which one was for strict tariff implementation in anti-subsidy and anti-dumping trade cases. The other one was for analysis of US trade deficits and their causes.

 

A 100-day Plan

On 7th April 2017, Mr Trump held a bilateral meeting with China’s President Xi Jinping at Trump’s Mar-a-Lago estate in Florida, US. In this meeting, both of them agreed to a new 100-day plan for trade talks. This step was taken in order to boost US exports and reduce the US trade deficit with China.Though the terms were bilateral they failed execution with both nations failing to hold their end of the bargain.

 

Section 301

This was followed by Mr Trump’s allegations on China. On Aug 18, the United States Trade Representative (USTR) initiated investigating the Chinese government. The US president probed China against Section 301 of the Trade Act of 1974. Section 301 allows the president to unilaterally impose tariffs or other trade restrictions to protect U.S. industries from ‘unfair trade practices’ by foreign countries.

 

Trade war

In Jan 2018, President Trump levied high tariffs on imports of washing machines and solar energy cells and panels.This step was undertaken to enhance domestic manufacturing in the States.

Further, he imposed a 25% tariff on imports of steel and a 10% tariff on aluminium, in March 2018. To strike back, the Chinese government put tariffs of 25% on imports of 128 American-made products.

 

In June 2018, President Trump declared a 25% tariff on up to $50 billion of Chinese goods. In response to this, China quickly publicized its intentions to put tariffs on U.S. goods of the same scale and the same strength.

 

The United States levied tariffs of 23% on $34 billion worth of Chinese imports on 6th July 2018. Furthermore, they announced 5% tariffs on an additional $16 billion goods. In a quick response to U.S. tariffs, China announced its own duties on American products including the politically sensitive areas of agriculture products and automobiles, electric vehicles, a range of hybrid electric vehicles, a variety of seafood and pork.

 

In July 2018, deepening the dispute with China, the US assessed 10% tariffs on a further $200 billion of Chinese products from fish to luggage.

 

However, in September 2018, USTR released a list of good. These goods were Chinese imports approximately $200 billion worth which was subjected to additional tariffs. These additional tariffs came into effect from 24th September 2018 with an initial amount of 10%. They further decided to increase the level of the additional tariffs to 25% from 1st January.

 

In order to retaliate against USTR’s latest announcement, China levied 25% tariff on $16 billion worth of U.S. goods. The products included were large passenger cars and motorcycles, various fuels as well as fibre optical cables, coal, grease, vaseline, asphalt, plastic products, and recyclables.

 

A 90-day truce

However, in December 2018, China and the US agreed for a 90-day halt to new tariffs. Both nations unanimously decided to engage in new trade negotiations in order to reach an agreement within 90 days. China committed to buy a very substantial but unspecified amount of American exports. While Mr Trump agreed not to raise tariffs on $200 billion of Chinese goods to 25% on January 1st which was announced previously. Both nations agreed to raise 10% tariffs to 25% if no deal was reached within 90 days. Meanwhile, negotiations between the two countries continued.1st March 2019 was the due date for the U.S. and China to reach a trade agreement. Mr Trump extended the deadline on an open-ended basis in February 2019.

 

Trade war 2.0

However, this war escalated further in May 2019 after a crucial round of trade talks failed to reach an agreement.

On 8th May 2019, the US announced a rise in tariffs from 25% to 10% on $200 billion of Chinese imports.

The increases went ahead on 10th May 2019 even when talks between the US and Chinese negotiators were going on. This was followed by China’s announcement. China imposed tariffs on a total of 5,140 US products including batteries, spinach, and coffee which will come under effect from 1st June 2019.

Both China and the US will be meeting at the next G20 summit which will be taking place in Japan on 28th and 29th June. There are hopes of fruitful outcome from that meeting.

 

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