Tag Archives: Tariff

Here It Comes: China About To Launch “Tens Of Billions” More In Tariffs

This morning the market has been on edge over, and traders are obsessed with just one question: how will China retaliate to Trump’s trade war and tariffs… further. After all, the initial response of a modest 15-25% tariff on $3 billion in 128, mostly agricultural, products, seemed laughably small and appeared to be more of a warning shot than a real response to Trump’s $50BN in Section 301 tariffs.

One answer was revealed moments ago when as we reported that China’s ambassador to the US Cui Tiankai did not rule out the possibility of scaling back purchases of Treasuries in response to Trump’s tariffs.

“We are looking at all options,” he said, when asked whether China would consider reduced purchases of Treasuries. “That’s why we believe any unilateral and protectionist move would hurt everybody, including the United States itself. It would certainly hurt the daily life of American middle-class people, and the American companies, and the financial markets.”

But the more likely reaction is that China will simply escalate with a “brute force” tit-for-tat retaliation, and as Citi notes, the editor-in-chief of the state-controlled Chinese newspaper Global Times, Hu Xijin, confirmed precisely that when he tweeted: “I learned that Chinese govt is determined to strike back.”

More importantly, he explained the confusion over the “disproportionate” $3 billion response, noting that Friday’s plan to impose $3b tariffs is simply to retaliate to tariffs on steel and aluminum products, i.e. a response to the previous, Section 232 round of tariffs, and has nothing to do with the latest round of $50 billion in Section 301 tariffs.

Instead, Hu warns that “China’s retaliation lists against the 301 investigation will target US products worth $ tens of billions. It is in the making.

Or, in other words, China’s real retaliation – one which is guaranteed to infuriate Trump with its proportionality and lead to further tit-for-tat responses – is about to hit.

As a reminder, here is a list of the main US exports to China, which – if this warning is accurate – are about to be crushed.

https://www.zerohedge.com/sites/default/files/inline-images/us%20major%20exports%20to%20china_0.jpg?itok=2jHng-ln

Source: ZeroHedge

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Why China’s Soybean Tariff Changed Everything

“There simply aren’t enough soybeans in the world outside of the U.S. to meet China’s needs.”

 

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Here Is The Full List Of 106 US Exports That China Is Targeting


China has just launched a vendetta on the US auto sector, and isn’t too happy with Boeing either…

 

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All-Out Trade War: China Strikes Back With 25% Tariffs On $50BN Of US Imports

China has hit back at the Trump administration’s plan to slap tariffs on $50 billion in Chinese goods, retaliating with a list of similar duties on key U.S. imports including soybeans, planes, cars, whiskey and chemicals. Beijing’s list of 25% additional tariffs on U.S. goods covers 106 items with a trade value that is also $50 billion.

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Trade War Round 2: US Releases China Tariff List Targeting 1,300 Products

“Stuff that you put on your body: spared. Stuff you put in your home: targeted.”

 

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China Vows Retaliation With “Same Scale, Intensity” To Any New US Tariffs

China will retaliate to any new US tariffs against alleged violations of intellectual property rights with “the same proportion, scale and intensity”, its U.S. ambassador Cui Tiankai vowed on state TV overnight.

Where Prices Are About To Surge: Chinese Imports Targeted By Trump Tariffs

Yesterday, in “Here Comes The Main Event: Trade War With China, And What Is Section 301“, we wrote that Trump’s recently announced global steel and aluminum tariffs were just a (Section 232) preview of the (Section 301) main course: Trump’s imminent trade war with China, which will be unveiled any moment in the form of tariffs and restrictions on trade with China, reportedly in retaliation for Chinese IP violations.

Today, Goldman’s chief political economist Alec Philips, picks up on this and confirms that he too expects “the Trump Administration to announce tariffs on imports from China in coming weeks, as part of an intellectual property-related investigation that could also include restrictions on Chinese corporate investment in the US and restrictions on the export of intellectual property to China.”

Conveniently, we already know in rough terms what this escalation will look like: in a preview of his trade war with China, Trump in January said in a Reuters interview that “we have a very big intellectual property potential fine going, which is going to come out soon,” and more recently announced that the “U.S. is acting swiftly on Intellectual Property theft” after a series of tweets on trade policy. 

And while the White House has not provided its own estimate of the cost of IP infringement, a frequently cited estimate from the Commission on the Theft of American Intellectual Property puts the annual cost to the US economy at $225bn overall. The US International Trade Commission (US ITC) placed the cost of lost sales, royalties, and licensing fees due to infringement by Chinese companies at $48bn in 2009 (or over $60bn in 2017, if held constant as a share of world GDP).

As we explained yesterday, and as Goldman reiterates, in 2017, US imports from China totaled around $500bn, so tariffs equal to the low end of the range of estimated economic damages from IP-related policies would require a 12% tariff on all imports from China, or a much higher rate on a narrower segment.

https://www.zerohedge.com/sites/default/files/inline-images/trump%20trade%20specific.jpg

This is confirmed by recent reports by Politico and Reuters suggesting that the categories of imports targeted could total $30bn to $60bn. This suggests that the Trump Administration might be leaning toward high tariff rates on a narrow segment of imports.

But which Chinese imports will be targeted: that is a critical question as the resulting tariffs will send prices of the products surging, with significant downstream consequences for both US producers and consumers, as well as corporate margins.

Ultimately, the decision which factors to consider will depend in part on who is advising the President on trade policy. Goldman here expects that USTR Robert Lighthizer will take the lead in developing the list, with input from White House trade adviser Peter Navarro and, ultimately, the President himself. The Treasury will play a larger role in determining the investment restrictions.

With that in mind, in attempting to answer what goods might be targeted when/if Trump decides to follow through with Chinese import tariffs, Goldman has looked at imports from China in 57 categories. The answer is shown in the table below.

https://www.zerohedge.com/sites/default/files/inline-images/china%20import%20sectors.jpg?itok=ttREXfT0Click graph for larger view

Commenting on the ranking above, Goldman first separates categories in which the US runs a bilateral trade surplus, as it seems unlikely that the Administration would impose tariffs here. These categories are shown at the bottom of the table. From there, industries are ranked using a weighted average z-score across the five criteria shown:

  1. the US-China bilateral trade balance,
  2. the US-China tariff differential,
  3. the share of imports that go to final use (generally consumption or investment) rather than use as intermediate inputs into other industries,
  4. imports from China as a share of total domestic intermediate and final demand,
  5. and whether the category was highlighted as a priority in the Made in China 2025 report.

Power tools and electrical appliances top the list, based on a substantial bilateral trade deficit, higher tariffs applied in China versus the US, and high share of imports going to final (in this case, consumer) use.

Sporting goods, toys, jewelry, and consumer electronics like TVs rank highly, for the same general reasons. However, in most of these categories, imports from China constitute a large share of total domestic sales of these products.

This is not true in the next set of product categories, ranging from aeronautical and marine navigation equipment , rail equipment and ships to furniture and household appliances, where Chinese imports represent a small share of total domestic sales, in some cases because domestic production still exists.

By contrast, the White House seems very unlikely to apply tariffs in categories where the US enjoys a trade surplus, such as aircraft, soybeans and other agricultural exports.

Of course, these will be the first categories Chinese policymakers consider when they impose retaliatory tariffs against the US, which should happen just days after Trump launches the China trade war.

Source: ZeroHedge