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Trump's China tariffs risk backfiring on U.S. business

30 March 2018

Capital Economics found for the typical Chinese product sold in the U.S., the cost of importing it accounts for just under half the retail price, therefore a 25 per cent tariff would drive prices up by around 12 per cent.

U.S. President Donald Trump's plan to slap tariffs on many Chinese products could hit the big-name American technology companies that have built their businesses on Chinese manufacturing. Beijing first wants to impose a 15 percent tariff on American steel pipes, fruit and on wine imports, to a total value of $977 million, before introducing a 25 percent tariff on pork and recycled aluminum imports, worth $1.99 billion.

The inevitable fall in demand from a full-blown trade war would spell trouble for all the economies supplying the United States and China.

"If a trade war were initiated by the US, China would fight to the end to defend its own legitimate interests with all necessary measures".

"Many other countries are now negotiating fair trade deals with us", Trump said on March 23.

Avoid fake news! Subscribe to the Standard SMS service and receive factual, verified breaking news as it happens. The package could be applied to more than 100 products, which Trump says were developed using trade secrets that China stole from US companies or forced them to hand over in exchange for access to its massive market.

Trump's China tariffs risk backfiring on U.S. business
Trump's China tariffs risk backfiring on U.S. business

Several steel companies are now trading lower than they were before Mr. Trump announced the tariffs, after getting an initial lift from the news.

He believed the only effective tool in China's arsenal would be to restrict market access to USA goods.

Chinese Foreign Ministry spokeswoman Hua Chunying said, according to wire reports. The day after Trump's proposals, China's Ministry of Commerce announced on March 23 that it would impose about $3 billion worth of tariffs on USA imported goods.

China's retaliation against the USA tariffs on steel and aluminium appeared restrained.

"It's not clear what the Trump administration's bottom line is", said Scott Kennedy, the head of China studies at the Center for Strategic and International Studies in Washington.

Starting a trade war, however, is another matter entirely. "Coming back to the negotiation table is a relatively good result", Wang said. "We haven't had much [consultation] recently".

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But fundamental changes such as joint venture requirements that often can not be negotiated without technology transfers and industrial policies aimed at acquiring and investing in more USA technology firms will not come without significant protracted pressure on China - and economic pain for the United States.

Lighthizer indicated the industries could include aerospace, maritime and rail transport equipment, and new energy vehicles.

Mr Trump has also asked his administration, led by Treasury, to examine Chinese investment aimed at obtaining USA technology.

China also intends to seek legal action against the the World Trade Organization.

The senior USA official said Washington was "very optimistic" that allies such as Europe, Japan and Australia would join its WTO case. The USTR official would not provide any details on how substantial these tariffs would be or when they would be rolled out but said that the USTR has strong evidence that China has engaged in practices that are "deeply concerning to the administration", and it "raises very severe questions about China and its commitment to these type of market-oriented practices they have offered to engage in for so many years".

On a separate trade front, Mr Trump authorised the suspension of controversial tariffs on steel and aluminum imports from key trade partners, including Britain, the White House said.

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Gareth Stace, a director with the trade association UK Steel, said the temporary exemption from tariffs would be "greeted with an enormous sigh of relief" by the UK's steel sector.

- Pain for U.S. consumers?

USA agricultural exports to China stood at $19.6 billion previous year, with soybean shipments accounting for $12.4 billion.

A former Chinese finance minister said at the China Development Forum in Beijing that the commerce ministry's response so far had been relatively weak.

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Trump's China tariffs risk backfiring on U.S. business