A long-threatened trade war between the US and China has got
under way after the world’s two largest economies imposed tariffs on each other.
The US implemented tariffs on $34bn in Chinese goods, to which Beijing responded
with levies on a similar quantity of US imports.
Minutes after the US tariffs went into effect at 12.01am on Friday
US time, a spokesperson for China’s ministry of commerce said, “China promised not
to fire the first shot, but in order to safeguard the country’s core interests as
well as that of the people, it is forced to fight back,” according to Xinhua. The
ministry stopped short of saying China had implemented its retaliatory duties.
Later on Friday, a spokesman for the ministry of foreign affairs
said after the US tariffs kicked in, Chinese tariffs on US goods had immediately
gone into effect.
Ahead of the tariffs, Chinese state media published a series
of editorials criticising the US and emphasising the country’s readiness for a trade war. Chinese
companies and investors girded for the worst, while economists cautioned any impact
on the economy would be minimal.
“If what the US wants is to escalate a trade war with China,
then so be it. A little fighting may be the only way the Trump administration clears
its mind and allows everyone to sober up,” the state-run Global Times said on Friday.
China’s central banker said Trump’s promised tariffs of 25% on
$50bn of Chinese goods – Friday’s $34bn to be followed by $16bn in a few weeks –
would shave 0.2 percentage points off of China’s GDP and the “overall impact would
be limited,” according to Xinhua.
Still, Chinese investors and companies were worried. The Shanghai
Composite index was down 1.1%, after reaching more than a two-year low this week
before rallying after the tariff deadline passed. Chinese manufacturers have already
been hit by a strengthening yuan that has made exports more expensive.
“One of the biggest competitive
advantages of Chinese exports is their low price. After tariffs are imposed, prices
for Chinese made goods will rise and we’ll lose our comparative advantage,” said
a representative for Sanhua Micro-Channel, which makes
components for air conditioners in China’s eastern Zhejiang province.
The company said it had already moved some production to the
US and Mexico and would likely move more. Others say they are turning their focus
to Chinese consumers.
“China is a big market for us. If we can seize our own market,
we will be less affected by the trade war,” said a spokesperson for Topsun, a furniture manufacturer in Zhejiang province.
Chinese tariffs on US agricultural products will also affect
Chinese importers. Lu, who runs a shop at a fruit retail centre
in central Beijing, said the prices of imported US fruit – subject to tariffs of
as much as 50% – are certain to rise.
Still, he understands the US perspective. “Americans want to
earn more money so they started a trade war. I can understand that. Who doesn’t
want to earn more money?” he said.
Chinese media reported a container ship carrying 70,000 tons
of US soybeans was racing to reach the port of Dalian on Friday before retaliatory
tariffs were implemented. Some Chinese ports have stopped clearing US goods while
waiting for official guidance, according to Reuters.
Trump has threatened to raise tariffs if China retaliates to
roughly the value of total Chinese exports to the US last year of $506bn. He told
reporters aboard Air Force One on Thursday, “You have another 16 (billion dollars)
in two weeks, and then, as you know, we have $200bn in abeyance and then after the
$200bn, we have $300bn in abeyance. Ok? So we have 50 plus 200 plus almost 300.”
Analysts say tariffs are not the most effective way of putting
pressure on China, which the US accuses of unfair trade practices and stealing intellectual
property from US companies.
Syracuse University economics professor Mary Lovely and researcher
Yang Liang found 87% of electronics products to be levied by US tariffs came from
multinationals and joint ventures rather than Chinese firms.
China’s economy is no longer as dependent on exports. Domestic
consumption now accounts for more than half of the country’s GDP. Exports to the
US account for only 19% of all of China’s exports.
“The reciprocal tariffs on US$50bn of goods in both directions
will have minimal impact in China,” Andy Rothman, an investment strategist at Matthews
Asia, wrote in a blog
this week. China’s tariffs on major US exports like soybeans, sorghum, and autos,
target Republican areas ahead of US midterm elections. “The impact on the US political
environment is, however, likely to be far greater,” he said.
One area that will be hurt by US tariffs is China’s high tech
industries, in things like new energy vehicles, robotics and other forms of smart
manufacturing, that form the country’s “Made in China 2025”
industrial plan.
Cheng Dawei, a professor of international
trade at Renmin University in Beijing, says these industries
are still in their early stages and need inputs from global supply chains.
“In the short run, China will be affected badly... But the tariffs
will bring double-lose results. China is never the only side to suffer,” she said.
“Imposing high tariffs definitely hurts China badly, but we will not be beaten down.”